economics test 2-- online questions
In a monopolistically competitive market, a firm earning negative economic profit in the short run will ____________.
shut down only if price is less than AVC
The government runs a budget surplus when ____________.
tax revenue exceeds its spending
answer: greater than; produce more to enhance profits.
The graph on the right illustrates a marginal cost (MC) curve and marginal revenue (MR) curve for a monopolist. If the firm produces at a quantity of 4040 units, then marginal revenue would be ____________ marginal cost, and this firm would ____________.
How does a command-and-control policy differ from a market-based policy?
With a command-and-control policy, the government directly regulates the allocation of resources , while with a market- based policy, the government provides incentives for private organizations to internalize the externality
Consumer sovereignty suggests that ____________.
government should not interfere with consumer choices
the slope of the industry demand curve demonstrates
the realistic assumption that the Law of Demand holds for the good under consideration.
Canada recently discovered large reserves of shale gas left parenthesis shale gas is natural gas that is trapped in fine minus grainedCanada recently discovered large reserves of shale gas (shale gas is natural gas that is trapped in fine−grained sedimentary rock right parenthesis .sedimentary rock). As a result comma Canada's production possibilities curve wouldAs a result, Canada's production possibilities curve would ____________.
shift outward
A production possibilities curve (PPC) ___________.
shows the relationship between the maximum production of one good for a given level of production of another good.
Why is the equilibrium price in this market $50,000?
At this price, three consumers are willing to buy an electric car and three firms are willing to sell an electric car. At this price, the quantity demanded (three cars) equals the quantity supplied (three cars). At $50,000, three consumers have reservation values equal to or above $50,000 and three firms have reservation values equal to or below $50,000.
Is it true that a country needs to have an absolute advantage in the production of a good in order to benefit from trade in that good?
Countries that do not have an absolute advantage in the production of a good can benefit from trade.
Which of the following common features do monopolistically competitive markets and monopolies share?
Firms face downward-sloping demand curves.
Crabby Bob's is a seafood restaurant in a beach resort in Delaware. Crabby Bob's earns a profit each month from May through September, suffers losses in October, November, and April but remains open, and remains closed from December through March. Given that the restaurant market in this town is perfectly competitive, which of the following must be true? (Check all that apply.)
From May through September, Crabby Bob's average revenue is above average total cost. In April, October, and November, Crabby Bob's average revenue is below ATC but is greater than AVC. From December through March, Crabby Bob's average revenue is below average variable cost.
How has the pattern of trade changed in the United States since 1960?
Imports have grown faster than exports, and the United States has become a net importer.
if your goal is to minimize the deadweight loss from a tax, would you tax goods for which demand is elastic or goods for which demand is inelastic, everything else being equal?
Inelastic, since the change in quantity is smaller.
What are the types of goods that are causing the shift in the balance of imports and exports in the United States?
Manufactured goods have played an important role in the shift, even though the number of manufactured goods has increased.
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?
Monopoly, because its demand is more inelastic.
Suppose the refrigerator industry has an HHI of 2,500 while the aluminum industry's HHI is 6,850. Is this information sufficient to conclude that the aluminum market is less competitive than the market for refrigerato
Not necessarily. Although the HHI indicates a smaller number of firms, those firms may compete intensely.
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.
While at a Subway® in your neighborhood, you notice that a single employee completes an order, right from helping you choose your bread, veggies, and meat to making your sub the way you want it. However, over at Pizza Hut®, each task in a pizza order is completed by a different worker. Why do you think Subway and Pizza Hut have chosen these different ways to produce meals?
Pizza production is mostly standardized, so Pizza Hut can take advantage of specialization and the division of labor, while sandwich production is more customized so Subway cannot take advantage of specialization and the division of labor.
How do public goods differ from common pool resources? Explain.
Public goods are non-rival goods, while common pool resource goods are rival goods.
Which of the following is an externality?
Rochelle has asthma caused by the pollution of a local factory near her home. Jose, who is allergic to pollen, is sick from the flowers that grow in his neighbor's garden. Alisha did not sleep well because her neighbor was playing loud music.
Are all efficient outcomes also equitable? Explain.
There is really no definitive answer to this question since issues surrounding efficiency and equity are the domain of normative economics, where subjective value judgments are made.
Given that there are costs involved with government intervention in an economy, governments still choose to intervene in markets to ____________.
address externalities
Why is the market demand curve for public goods calculated as a vertical summation of individual demand curves?
because the public good is non-rival, so you and others can consume every unit of the good at the same time.
