Economics Final Review
All of the following are factors that contribute to a country's comparative advantage except: A. aging population. B. technology. C. natural resources. D. climate.
A
Suppose you and your friends decide to go to the beach during spring break. You need to fly from Kansas City to Miami but only one airline provides the service. This market is best characterized as ___________. A. oligopoly. B. monopoly. C. monopolistic competition. D. perfect competition.
A. oligopoly
Market inefficiencies result from all of the following, except: A. Negative externalities. B. Pecuniary externalities. C. Social benefits or costs. D. Positive externalities.
B
The tragedy of the commons results when ___________. A. common pool resources are underused. B. common pool resources are overused. C. people are excluded from public goods. D. too many public goods are provided.
B
Which of the following is not a source of a country's comparative advantage? A. Education and human capital. B. Quotas. C. Stocks of man minus made resources. D. Relative abundance of labor and capital.
B
Which of the following statements is true regarding pecuniary externalities? A. It leads to wrong equilibrium quantities. B. It affects other people only through market price. C. It is a branch of the negative externality. D. It causes market inefficiencies.
B
Which of the following is a common method used by government to cope with the situation in which production of a good creates an external cost? A. removing property rights B. vouchers C. cap-and-trade D. lottery E. subsidizing production
C
In which of the following scenarios would a country export a good? A. The domestic demand for the good is lower than the domestic supply. B. The world price for the good is below the domestic price. C. The world demand for the good is lower than the domestic demand. D. The domestic price for the good is below the world price.
D if a country's domestic price for a good is below the world price, then the country will become an exporter of that good
Countries that do not have an absolute advantage in the production of a good _________ benefit from trade.
can
one reason economists in general do not favor protectionism is because
it raises prices for consumers and lowers social surplus
which markets face residual demand curves
monopolistically competitive and oligopolistic firms do not have free entry
When a country opens itself to trade and becomes an importer of goods and services, sellers _______ and buyers ______.
sellers lose and buyers win
Externalities are called market failures because they ___________. A. cause markets to overproduce when there is inflation. B. cause markets to produce suboptimal social outcomes. C. raise prices in an unfair manner for the poor. D. raise prices for everyone.
B
Which of the following statements regarding internalizing an externality is true? A. It means companies and individuals consider the internal effects of their actions. B. It results in a market equilibrium that lowers social well-being. C. It means agents account for the full costs and benefits of their actions. D. It is a theme that separates various solutions to the problem of externalities.
C
a mosquito control program in a city is what type of good
a public good
if a country's domestic price for a good is below the world price, then the country will become
an exporter of that good
public goods are ____ in rivalry and _____ in excludability
low and low
when externalities are present, the free market outcome is
not efficient
is the entire burden of the tax always borne by those on whom it is imposed
not necessarily, since the burden of the tax depends on price elasticity
health insurance is what type of good
private good
a price floor reallocates surplus to _______
producers
The Coase Theorem will breakdown when ____________.
-property rights are not clearly defined -there are a large number of agents -transaction costs become high
How are the products sold by a monopolistically competitive firm different from the products sold in a competitive market? Unlike products sold in a competitive market, the products sold in a monopolistically competitive market are ___________. A. differentiated. B. perfect substitutes. C. expensive. D. homogeneous.
A
Which of the following nations will be against free trade? (Check all that apply.) A. A defense-oriented nation. B. A nation that has the comparative advantage. C. A nation who wants to preserve their cultural uniqueness. D. A nation with lax environmental policies.
A and C
In a free market, efficient firms will produce where _________ equals ________________-.
MC equals MR
how to figure out joint PPC
add amount of good that each person can make point of efficient production is where each person specializes in that good
George mentions that Ms. Daisy has planted some lovely new roses in front of her store. This is an example of a
positive externality
Which of the following is a cost associated with government intervention in an economic system? A. Bureaucracies. B. Inequality. C. Externalities. D. Under minus employment.
A
Which of the following is not an example of when the free market fails to generate maximum social surplus? A. Private goods. B Public goods. C. Externalities. D. Common pool resources.
A
Suppose there are four firms in a market and each of them sells differentiated products. If the four firms engage in a price war, then ____________. A. the firm with the lowest price will acquire the entire market. B. each firm's profit will be less than with collusion but not zero. C. the firms with the most similar products will sell more output. D. none of the firms will earn economic profits.
B
Terms of trade is the ____________. A. legal document that trading partners sign. B. time required to produce a good or service that is traded. C. exchange rate of goods for goods. D. benefit received from trade.
C
An example of a monopolistically competitive firm is the __________. A. local water company. B. wheat market. C. patented drug market. D. fast food industry.
D
Which of the following is not likely to be subject to the tragedy of the commons? A. A public area for grazing cattle. B. Coral reefs. C. Donuts brought to the office. D. National defense.
