Economics Pre-finals

In a perfectly competitive market in which no market failure occurs and no government policy interferes with the equilibrium price and quantity, A) consumer surplus is maximized. B) producer surplus is maximized. C) deadweight loss is maximized. D) All of the above. E) A and B only.

A and B only. consumer surplus and producer surplus is maximized.

Which of the following statements is true? A. The firm has some control over the price B. As the firm increases production, it must decrease price C. The firm has a partial monopoly in its market D. all of the above E. none of the above

All of the above

Why is a monopolist likely to produce a lower quantity than the one who would minimize costs? A. Because restricting quantity drives up costs B. Because monopolists have to cut price as they increase quantity C. Because the monopolist profit maximizing level of output is likely to be lower than the cost minimizing level D. All of the above

All of the above

Suppose a competitive market is in equilibrium at price P' and quantity Q'. If the demand curve becomes less elastic, but the same price-quantity equilibrium is maintained, what happens to consumer and producer surplus? A) Both PS and CS increase B) CS increases and PS decreases C) CS increases and PS remains the same D) Both CS and PS decrease

CS increases and PS remains the same

In Nash equilibrium a. The firm that moves first always has an advantage. b. Each firm does the best it can given what the other firms are doing c. Each firm makes the monopoly level of profit. d. The firms cooperate with each other and earn higher profits than they would if they did not cooperate.

Each firm does the best it can given what the other firms are doing

By adhering to the MC=MR, a monopolist will guarantee himself a. Either maximum profits or minimum losses b. Large profits c. Normal profits d. No losses e. All of the above

Either maximum profits or minimum losses

Consider the following statements when answering this question I. Overall, the sick will always gain from a price ceiling on prescription drugs. II. The reduction of supply caused by the imposition of a price ceiling is greater the more inelastic the market supply curve. A) I and II are true. B) I is true, and II is false. C) I is false, and II is true. D) I and II are false.

I and II are false. I. Overall, the sick will always gain from a price ceiling on prescription drugs. II. The reduction of supply caused by the imposition of a price ceiling is greater the more inelastic the market supply curve. A) I and II are true.

Use the following statements to answer this question: I. When the market price is held above the competitive price level, it is possible for the loss in consumer surplus to be fully captured by producers. II. When the market price is held above the competitive level, there is no deadweight loss because producer gains exactly equal consumer losses. A) I and II are true. B) I is true and II is false. C) II is true and I is false. D) I and II are false.

I and II are false. I. When the market price is held above the competitive price level, it is possible for the loss in consumer surplus to be fully captured by producers. II. When the market price is held above the competitive level, there is no deadweight loss because producer gains exactly equal consumer losses.

Which of the following correctly describes how a firm's monopoly power would decrease? A) If other firms are reluctant to raise their price, the firm's demand will become more inelastic. B) If the market demand curve becomes more elastic, the firm's demand curve will become more elastic. C) If the number of firms increases, the firm's demand will become more inelastic. D) If the production process includes more fixed inputs, the firm's demand will become more elastic. E) If the cost of production increases, the firm's demand will become more elastic.

If the market demand curve becomes more elastic, the firm's demand curve will become more elastic.

Which of the following agricultural programs will result in the smallest deadweight loss assuming farmers receive the same level of benefit in each case? A) Instituting an acreage limitation program by paying farmers to take land out of production B) Paying money to farmers directly C) Instituting a price support program with the government purchasing any surplus of the good D) All of the above have the same effect on deadweight loss because farmers receive the same benefit in each case.

Paying money to farmers directly

The welfare of both individuals can be increased if allocation can be redistributed so that: a. Pedro receives more rice and less pork. b. Juan receives more rice and more pork. c. Pedro receives less rice and more pork. d. both a and b e. both a and c

Pedro receives more rice and less pork.

Which of the following is NOT true about price floors? A) Consumer surplus is always lower than it would be in the competitive equilibrium. B) Producer surplus could be lower, higher, or the same as it would be in competitive equilibrium. C) Producer surplus could be negative as the result of a price floor. D) Producers will often respond to a price floor by cutting production to the point at which price equals marginal cost. E) The total producer surplus depends on how producers respond to the price floor in determining their output level.