When a firm exercises its monopoly power, the cost to society is the ____________.
dead weight loss
if your professor decided to give all students the highest grade in the class, your classmates' incentives to study would
decrease
How would the following factors affect equilibrium in the market for labor? an increase in the demand for the product that the firm is producing
demand increase supply no change wage increase employment increase
How would the following factors affect equilibrium in the market for labor? the use of new technology that halves the time that workers will take to produce a good
demand increase supply no change wage increase employment increase
In the model of an oligopoly with identical (homogeneous) products, the price is likely to be ___________.
equal to marginal cost
Once planners have successfully brought economic agents together, a second problem of aligning the interests of the economic agents must be solved. This is known as the ___________ problem.
incentive
To restrict a firm's monopoly power, why can't antitrust authorities just set a floor or a ceiling in the market?
it is difficult to set a fair price and even if regulators did, the firm would then have to incentive to innovate
Which of the following is a problem that black markets pose in an economy?
participants use resources to evade the law
an individual or a firm can internalize an externality by ___________.
paying the cost of the externality
You have just been appointed as the County Commissioner of Hazard County. Your first day on the job you have the following conversations: Ludwig mentions that Frank, the local rancher, is inflating land prices by buying too much land.
pecuniary externality
Paternalism is the view that ___________.
people do not always know what is best for them, and the government should encourage them to make the right choices
Market power relates to the ability of sellers to affect __________, and arises because of ____________.
prices; barriers to entry
Which method is a recommended approach supported by externality theory to deal with this problem?
private bargaining government regulations governments imposed tax
health insurance is a___
private good
consumer surplus is the top triangle
producer surplus is the bottom triangle
a mosqito control program in the city is a ____
public good
With the growth of the Internet, there are a large number of online retailers as well as buyers in the online retail market. One might think that different firms would charge very similar prices for the same good because ____________.
the cost of searching online is low
Some people think it's unfair that athletes like LeBron James earn a lot more than people who add so much more value to society, like firefighters. What do you think explains this wage differential?
the economic output of athletes like lebron james adds more economic value to firms than those services provided by firefighters
profits=
total revenues- total cost
Assume that some of the buyers in this market are now willing to pay more for a drill than they did earlier. Does this mean that the market for drills is Pareto efficient? Explain your answer.
yes, as long as the market equilibrium still holds, the outcome is still Pareto efficient.
Suppose you had to organize a double oral auction for a good that has perfectly elastic demand. Do you expect prices to approach the competitive equilibrium?
yes, there is no reason why price in a double oral auction for a good with perfectly elastic demand would not be expected to approach the equilibrium price
The last firm to enter earns ___________.
zero economic profits
In a competitive labor market, the profit-maximizing number of workers that a firm will hire occurs where the ____________.
value of marginal product of labor is equal to market wage
To say that a good has network effects means that the ____________
value of the product increases as more people use it
Tax incidence refers to ____________.
who bears the burden of tax
Firms earn economic profits in the long run.
perfect competition- F monopoly- T monopolistic competition- F
Suppose the market for T-shirts in the country of Argonia is perfectly competitive, and the price of a T-shirt is $20. A producer in this market has the following total cost and marginal cost functions: TC(q)= 400+0.1q(sq) MC(q)= 0.2q what would be the firm's average variable costs if it produced at the profit-maximizing quantity?
$10
The graph on the right shows the demand, marginal revenue, marginal cost, and average total cost curves for a monopolist. Show the impact if this firm was regulated to charge the fair-returns price?
**impact point being where ATC meets demand** The deadweight loss is created from the monopoly producing less than the socially optimal output. This area is below the demand curve and above marginal cost and is between the socially optimal output level and the fair-returns output level.
The graph on the right shows the demand, marginal revenue, marginal cost, and average total cost curves for a monopolist. Show the impact if this firm was regulated to charge the socially optimal price.
**impact pt where marginal cost meets demand.*** rectangle between marginal cost and ATC
In assessing the performance of a perfectly competitive market, we can say that ____________.
. price efficiently allocates goods and services to buyers and sellers. no individual can be made better off without making someone else worse off. any departure from the equilibrium necessarily reduces social surplus.
Suppose the market for T-shirts in the country of Argonia is perfectly competitive, and the price of a T-shirt is $20. A producer in this market has the following total cost and marginal cost functions: TC(q)= 400+0.1q(sq) MC(q)= 0.2q Which of the following equations represents the firm's average variable cost?
0.1q
Suppose the market for T-shirts in the country of Argonia is perfectly competitive, and the price of a T-shirt is $20. A producer in this market has the following total cost and marginal cost functions: TC(q)= 400+0.1q(sq) MC(q)= 0.2q for the firm to maximize its profits, how many t shirts should it produce
100
Suppose the market for T-shirts in the country of Argonia is perfectly competitive, and the price of a T-shirt is $20. A producer in this market has the following total cost and marginal cost functions: TC(q)= 400+0.1q(sq) MC(q)= 0.2q When this firm produces the profit-maximizing quantity of T-shirts, its average total cost equals
14$
Suppose you engage in second-degree price discrimination and offer your customers what seems to be a very generous deal: "Buy one at the regular price of $7575, 60 percent off on a second." With this deal, each customer will buy _______ units and you will earn a profit of _______.