D
the DWL is ________________ the foregone benefit to society of the externality
is equal to
opportunity cost calculation
Opportunity cost of what get = Productivity give up / Productivity get
A linear PPC would show ___ and a PPC that is curved away from the origin would show ____
constant opportunity costs... increasing opportunity costs
a market where there are many firms selling differentiated products
monopolistic competition
Suppose the production of a particular good causes a negative externality. Based on market forces only, how will this impact the production levels for a factory if negative externalities are present?
It will produce the good above the socially efficient level.
radio spectrum is what type of good
common pool resource
protectionism is often justified simply as a counter to
globalization
a market where there are a few firms selling either identical or differentiated products
oligopoly
trading price is determined by
opportunity cost
the factors that contribute most to comparative advantage at the country level are
1. Natural resources 2. Stocks of human-made resources 3. Technology 4. Education, work habits, and experience of the labor force 5. Relative abundance of labor and physical capital 6. Climate
A production possibilities curve (PPC) ___________. A. shows the trade-off between price and quantity of produced goods or services. B. shows the relationship between the maximum production of one good for a given level of production of another good. C. shows the combinations of inputs that can create a specific level of output. D. determines the levels of imports and exports within a country.
B
One reason a country might seek to implement protectionist policies could be to: A. participate in foreign trade and investment. B. increase imports to satisfy domestic demand. C. maintain its culture's uniqueness. D. increase exports.
C
Monopolistically competitive firms earn zero economic profit in the long run as do perfectly competitive firms. Does this mean that total surplus is maximized in a monopolistically competitive market? A. Yes, because production occurs at the minimum average total cost. B. No, because firms increase production to gain market share. C. No, because firms produce where price is greater than marginal cost. D. No, because firms produce where marginal cost equals marginal revenue.
C. firms produce where price is greater than marginal cost
a video on youtube is what type of good
a public good
Given that there are costs involved with government intervention in an economy, governments still choose to intervene in markets to ____________. A. generate black markets. B. decrease deficits. C. address externalities. D. implement taxation. E. increase bureaucracy.
c. address externalities
Lauren mentions that it is extremely windy today. This is an example of
not an externality
How do public goods differ from common pool resources?
public goods are non-rival goods, while common pool resource goods are rival goods
analyzing a PPC that compares production of wrenches to production of pliers the slope of the PPC is 4, the opportunity cost of producing pliers in terms of wrenches is
1/4 or .25
For a linear PPC, opportunity costs are reciprocals. If the slope of Acme Supply's PPC is 5, then the opportunity cost of producing pliers in terms of wrenches is ______.
1/5=.2
Consider the tax burden on consumers and producers of a $1 per-unit tax to be paid by producers when demand is perfectly elastic and supply is perfectly inelastic. The burden of the tax on producers is _____________ percent. (Enter your response as an integer.) The incidence of the tax falls entirely on producers because ____________. A. producers supply an infinite quantity. B. consumers demand the same quantity regardless of price. C. consumers are infinitely price sensitive. D. producers are more price sensitive than consumers.
100, C
If a product has zero external costs, then A. marginal social cost equals marginal private cost. B. marginal social cost is less than marginal private cost. C. marginal social cost is greater than marginal private cost. D. marginal social cost equals zero. E. we need more information to determine the relationship between marginal private cost and marginal social cost.
A
Suppose the university imposed a $10 fee to cover the cost. This would raise the $40,000 necessary but might make many students upset. Which of the following is likely to happen if the decision to clear snow were put up for a university-wide vote? A. A majority-rule vote would induce the university to stop collecting money for snow removal, since 3,000 students would not support the proposed decision. B. A majority-rule vote would induce the university to stop collecting money for snow removal, since all the 4,000 students would not support the proposed decision. C. A majority-rule vote would induce the university to start collecting money for snow removal, since all the 4,000 students would support the proposed decision. D. A majority-rule vote would induce the university to start collecting money for snow removal, since 3,000 students would support the proposed decision.
A
The two most important goals for government policy involve a trade-off between __________ and __________. A. equity; efficiency. B. big government; small government. C. direct regulation; indirect regulation. D. taxation; government spending.
A
To ensure all students are protected from getting the flu this year, your school offers free flu shots. What type of externality exists in this example? A. Positive consumption externality. B. Neutral externality. C. Negative consumption externality. D. Negative production externality. E. Positive production externality.
A
What approach would be the least effective way to deal with free riders? A. Exclude citizens from benefiting from the good or service. B. Appeal to their civic sense of responsibility. C. Offer citizens a favor or a small gift if they agree not to free ride. D. Threaten to expose the free riders to their neighbors.
A
What happens in a monopolistically competitive market when firms exit the market? A. The existing firm's demand curve shifts in and becomes flatter. B. Firms have less market power. C. Consumers become more sensitive to price. D. The existing firm's demand curve shifts out and becomes steeper.