Producer surplus could be lower, higher, or the same as it would be in competitive equilibrium.

What is the welfare impact of a tax on output policy? A) Producer surplus increases, consumer surplus declines, and total welfare declines. B) Producer and consumer surplus increase, and these gains are larger than the government cost. C) Producer and consumer surplus increase, and these gains are smaller than the government cost. D) Producer surplus increases, consumer surplus declines, and total welfare increases due to the subsidy program. E) None of the above

Producer surplus increases, consumer surplus declines, and total welfare declines.

When the monopolist increases prices... A. The deadweight loss decreases B. The deadweight loss increases C. The consumer surplus remains constant D. The consumer surplus increases E. None of the above

The deadweight loss increases

Suppose the market supply curve is upward sloping and market demand is perfectly inelastic. If the market price is held above the equilibrium level, which of the following statements about the resulting outcome is not true? A) The decrease in consumer surplus is fully captured by the producers. B) There will be an excess quantity supplied. C) Quantity demanded will remain the same. D) Quantity demanded will decline.

The decrease in consumer surplus is fully captured by the producers. Quantity demanded will remain the same.

Suppose a small group of manufacturers in the auto parts industry currently enjoy considerable monopoly power. How would you expect monopoly power in this industry to change in the long run? A) The demand curve facing each firm will become more elastic as the number of firms in the industry increases. Thus, monopoly power will increase over time. B) The demand curve facing each firm will become more inelastic as the number of firms in the industry decreases. Thus, monopoly power will increase over time. C) The market demand curve will become more elastic as the number of firms in the industry increases. Thus, monopoly power will diminish over time. D) The market demand curve will become more inelastic as the number of firms in the industry decreases. Thus, monopoly power will increase over time. E) The demand curve facing each firm will become more elastic as the number of firms in the industry increases. Thus, monopoly power will diminish over time

The demand curve facing each firm will become more elastic as the number of firms in the industry increases. Thus, monopoly power will diminish over time

Under a binding price ceiling, what does the change in producer surplus represent? A) The gain in surplus for those sellers who are still willing to supply the product at the lower price. B) The loss in surplus associated with those units that used to be produced at the higher price but are no longer produced at the lower price. C) The gain in surplus associated with the excess demand created by the price ceiling policy. D) Both A and B are correct. E) Both A and C are correct.

The loss in surplus associated with those units that used to be produced at the higher price but are no longer produced at the lower price.

In which of the following labor markets is there likely to be substantial monopsony power? A) The market for university professors. B) The market for coal miners in a small mountain town. C) The market for website developers. D) The market for counter help in fast-food restaurants.

The market for coal miners in a small mountain town.

Under which of the following conditions is an economy Pareto efficient? a. When resources and income are distributed in a way that maximizes the economic welfare of the economy. b. When any change in the allocation of resources that makes anyone better off will make someone else worse off. c. When individuals agree on fundamental ethical judgments that they are entitled to the pursuit of happiness. d. When no economist can detect inefficiency in the economy.

When any change in the allocation of resources that makes anyone better off will make someone else worse off.

10. When is an oligopoly likely to contain a price leader? a. When one firm controls enough of the market and commands enough buyer loyalty to sell what other firms cannot sell b. When firms of similar size and power band together to maximize industry wide behavior c. When prices are changing rapidly and a leader is needed to stabilize the market d. When budgets can no longer be passed along to consumers as higher prices e. None of the above

When one firm controls enough of the market and commands enough buyer loyalty to sell what other firms cannot sell

A situation in which the unregulated competitive market outcome is inefficient because prices fail to provide proper signals to buyers and sellers is known as: A) an imperfectly competitive market. B) a market failure. C) a deadweight loss. D) a disequilibrium.

a market failure.

If a point is off the contract curve, we can find a. a point on the contract curve that is better. b. no point on the contract curve is better. c. a point on the contract curve that is better if and only if the contract curve is a straight line. d. a point on the contract curve that is better if and only if the contract curve goes through the point of origin. e. none of the above

a point on the contract curve that is better.