2; 97$
Suppose there are fourfour firms in an industry, each with an equal market share. The Herfindahl-Hirschman Index (HHI) for this industry is
4 time (25q)= 2500
Suppose the market for T-shirts in the country of Argonia is perfectly competitive, and the price of a T-shirt is $20. A producer in this market has the following total cost and marginal cost functions: TC(q)= 400+0.1q(sq) MC(q)= 0.2q What part of the total cost function represents fixed costs?
400
This chapter explains that a firm engaging in seconddegree price discrimination charges the same consumer different prices for different units of a good. You are a monopolist with many identical customers. Each will buy either zero, one, or two units of the good you produce. A consumer is willing to pay $7575 for the first unit of this good and $3030 for the second. You produce this good at a constant average and marginal cost of $44. For simplicity, assume that if a consumer is indifferent between buying and not buying, he will buy. If you could not engage in second-degree price discrimination, what price would you charge?
75$
According to the Copyright Act of 1790, a copyright's life was limited to 28 years, including extensions. Today, copyrights are valid for the entire period of the author's life plus another 70 years. A copyright for a book that was published before 1923 is likely to have expired by now, but books published after 1923 are still under copyright protection. Research has shown that, of all the books that are in print today, a larger proportion were published before 1923. This is despite the fact that the number of books being published every year has been steadily increasing. What do you think could explain the fact that most of the books available today are from the period before 1923?
A copyright gives the owner an exclusive right to a piece of intellectual property, thus allowing them to act as a monopoly. Monopolists typically reduce quantity supplied to drive up the price of the good that they produce.
Both competitive firms and monopolies produce at the level where marginal cost equals marginal revenue. Then, other things remaining the same, why is price lower in a competitive market than in a monopoly?
A firm in a competitive industry sets its price where marginal cost equals demand (which also equals marginal revenue in perfect competition), while a monopolist finds its optimal quantity where marginal cost equals marginal revenue and then sets its price based on the demand curve at that quantity. Competitive markets face perfectly elastic demand and marginal revenue, while monopolies face downward-sloping demand and marginal revenue.
Which of the following describes a monopolist's demand curve?
A y-intercept of $8 and **downward-sloping** with a slope of dash-1.
According to reports in the Chinese media, commuters in Beijing are facing a somewhat paradoxical situation: they find it difficult to get a cab while hundreds of cabs lie idle during rush hour. The demand for taxis in Beijing has increased as average incomes have risen. Government-determined gasoline prices have also increased. But the government, worried about rising prices for cab rides, has left the cabs' base fare unchanged. The figure on the right displays the situation in the market for cab rides prior to the events cited above. Based on your understanding of how the invisible hand works, what do you think should be done to correct this problem?
Cab fares should be allowed to increase.
The mercantilist economic doctrine was widely followed from the sixteenth to the eighteenth centuries in Europe. Mercantilists advocated the use of tariffs to restrict trade, as they believed that countries that export more than they import will increase wealth. What could be the problem with such an economic policy?
Consumers pay a price that is lower than the world price, increasing consumer surplus.
To restrict a firm's monopoly power, why can't antitrust authorities just set a floor or a ceiling in the market?
It is difficult to set a fair price, and even if regulators did, the firm would then have no incentive to innovate.
New York levies the highest cigarette tax in the countrylong dash—$5.85 per pack. Other states in the United States impose taxes that are much lower. The state of Virginia levies a tax of 30 cents per pack, which is the second lowest after Missouri. How would this explain the thriving black market for cigarettes in New York?
It is more profitable to sell cigarettes on the black market in New York.
Salmon fishing in Alaska is a seasonal business; May through September is the best time to bait salmon and halibut. Toland Fisheries, a small commercial fishery, recorded its highest ever catch last year. They started this year's fishing season with the same number of workers and equipment. With the new season also starting well, Toland has increased hiring substantially. However, the fishery did not make any additional investment in trawlers and other fishing equipment. Other things remaining unchanged, what is likely to happen to the marginal product of each new worker in the short run?
It will be increasing at a decreasing rate, meaning each additional worker will have a lower marginal product of labor than the previous one hired. Your answer is correct.
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.
Hardware stores charge higher prices for snow shovels after a big snow storm. What role do prices play in the snow shovel market?
It would incentivize distributors to ship more snow shovels into the area to meet the increased demand.
How would the introduction of legal or technical barriers to entry affect the long-run equilibrium in a perfectly competitive market?
It would reduce any downward pressure on prices from entry and allow economic profits in the long run.
How does a natural monopoly differ from a firm that becomes a monopoly due to network effects?
Natural monopolies result from economies of scale, while network effects come from the benefits to consumers from having many people use a service.
Most of your friends prefer drinking Budweiser, Miller, or Coors beer. Budweiser is manufactured by Anheuser-Busch, while Miller and Coors are manufactured by MillerCoors. Based on this information, you conclude that the beer market is oligopolistic. Assuming each of the following statements is true, examine whether each one will independently support or weaken your conclusion Consumers are unlikely to switch between different brands of beer; most beer consumers are highly brand loyal.