A
Which of the following common features do monopolistically competitive markets and monopolies share? A. Firms face downward-sloping demand curves. B. Barriers restrict new firms from entering. C. Consumers with market power set prices. D. Producers with no market power set their own prices.
A
Which of the following is not one of the common arguments against free trade? A. The quality of goods decreases as inferior goods are imported from lower minus cost countries. B. Upper A company is too weak to withstand competition from other firms and requires government protection to survive. C. Countries with lax environmental policies allow for more pollution than those with strong environmental policies. D. The threat of homogenization to a culture's uniqueness. E. Allowing countries to specialize in the production of only one good may result in the creation of banana republics.
A
National security concerns might cause a nation to: A. maintain a variety of agricultural industries. B. specialize in the production of one good. C. become reliant on its trading partners. D. increase imports of oil.
A a country will invest in steel production and defense technology in a defense-oriented world where national security is an important consideration. They will maintain a variety of agricultural industries to preserve its integrity in times of way
A university administrator proposes the following: the 3,000 students willing to pay $8 must in fact pay $8 each. This raises $24,000. The students willing to pay $30 have to pay only $16 each (for $16,000 more, for a total of $40,000). Using the above information, which of the following consequences is likely to be true if the administrator uses this method of fund-raising? A. The university would not be able to collect $24,000, since the students who were willing to pay $8 would anticipate an even lesser charge. B. The university would not be able to collect $40,000, since the students who were willing to pay $30 would not reveal their true preferences. C. The university would be able to collect $24,000, since the students who were willing to pay $30 would actually end up paying $16. D. The university would be able to collect $40,000, since the students who were willing to pay $30 would reveal their true preferences.
B
Positive externality will occur when _____. A. the marginal social benefit is equal to deadweight loss B. the marginal social benefit is greater than the marginal cost to produce at the market equilibrium C. the marginal social benefit is equal to marginal private benefit D. the marginal social benefit is equal to marginal social cost to produce at the market equilibrium
B
Which of the following statements regarding social enforcement mechanisms is not true? (Check all that apply.) A. Shame, guilt, and the risk that we will be publicly decried are the various forms of it. B. It reduces the net benefit to society. C. It is a private solution to the externality problem that invokes a moral code that one should 'do the right thing'. D. It is enforced by official government regulations and results in a stiff financial penalty if not followed.
B + D
A college campus must decide whether to spend $40,000 to clear sidewalks of snow during the winter. There are 4,000 students. One thousand of these students are willing to pay up to $30 each to walk on a snowless sidewalk. The other 3,000 are willing to pay $8 each. In terms of efficiency, which of the following statements is true? A. The university should pay $40,000 to keep the snow off the sidewalks, since marginal private cost is greater than marginal benefit. B. The university should not pay $40,000 to keep the snow off the sidewalks, since marginal social benefit is greater than marginal social cost. C. The university should pay $40,000 to keep the snow off the sidewalks, since total benefit is greater than total cost. D. The university should not pay $40,000 to keep the snow off the sidewalks, since marginal social cost is greater than marginal private cost.
C
How is a monopolistically competitive market similar to a perfectly competitive market? A. Both have differentiated products with close substitutes. B. Producers with market power set their own prices. C. There are no restrictions on the entry of new firms. D. Both have homogeneous products with no close substitutes.
C
Which of the following best illustrates the tragedy of the commons? A. Buying a Nintendo DS instead of funding the public library. B. Donating to the World Wildlife Fund. C. Overfishing in public waters. D. Sneaking into a concert without paying for a ticket.
C
Which of the following reasons explains why a subsidy creates deadweight loss? A. The additional trade induced by the subsidy allows for consumption by buyers who value the good at below average cost. B. The additional trade induced by the subsidy allows for consumption by buyers who value the good at above marginal cost. C. The additional trade induced by the subsidy allows for consumption by buyers who value the good at below marginal cost. D. The additional trade induced by the subsidy allows for consumption by buyers who value the good at above average cost.
C
Both monopolies and monopolistically competitive firms set marginal revenue equal to marginal cost to maximize profit. Given the same cost curves, would you expect prices to be higher in a monopoly or a monopolistically competitive market? A. Monopoly, because it is a price taker. B. Monopolistically competitive market, because demand is greater. C. Monopoly, because its demand is more inelastic. D. Monopoly, because consumers are more sensitive to price.
C. monopoly, because its demand is more inelastic
A collusive agreement between two firms is likely to break down when ____________. A. it is easy to punish cheaters. B. firms value profits less today than in the future. C. detection of cheaters is difficult. D. the market has little long-term term value.
D
For a market to be characterized as an oligopoly, there must be __________. A. a possibility of positive economic profits in the long run. B. few sellers. C. homogeneous or differentiated products. D. all of the above.