A new allocation which transfers more rice and more pork to Pedro will be efficient if: a. the new allocation is within the contract curve. b. the MRSrp of both consumers are equal in this new allocation. c. Juan does not resist, and Pedro welcomes such an allocation. d. any of the above e. none of the above

any of the above

The rate of product transformation of X and Y (RPTyx) refers to a. the absolute value of the slope of the production possibilities frontier. b. the marginal cost of producing X in terms of a sacrificed Y, or MCx/MCy. c. the opportunity cost of X in terms of Y. d. any of the above e. none of the above

any of the above

The Pareto optimal conditions for optimum welfare a. depend on the interpersonal comparisons of utility. b. help to determine optimal distribution of income. c. are silent concerning the optimal distribution of goods. d. all of the above e. none of the above

are silent concerning the optimal distribution of goods.

Increasing returns to scale is identified by a. average cost decreasing as quantity decreases. b. average cost increasing as quantity increases. c. average cost decreasing as quantity increases. d. average cost equal to zero. e. the prices of the factors of production.

average cost decreasing as quantity increases.

Marginal cost is the a. rate of change in total fixed cost that results from producing one more unit of output. b. change in total cost that results from producing one more unit of output. * c. change in average variable cost that results from producing one more unit of output. d. change in average total cost that results from producing one more unit of output.

change in total cost that results from producing one more unit of output.

A Pareto optimal allocation of resources a. cannot be achieved under a planned system. b. is automatically achieved in a market system. c. is never achieved in reality. d. could be achieved if prices conveyed information about relative scarcities. e. none of the above

could be achieved if prices conveyed information about relative scarcities.

A necessary condition for a (third degree) price discrimination is: a. identical tastes among buyers b. differences in price elasticities among buyers c. a single, homogeneous market d. two or more markets with no economic restrictions between them e. all of these

differences in price elasticities among buyers

An increase in the price of labor causes a decrease in the supply of the product because a. each firm is going out of business. b. barriers to entry exist in the market. c. each firm produces less at profit maximization. d. each firm produces more at profit maximization.

each firm produces less at profit maximization.

A central assumption in the theory of monopolistic competition is that: a. demand curves will be the same for the others in the group. b. each firm's product is a fairly close, though not a perfect, substitute for the others in the group. c. there are just a few firms in the group. d. each firm expects its actions to influence those of its rivals. e. none of the above

each firm's product is a fairly close, though not a perfect, substitute for the others in the group.

A Nash equilibrium occurs when a. each player (firm) is doing the best it can given the opponent's actions b. each firm chooses the strategy that maximizes his minimum gain c. a player can choose a strategy that is optimal regardless of the rival's actions d. there is no dominant player e. none of the above

each player (firm) is doing the best it can given the opponent's actions

What are the characteristics of oligopolistic markets? a. many firms, unrestricted entry, and differentiated products b. many firms, restricted entry and differentiated or undifferentiated products c. few firms, unrestricted entry, undifferentiated products d. few firms, unrestricted entry and differentiated or undifferentiated products

few firms, unrestricted entry and differentiated or undifferentiated products

Assume that a profit maximizing monopolist is producing a quantity such that marginal revenue exceeds marginal cost. We can conclude that the A) firm is maximizing profit. B) firm's output is smaller than the profit maximizing quantity. C) firm's output is larger than the profit maximizing quantity. D) firm's output does not maximize profit, but we cannot conclude whether the output is too large or too small.

firm's output is smaller than the profit maximizing quantity.

When the price of the firm's good increases and wage remains the same, profit maximization will lead to a. lower output. b. higher output. c. indeterminate output. d. no change in output. e. None of the above

higher output.

Compared to the equilibrium price and quantity sold in a competitive market, a monopolist will charge a ________ price and sell a ________ quantity. A) higher; larger B) lower; larger C) higher; smaller D) lower; smaller E) none of these

higher; smaller

An oligopolist with the least average cost will be a price leader because a. it controls a large share of the market. b. it can charge a lower price compared to the other firms. c. its rivals have the same demand curve. d. all of the above e. none of the above

it can charge a lower price compared to the other firms.