Neither, because differentiated products are a characteristic of both monopolistic and oligopolistic markets.
Edgar says that a single firm in the wind power industry is unlikely to have a significant degree of monopoly power for an extended period of time. Since the cost of producing an additional unit of wind energy is so low, a large number of firms can enter the market and compete away economic profits. Do you agree with this analysis?
No, Edgar's argument ignores potentially large fixed costs that will act as a barrier to entry.
In your environmental economics study group, a friend argues that using taxes to control pollution is not efficient because, even with taxes, a positive amount of pollution is still produced. Do you agree?
No, because an efficient outcome balances costs with benefits and eliminating all pollution would be cost prohibitive.
Suppose one firm accounts for 55 percent of the global market share for a product, while 147 other firms account for the remaining 45 percent of the market. With such a large number of buyers and sellers, is this market likely to be competitive?
No, even though there are many firms in the market, there is one firm large enough to influence the market price.
Government spending in the United States has grown over time and now accounts for more than 40 percent of U.S. national income. Does this mean that government has been consistently running a budget deficit?
No, government deficits depend upon spending and tax revenue.
compared to the market for electric drills, the market for vintage buttons has fewer buyers and sellers. Social surplus is likely to be higher in the market for drills than in the vintage button market. Is it then correct to assume that the outcome in the drills market is Pareto efficient while in the vintage button market it is not? Explain.
No, market size has no bearing on the attainment of Pareto efficiency.
Janet knows a lot of people who do not like Marmite®, a yeast extract that is used as a spread on toast. She says that Marmite is so unpopular that Unilever, the company that manufactures Marmite®, cannot possibly have any monopoly power. Do you agree with this analysis?
No, monopoly power is based on whether a good has any close substitutes, not whether your friends like the product.
Since everyone who wants an iPod obtains one, and everyone who wants to get rid of their iPod sells it at the price they wanted, is social surplus maximized in the market?
No, this trade arrangement yields zero social surplus since each participant trades at his or her reservation value.
Antitrust policy started with the ____________, which prohibited any agreements or actions that would put restraints on trade.
Sherman Act of 1980
What is the problem with the argument that infant industries need to be protected from foreign competition?
Starting a company in isolation may deprive it of "technological spillovers" that its competitors, all located near one another, may enjoy.
Most of your friends prefer drinking Budweiser, Miller, or Coors beer. Budweiser is manufactured by Anheuser-Busch, while Miller and Coors are manufactured by MillerCoors. Based on this information, you conclude that the beer market is oligopolistic. Assuming each of the following statements is true, examine whether each one will independently support or weaken your conclusion The fixed cost of setting up a brewery is relatively high.
Support, because firms could earn long-run economic profits.
Draw the demand curve described above as well as the related marginal revenue curve. A y-intercept of $8 and **downward-sloping** with a slope of dash-1.
The marginal revenue curve for a monopolist has the same y-intercept as the demand curve but has twice the slope. Therefore, the marginal revenue curve has a y-intercept of $8 and an x-intercept of 4 units.
From the given information, can you conclude whether the firm is operating in a competitive market? Explain your answer.
The market is competitive since the firm doesn't need to lower price to sell more The market is competitive since the firm treats the price as fixed.
in a command economy, a planning agency sets prices for various inputs and final goods. In a market economy, supply and demand decide the prices of various goods. In both cases, there is a set of prices operating in the economy. Then why are market economies considered more efficient than planned economies?
The price mechanism utilized by market economies reflects all that is collectively known and thus ensures that economic agents make trades that are in their best interest and maximize social surplus. The prices set by central planners tend to be inflexible, responding to changing conditions only when planners recognize that circumstances are changing and then figure out the significance of the underlying change. The prices set by central planners reflect their very incomplete knowledge regarding the multitude of factors that determine the interests and decisions of economic agents.
Which of the following is one of the common arguments against free trade?
The stock of certain types of animals is endangered comma threatening species extinction.The stock of certain types of animals is endangered, threatening species extinction. The desire to maintain diversification to preserve integrity in times of war.The desire to maintain diversification to preserve integrity in times of war. Fear of the effects of globalization on a nation's culture.Fear of the effects of globalization on a nation's culture. Potential negative effects on local wages.Potential negative effects on local wages.
As this chapter explains, a monopoly is an industry structure where only one firm provides a good or service that has no close substitutes. This question explores the last part of this definition further. In 1947, the United States government charged the DuPont Company with a violation of the Sherman Act. The government argued that DuPont was monopolizing the cellophane market. At trial, the government showed that DuPont produced nearly 75 percent of all of the cellophane sold in the United States each year. Nonetheless, the U.S. Supreme Court ruled in favor of DuPont and dismissed the case. Which of the following is a likely argument used by DuPont to convince the Supreme Court that it did not violate the Sherman Act?