D
The free-rider problem arises when an individual ____________. A. pays for a good only when he or she is in the top quartile of people needing the good. B. pays for a good only when being monitored by the authorities for noncompliance. C. does not pay for a good because that individual is engaging in illegal activity. D. does not pay for a good because nonpayment does not prevent consumption.
D
Which of the following is not an externality? A. Alisha did not sleep well because her neighbor was playing loud music. B. Jose, who is allergic to pollen, is sick from the flowers that grow in his neighbor's garden. C. Rochelle has asthma caused by the pollution of a local factory near her home. D. Jordan has lung cancer from smoking cigarettes.
D
All of the following shift the Production Possibilities Curve outward except: A. increases in worker education. B. changes in productivity growth due to population growth. C. increases in natural resources. D. new competitors in the marketplace.
D in the long run resources are not fixed, so increases in natural resources, changes in productivity due to population growth, changes in technology and increases in worker education shift the PPC outward`
According to the principle of comparative advantage, both parties will engage in a trade if the trading price:
lies between their opportunity costs
a market where a single firm sells a good with no close substitutes
monopoly
Absolute advantage is the ability of an individual, firm, or country to produce:
more of a certain good than other competing producers, given the same number of resources
n an economy, the government sets a price control for a good. The suppliers notice that due to this price control, the consumers buy less of their good causing their inventories to rise. This price control set by the government is known as
price floor (flat line above equilibrium market price)
Which of the following would not be considered a common pool resource good? A. Public pool B. Park bench C. Streetlight D. All of these choices are correct.
C
The Coase Theorem states that ____________.
priva
If the price floor was set above the equilibrium price it would create a _______ in the market
surplus
Who has the comparative advantage?
the person with the lower opportunity cost
when positive externalities are present, free markets produce
too little
tax incidence refers to
who bears the burden of the tax
the effect of subsidies (which also generates DWL)
creates a gap between the price received by sellers and the price paid by buyers
A price ceiling placed below the equilibrium price would result in excess ____. this is known as a
demand, shortage
a price ceiling placed below the equilibrium price would result in excess _____, this is referred to as a _______
demand, shortage
An individual or a firm can internalize an externality by ___________.
paying the cost of the externality
a market where there are many firms selling identical products is
perfect competition
Suppose the government imposes a price control that reduces producer surplus. Determine the type of price control and show it on the graph. The price control set by the government in this situation is a
price ceiling
There is a possibility of forming a black market by the seller, if there is a
price control
If a price floor is set below the free market equilibrium price, then the quantity demanded
remains unaffected its a minimum price, market price is higher so there won't be an increase in demand
europes population fell by 30-60 % following an outbreak of bubonic plague. As a result Europe's PPC would _______
shift inward
why would a domestic price be different than the world price?
- national security concerns (don't want to over-rely on other goods and services) -desire to protect culture against effects of globalizations -environmental and resource concerns -infant industry
if 170 apples are traded for 20 oranges, the terms of trade are
8.5 apples per orange (170/20)
Terms of trade are determined ____________. A. on the basis of absolute advantage. B. by buyers. C. on the basis of opportunity costs. D. by sellers.
C
In the model of an oligopoly with identical (homogeneous) products, the price is likely to be ___________. A. less than minimum average cost. B. equal to variable costs. C. equal to marginal cost. D. greater than marginal revenue.
C. equal to marginal cost
a library's collection of e-books is what type of good
a club good
Jeb mentions that the hog farm down the road from his house is creating a very nasty smell. This is an example of
a negative externality
Ludwig mentions that Frank, the local rancher, is inflating land prices by buying too much land. This is an example of
a pecuniary externality
A price floor placed below the equilibrium price would have _______ effect on the market. If the price floor was set above the equilibrium price it would create a ________ in the market. A price floor reallocates surplus to ________.
have no effect surplus (because artificially high prices) producers
A price floor placed below the equilibrium price would have what effect on the market?
have no effect on
In competitive markets, tax incidence, as well as the equilibrium, is independent of whether the tax is imposed on consumers or sellers because:
if it is imposed on the seller, the seller will raise the price and pass it to the consumer
when there are negative externalities present, free markets produce
too much
________ is maximized when firms produce at equilibrium in a free market.
total surplus
deadweight loss of taxation (graphically)
triangle: base = difference between P1 (producers price) and P2 (price after tax) at Q2 (after tax), point=Q at equilibrium
if two people decide to work together in producing chocolate cake and pizza, to specialize, who will specialize in making what products?
whatever product they have the lower opportunity cost in making is the product that they will specialize in
examples of heterogenous goods oligopolies
wide body jets (Boeing and Airbus) greeting cards (hallmark and american greetings)
when the supply curve is vertical, the deadweight loss of the tax is
zero