Having seen the quantity of drugs supplied by pharmaceutical companies in a competitive market, a government decides to force companies to sell exactly the same quantity of drugs at prevailing market prices. The government then forbids additional drug sales and allows doctors to prescribe the drugs at no cost to patients in need. This government scheme is: A) efficient as the quantity of drugs traded is the same as under a free market. B) efficient as the price of drugs paid by the government is the same as under a free market. C) efficient as consumer surplus is maximized. D) likely to be inefficient as doctors are unlikely to prescribe drugs to the consumers who are willing to pay the most for the drugs. E) likely to be inefficient as drug producers have a captive buyer.

likely to be inefficient as doctors are unlikely to prescribe drugs to the consumers who are willing to pay the most for the drugs.

If the government wants to set a price ceiling that maximizes the monopolist's output, what price should it set? The government should set a price where A) marginal cost equals demand. B) marginal cost equals average cost. C) demand equals average cost. D) marginal revenue equals marginal cost. E) marginal revenue equals supply.

marginal cost equals demand.

For a purely competitive seller, price equals: a. average revenue. b. marginal revenue. c. total revenue divided by output. d. all of the above.

marginal revenue

Why will a monopolist's output increase if the government forces it to lower its price? Monopoly output increases with a binding or effective price ceiling because A) marginal revenue will fall to zero for all quantities lower than the quantity demanded. B) marginal revenue will equal the price ceiling for all quantities lower than the quantity demanded. C) marginal cost will equal average cost for all quantities higher than the quantity demanded. D) marginal cost will equal the price ceiling for all quantities lower than the quantity demanded. E) marginal revenue will equal the price ceiling for all quantities higher than the quantity demanded.

marginal revenue will equal the price ceiling for all quantities lower than the quantity demanded.

Diseconomies of scale a. pertain to the long run. b. pertain to the short run. c. are synonymous with diminishing returns. d. are synonymous with increasing returns.

pertain to the long run

A monopolist differs from a purely competitive firm because a. competitive firms equate marginal revenue with marginal cost to maximize profits. b. longrun average cost is above the price for the competitive firms. c. price is above the marginal revenue under a monopoly. d. all of the above e. none of the above

price is above the marginal revenue under a monopoly.

Which of the following is not characteristic of pure competition? a. price strategies by firms b. a standardized product c. no barriers to entry d. a larger number of sellers

price strategies by firms

When the market price is held above the competitive level, the deadweight loss is composed of: A) producer surplus losses associated with units that used to be traded on the market but are no longer exchanged. B) consumer surplus losses associated with units that used to be traded on the market but are no longer exchanged. C) producer and consumer surplus losses associated with units that used to be traded on the market but are no longer exchanged. D) There is no deadweight loss if the government uses a price floor policy to increase the price.

producer and consumer surplus losses associated with units that used to be traded on the market but are no longer exchanged.

If a monopolist's marginal revenue is P3.00 and its marginal cost is P4.50, it will increase its profits by: a. reducing output and raising price. b. reducing both output and price. c. increasing both price and output. d. raising price while keeping output unchanged.

reducing output and raising price.

A Pareto optimal allocation of resources is one where a. nobody can benefit from a redistribution of resources. b. resources cannot be transferred from one use top another without causing a reduction in somebody's welfare. c. resources cannot be transferred from one use top another without causing a reduction in society's welfare. d. all of the above e. none of the above

resources cannot be transferred from one use top another without causing a reduction in somebody's welfare.

Externalities in consumption suggest a. decreasing marginal utility of consumption. b. increasing marginal utility of consumption. c. that the level of consumption of a consumer depends upon the consumption levels of others. d. that the level of utility of a consumer depends upon the consumption levels of others. e. none of the above

that the level of utility of a consumer depends upon the consumption levels of others.

Market failure occurs because a. not everyone has heard of the concept of Pareto optimality. b. the distribution of incomes is not equal. c. the market prices do not always reflect the true resource costs. d. all of the above e. none of the above

the market prices do not always reflect the true resource costs.

Mutually beneficial exchange between the two consumers will be achieved as soon as a. their MRS continue to differ. b. they decide not to trade with one another. c. they are confronted with different prices for their goods. d. the two consumers eventually place equal relative values on all products. e. none of the above

the two consumers eventually place equal relative values on all products.