There are many close substitutes for cellophane such as aluminum foil and waxed paper, so DuPont did not have significant market power.
Sirius XM Satellite Radio and XM Satellite Radio were the only two satellite radio providers in the United States. The Department of Justice (DOJ) and the Federal Communications Commission (FCC) approved the merger of the two companies in 2008 even though Sirius-XM would then control 100 percent of the satellite radio market. Which of the following arguments do you think Sirius and XM used to convince the DOJ and the FCC to allow the merger to proceed?
There are many close substitutes for satellite radio; therefore, Sirius-XM would not exercise market power.
How will the invisible hand move corn prices in response to each of the following: A change in consumer tastes away from hot dogshot dogs toward corn dogscorn dogs.
This will increase corn prices by shifting the demand curve for corn rightward
How will the invisible hand move corn prices in response to each of the following: An increaseincrease in the number of demanders in the corn market
This will increase corn prices by shifting the demand curve for corn rightward
How will the invisible hand move corn prices in response to each of the following: A flood that destroys a great deal of theflood that destroys a great deal of the corn crop.
This will increase corn prices by shifting the supply curve for corn leftward
What is the intent of a Pigouvian tax?
To induce producers of a negative externality to reduce production to the socially optimal level.
Which of the following is true regarding the differences between a monopoly and a perfectly competitive firm?
Unlike a perfectly competitive firm, a monopoly faces a downward-sloping marginal revenue curve and does not have a supply curve.
Most of your friends prefer drinking Budweiser, Miller, or Coors beer. Budweiser is manufactured by Anheuser-Busch, while Miller and Coors are manufactured by MillerCoors. Based on this information, you conclude that the beer market is oligopolistic. Assuming each of the following statements is true, examine whether each one will independently support or weaken your conclusion Anheuser-Busch and MillerCoors are two of the many firms that operate in this market.
Weaken, because firms would have less market power.
How do economic profits and losses allocate resources in an economy?
When an industry's goods (or services) become less highly valued by society, firms in the industry suffer losses and thus become motivated to put their resources to more profitable uses elsewhere. Businesses always seek to improve their profits and in so doing, they move resources into the production of goods and services that society values the highest. When an industry's goods (or services) become more highly valued by society, positive economic profits emerge for firms in the industry, attracting new firms and their resources to that industry.
Consider the standard monopoly graph on the right that illustrates a monopoly's demand, marginal revenue, and marginal cost curves. If this monopoly is able to engage in perfect price discrimination, what area would be considered producer surplus?
With perfect price discrimination, a monopoly is able to charge each consumer up to their willingness to pay. The monopoly will want to do this for as many consumers as possible, and will keep producing until the last consumer's willingness to pay matches the firm's cost of making that unit. This means they will produce until the demand curve intersects the marginal cost curve. And since producer surplus is the area below the price paid and above MC, the entire area above the marginal cost line is producer surplus.
Would a profit-maximizing firm continue to operate if the price in the market fell below its average cost of production in the short run?
Yes, but only if price stayed above average variable cost.
In the United States in 2011, there were 104 fatalities per 100,000 workers in the logging industry. This is the second-highest rate after the fisheries industry. Everything else equal, would you expect workers in the logging industry to be paid higher wages than workers with similar levels of education in other industries? Explain.
Yes, loggers should be paid higher wages to compensate for risk
Are there real-world markets that resemble double oral auctions?
Yes, trading on the New York Stock Exchange is very similar to a double oral auction.
The market for electric drills in a certain country is characterized by a large number of buyers. The market for drills is in equilibrium. Does this also mean that it is Pareto efficient? Explain your answer.
Yes, with the market in equilibrium, no one participant can be made better off without someone else being harmed.
People who need life-saving drugs cannot do without them and surely will be willing to pay very high prices for them. So why can't producers of life-saving drugs charge any price that they wish to?
a monopolist, such as one selling life saving drugs, still faces downward sloping demand curves
When comparing the graph of your ATC curve for a natural monopoly with that of a firm in perfect competition, we see that ____________.
a natural monopoly has a downward-sloping ATC curve, while a firm in perfect competition has a U-shaped curve
Which of the following is likely covered by a copyright?
a new song architectural drawings a piece of poetry
a black market is
a non legal market for regulated goods and services
How does the labor-leisure trade-off determine the supply of labor?
and increase in the wage rate is an increase in the opportunity cost of leisure, and can be therefor expected to reduce the amount of leisure one wishes to consume. choosing less leisure is equivalent to supplying more labor, thus yeilding a positive relationship between the wage rate and the amount of labor supplied
Which of the following is a cost associated with government intervention in an economic system?
bureaucracies
Externalities are called market failures because they ___________.
cause markets to produce suboptimal social outcomes.
You are the County Commissioner of Hazard County. There is a popular lake for fishing located in eastern Hazard County on county-owned park land, which is open to the public. Recently, the Reed brothers have started using large nets to catch large amounts of fish, severely depleting the amount of fish left for other fishermen. What approach would be the effective way to deal with the overfishing problem?
charge a tax of fish per caught restock the lake more often with fish enact a fishing law limiting the number of fish that can be caught per person
a librarys collection of e books is a____
club good
You are the County Commissioner of Hazard County. There is a popular lake for fishing located in eastern Hazard County on county-owned park land, which is open to the public. Recently, the Reed brothers have started using large nets to catch large amounts of fish, severely depleting the amount of fish left for other fishermen. The fish in the lake are an example of a
common pool resource
Both competitive firms and monopolies produce at the level where marginal cost equals marginal revenue. Then, other things remaining the same, why is price lower in a competitive market than in a monopoly?
competitive markets face perfectly elastic demand and marginal revenue, while monopolies face downward sloping demand and marginal revenue
compared to a monopoly, in a perfectly competitive market
consumer surplus is lower producer surplus is higher and dead weight loss is higher
A difficult problem for central planners is bringing together those economic agents whose interests coincide in order to trade. This is known as the ____________ problem.
coordination
Suppose the government grants an individual or company the exclusive right to intellectual propertyexclusive right to intellectual property. In this case, the government is granting a
copyright
How would the following factors affect equilibrium in the market for labor? an increase in the age when people begin to receive social security benefits
demand no change supply increase wage increase employment increase
Oligopolistic firms that sell differentiated products determine their prices when prices are __________.
determined simultaneously by the firms as best responses given other firm prices.
Firms estimate the demand for labor by ____________.
determining the value of marginal product of labor computing the marginal product of labor and multiplying it be the price of the product being produced
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 ___________.
differentiated
What types of goods are likely to be traded in a black market?
drug dealing prostitution
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 ____________.
each firm's profit will be less than with collusion but not zero.
If demand shifts to the left (decreases), the last firm that entered ____________.
earns negative economic profits and so exits the market.
Assume there are two industries in our economy: the production of pizza and the production of calzones. Each of these products is produced in a similar way with similar ingredients and requires similar skills. If the market price of pizza in this competitive market is below the ATC curve and the price of calzones is above the ATC curve, ____________.
firms currently making pizza will switch to making calzones. When firms switch from making pizza to making calzones, the price of pizza will increase and the price of calzones will decrease.
Which of the following common features do monopolistically competitive markets and monopolies share
firms face downward sloping demand curves
In which of the following ways is a monopoly beneficial to an economy?
firms that are allowed monopoly profits search out innovative technologies that they can bring to the market with natural monopolies, costs may be lower than those that would exist in competitive market with many producers monopoly profits give firms more reason to invest in the creation of new products through research and development
in which consumers are charged the maximum price they are willing to pay.
first degree (perfect price discrimination)
This dropdrop in price and corresponding change in the firm's profit status ___________.
has no bearing on the market's characterization as competitive, since nonzero values for economic profit reflect short-run events.
You are the County Commissioner of Hazard County. There is a popular lake for fishing located in eastern Hazard County on county-owned park land, which is open to the public. Recently, the Reed brothers have started using large nets to catch large amounts of fish, severely depleting the amount of fish left for other fishermen. Common pool resources are
high in rivalry and low in excludability
Given the long-run adjustment process that takes place after a supply or demand shock, we know that the industry supply curve must be __________.
horizontal, since the supply curve shifts until price is back to its original level and profits are back to zero.
Salmon fishing in Alaska is a seasonal business; May through September is the best time to bait salmon and halibut. Toland Fisheries, a small commercial fishery, recorded its highest ever catch last year. They started this year's fishing season with the same number of workers and equipment. With the new season also starting well, Toland has increased hiring substantially. However, the fishery did not make any additional investment in trawlers and other fishing equipment. In the long run, if Toland Fisheries would like to increase the productivity of its workers, it will need to ____________.
increase its amount of capital and equiment.
The largest source of revenue for the federal government is ___________.
individual income taxes
To construct the supply curve in a market with many firms with different cost structures, the ___________.
individual supply curves for each firm are added together.
How would you depict the trade-off between equity and efficiency on a graph?
inequality on one axis and social surplus on the other with a positively sloped function
Consider the market for college textbooks. Assume this market is monopolistically competitive. A representative firm's demand (D), marginal revenue (MR), marginal cost (MC), and average cost (AC) curves are illustrated in the figure on the right. This industry ____________.
is not in long-run equilibrium, because firms are earning profits, which will result in firms entering.
A collusive agreement between two firms is likely to break down when ____________.
it is hard to punish cheaters
If the firm were facing MR2, then we know that this firm should __________.
keep producing, even though it is incurring a loss it is less than the fixed costs that must be paid if it shuts down.
If the firm were facing MR1, then we know that this firm should __________.
keep producing, since it is making a profit at the profit-maximizing output.
You are the County Commissioner of Hazard County. There is a popular lake for fishing located in eastern Hazard County on county-owned park land, which is open to the public. Recently, the Reed brothers have started using large nets to catch large amounts of fish, severely depleting the amount of fish left for other fishermen. What approach would be the least effective way to deal with the overfishing problem?
limit who is allowed to fish in the lake
When a firm exercises its monopoly power, social surplus is _____ when compared to a perfectly competitive market.
lower
For a market to be characterized as perfectly competitiveperfectly competitive, there must be ___________.
many sellers where the price of the good is determined by the market
Consider four market structures: perfect competition, monopolistic competition, oligopoly, and monopoly. Firms in all four market structures maximize profits by producing the quantity where ___________
marginal revenue = marginal cost
Consider a market with many firms that have different cost structures. Unless shutdown or exit is optimal, every firm expands production until ___________.
marginal revenue, marginal cost, and price are all equal
Natural market power is created by ___________, and arises due to ____________.
market forces; controlling a key resource
The sources of revenue for state and local governments are different from those of the federal government. Which of the following is the largest source of revenue for state governments?
miscellaneous taxes and fees, such as tolls on roads and public transportation tickets
A monopoly may earn positive economic profits in both the long run and the short run because a ____________.
monopoly has barriers to entry
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?
monopoly, because its demand is more inelastic
Compared to a monopoly that does not price discriminate, a monopolist who engages in perfect price discrimination will produce ________ and have _______ deadweight loss.
more; no
You have just been appointed as the County Commissioner of Hazard County. Your first day on the job you have the following conversations: Jeb mentions that the hog farm down the road from his house is creating a very nasty smell.
negative externality
John Maynard Keynes (a famous British economist) said "In the long run we are all dead." An important message in this chapter is, to paraphrase Keynes, "In the long run, all profits in a monopolistically competitive market are dead." Consider a monopolistically competitive industry earning positive economic profits in the short run. In the long run, a monopolistically competitive industry earns zero economic profits because ____________.
new firms enter, shifting a firm's demanddemand curve to the left.
Monopolistically competitive firms might earn positive economic profits in the short run due to ___________.
no brand differentiation product innovation
In a competitive market, a supply curve shows all the price and quantity combinations at which firms will produce. Does a monopoly face a similar supply curve?
no, a monopoly is a price maker and its production decisions are determined by its downward sloping demand curve
Suppose an identical tax is levied on capital, labor, and land. Would the tax have the same effect in each of these markets? Explain your answer.
no, an identical tax would yield similar effects, but not the same effects, since it is rather unlikely that the relative demand and supply elasticities would be the same in each market
You have just been appointed as the County Commissioner of Hazard County. Your first day on the job you have the following conversations: Lauren mentions that it is extremely windy today.
not an externality
If the price is $2 per unit, the firm should ___________.
not produce, because price is less than the average variable cost of production.
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 two airlines providebut only two airlines provide the service. This market is best characterized as ___________.
oligopoly
Firms equate price and marginal cost.
perfect competition- T monopoly- F monopolistic competition- F
Firms produce the quantity that minimizes long-run average cost.
perfect competition- T monopoly- F monopolistic competition- F
New firms are free to enter the industry in the long run.
perfect competition- T monopoly- F monopolistic competition- T
Firms equate marginal revenue and marginal cost.
perfect competition- T monopoly- T monopolistic competition- T
demand for a perfectly competitive firm is
perfectly elastic
You have just been appointed as the County Commissioner of Hazard County. Your first day on the job you have the following conversations: George mentions that Ms. Daisy has planted some lovely new roses in front of her store.
positive externality
Examples of direct regulation include ____________.
price ceiling zoning restrictions antismoking laws
non-market price imposition is a
price control
In a market economy, the alignment of interests is accomplished through the use of
prices
The Coase Theorem states that ____________.
private bargaining will result in an efficient allocation of resources.
Priceline is a Web site that sells flights and hotel bookings based on the price that a consumer states that he or she is willing to pay. So consumers who want to book a flight or a hotel room need to tell Priceline the price that they are willing to pay, and the seller lets Priceline know whether it is willing to accept that price. Which of the following outcomes is likely using this form of pricing?
producer surplus will rise, since some prices offers by consumers will be higher than the price that priceline would have charged, causing consumer surplus to shrink
To reduce inequality and poverty in an economy, the government uses a ___________.
progressive tax system to fund transfer payments.
Malaria is spread by mosquitos. That is a mosquito spreads malaria by biting an infected person and later infusing malaria into a different person. A study by Jeffrey Sachs and others shows a strong correlation between the incidence of malaria in a country and poverty. Malaria is known to exist in poor countries; it has also been found that the incidence of malaria exacerbates poverty. One of the simplest and effective ways of preventing the occurrence of malaria is by using insecticide-treated nets (ITNs). Consider the private market for ITNs. Use supply and demand curves to show the equilibrium level of nets that will be produced. This outcome is not socially efficient. The government could encourage the production of the efficient number of ITNs by ____________.
providing a subsidy for ITNs
a video on youtube is a ____
public good
The price at which a buyer is indifferent between making a purchase and not doing so is known as her___________.
reservation price willingness to pay value
Upper A fast minus food combo meal costs less than if you bought each item separatelyA fast−food combo meal costs less than if you bought each item separately. This is an example of ___________.
second degree price discrimination
Upper A local grocery store charges more for one soda than for a six minus packA local grocery store charges more for one soda than for a six−pack. This is an example of ___________.
second degree price discrimination
in which consumers are charged different prices based on characteristics of their purchase, such as the quantity they purchase.
second degree price discrimination
he graph on the right shows the long-run average cost curve and marginal cost curve for a firm in a perfectly competitive market. Based on the graph to the right, the long-run supply curve is __________.
segment BC, since at prices below B the firm would shut down in the long run.
Despite the logic described above, several recent studies have found that different online retailers often charge quite different prices. How might you explain this result?
sellers warranties and shipping costs differ
If the firm were facing MR3, then we know that this firm should __________.
shut down, since it is incurring a loss that is greater than the fixed costs that must be paid if it shuts down.
characteristics of monopoly
single seller price maker market power
Why are there two different views on the effect of taxation on labor supply in the United States?
the effect of tax on labor supply depends on the elasticity of supply the effect of a tax on labor supple depends on the amount of deadweight loss created by the tax it depends on normative questions such as how much to tax or how much the government intervention is necessary
Legal market power is created by ___________, and arises due to ____________.
the government; copyrights
In 1999, Priceline attempted to replicate this pricing strategy with groceries and gasoline. Using this pricing strategy with these two goods soon proved unprofitable. What could explain this?
the marginal cost of selling an airplane set or a hotel room is relatively small, while the marginal cost of selling groceries and gasoline is relatively high
In the long run, the supply curve for a perfectly competitive firm is represented by __________.
the portion of the marginal cost curve above average total cost
A perfectly competitive firm will choose to shut down when the price (marginal revenue) intersects the marginal cost curve below the average variable cost curve . Therefore, the short-run supply curve for a perfectly competitive firm is represented by __________.
the portion of the marginal cost curve above average variable cost.
Using your graph, the slope of the industry demand curve demonstrates __________.
the realistic assumption that the Law of Demand holds for the good under consideration.
demand for this perfectly competitive firm is perfectly elastic occurring because
there are many producers all selling identical goods, meaning no one firm can impact the market price
How is a monopolistically competitive market similar to a perfectly competitive market?
there are no restrictions on the entry of new firms
A government would want to be on this curve where ___________.
there is no correct answer to this question, as the answer depends on a government's value judgments.
Which of the following are properties of a monopoly?
there is only one seller price maker there are high barriers to entry
In recent years, some online firms have offered different consumers different prices for the same good. These firms use the consumer's IP address to find what city they are in and then charge a higher price to people in wealthier cities. This type of pricing behavior is ____________.
third degree price discrimination
Upper A local restaurant offers a discount on meals to seniorsA local restaurant offers a discount on meals to seniors. This is an example of ___________.
third degree price discrimination
car insurance companies charge males more for insurance than females. This is an example of ___________.
third degree price discrimination
in which different groups of consumers are charged different prices based on customer or location attributes (such as age, gender, location, and so on).
third degree price discrimination
How will the invisible hand move corn prices in response to each of the following: A riserise in the price of wheat (a substitute for corn).
this will increase corn prices by shifting the demand curve for corn rightward
You are the County Commissioner of Hazard County. There is a popular lake for fishing located in eastern Hazard County on county-owned park land, which is open to the public. Recently, the Reed brothers have started using large nets to catch large amounts of fish, severely depleting the amount of fish left for other fishermen. The overfishing by the Reed brothers is an example of
tragedy of the commons
The Coase Theorem will breakdown when ____________.
transaction costs become high. when property rights are not clearly defined. there are a large number of agents.
Most of your friends prefer drinking Budweiser, Miller, or Coors beer. Budweiser is manufactured by Anheuser-Busch, while Miller and Coors are manufactured by MillerCoors. Based on this information, you conclude that the beer market is oligopolistic. Assuming each of the following statements is true, examine whether each one will independently support or weaken your conclusion Both MillerCoors and Anheuser-Busch increased the prices of beer when demand had actually fallen in 2009.
Support, because firms would have market power.
The two most important goals for government policy involve a trade-off between __________ and __________.
equity; efficiency.
The equilibrium price is the ___________.
long-run average total cost of the last entrant into the market.
Direct regulation is ____________.
direct actions by the government to control the amount of an activity
Which of the following is not likely to be subject to the tragedy of the commons?
national defense
terms of trade are determined on the basis of
opportunity costs
When determining which firms enter the market first, we look at ____________
average total cost
radio spectrum is a ___
common pool resource