FINAL EXAM - ECON 202

96. Refer to the above graph. If the Lorenz curve shifted from (d) to (b), then the Gini ratio and the degree of income inequality would:

B. Decrease

77. To achieve economic efficiency in energy use, an economy:

A. often uses a variety of energy sources.

13. Allocative inefficiency happens in a monopoly because at the profit-maximizing output level:

C. P > MC

74. If per capita trash generation is constant over time, this implies that:

A. per capita consumption of solids has also been constant.

79. Productive inputs capable of replacing themselves if harvested at moderate rates are known as:

A. renewable natural resources.

111. The moral hazard problem created when consumers acquire health insurance leads them to:

B. Consume more health care services

62. Answer the question based on the following payoff matrix for a duopoly in which the numbers indicate the profit in thousands of dollars for a high-price or a low-price strategy. Refer to the above payoff matrix. If both firms operate independently and do not collude, the most likely profit is:

A. $400,000 for firm X and $400,000 for firm Y

94. Which of the following Gini ratios would indicate the least amount of income inequality?

A. 0.20

36. Refer to the above graphs. A short-run equilibrium that would produce profits for a monopolistically competitive firm would be represented by graph:

A. A

110. When the supplier, not the buyer, of the health care services makes most of the decisions about the amount and type of health care to be provided, there is:

A. A moral hazard in the health care market

106. The rising prices, quantities, and costs of health care in the U.S. are the result of:

A. Demand for health care increasing faster than supply

72. Which of the following factors tends to foster the development of an oligopoly?

A. Economies of scale

4. A pure monopoly firm will never charge a price in the inelastic range of its demand curve because lowering price to get into this region will:

A. Increase total revenue, increase total cost, and decrease profit

32. The demand curve faced by a monopolistically competitive firm:

A. Is more elastic than the monopolist's demand curve

61. In a duopoly, if one firm increases its price, then the other firm can:

A. Keep its price constant and thus increase its market share

89. The degree of inequality in the distribution of income in an economy is depicted in a(n):

A. Lorenz curve

112. Refer to the demand and supply diagram that relates to the health care market. Without health insurance, the equilibrium price and quantity of health care would be:

A. P1 and Q1

11. Refer to the above graph for a profit-maximizing monopolist. At equilibrium, the firm will be earning:

A. Positive profits

5. At the profit-maximizing level of output for a monopolist:

A. Price is greater than marginal cost

64. A major prediction of the kinked demand curve model is:

A. Price stability in oligopolies

42. Excess capacity implies:

A. Productive inefficiency

6. The following graph shows a total revenue curve for a monopolist. Refer to the above graph. The profit-maximizing firm will produce in that output level where total revenue is:

A. Rising

63. The kinked demand model of oligopoly assumes that:

A. Rivals will ignore price increases but will match price cuts

56. One major problem with concentration ratios is that they fail to take into account:

A. The localized market for products

73. Resource demand has grown over time:

A. because of population growth only.

87. Most economists view economic growth as:

A. good for the environment because richer economies spend more on environmental protection.

. 86. It is generally easier to prevent deforestation than fishery collapse because:

A. it is easier to establish and enforce property rights on national lands than in international waters.

98. Assume that all workers are equally productive, but the wage rate for men is $12 compared to $9 for women. An employer who employs only male workers must have a discrimination coefficient of:

A. more than $3.

. 82. A profit-maximizing company should extract a nonrenewable resource in the present up to the quantity where the:

A. selling price of the resource equals the extraction cost plus the user cost of the resource.

33. Answer the question based on the demand and cost schedules for a monopolistically competitive firm given in the table below. Refer to the above table. At the profit-maximizing level of output, marginal revenue is:

B. $4

31. The graph depicts a monopolistically competitive firm. Refer to the above graph. In the short run, this monopolistically competitive firm will set price at:

B. $65 and produce 35 units of output

14. A monopoly results in productive inefficiency because at the profit-maximizing output level:

B. ATC is not at its minimum level

109. An increase in the demand for health care would most likely result from:

B. An aging population

105. Most economists who have studied the health care industry have concluded that there is:

B. An overallocation of resources for health care in the United States

51. A firm in an oligopoly is similar to a monopoly in that:

B. Both firms could have significant market power and control over price

50. Mutual interdependence means that each firm in an oligopoly:

B. Considers the reactions of its rivals when it determines its pricing policy

104. Many economists believe that at the current level of consumption of health care in the United States, the marginal cost of health care for society is:

B. Greater than the marginal benefit

29. Which of the following is a measure of the degree of industry concentration?

B. Herfindahl Index

46. Compared to a purely competitive firm in long-run equilibrium, the monopolistic competitor has a:

B. Higher price and lower output

66. One shortcoming of the kinked demand curve model of oligopoly is that it does not explain:

B. How the current price gets determined

7. The following graph shows a total revenue curve for a monopolist. Refer to the above graph. When total revenue declines as output expands, demand is:

B. Inelastic

20. With a natural monopoly, the fair return price:

B. Is allocatively inefficient; the socially optimal price is allocatively efficient

69. The strategy of establishing a price that prevents the entry of new firms is called:

B. Limit pricing

17. Network effects and simultaneous consumption tend to foster the development of:

B. Monopoly power

2. One major barrier to entry under pure monopoly arises from:

B. Ownership of essential resources

107. Which of the following terms best characterizes the demand for health care?

B. Price inelastic

53. Which statement about oligopoly is false?

B. Prices in oligopoly are predicted to fluctuate widely and frequently

28. Demand and marginal revenue curves are down-sloping for monopolistically competitive firms because:

B. Product differentiation allows each firm some degree of monopoly power

92. As the area between the Lorenz curve and diagonal gets larger, the Gini ratio:

B. Rises to reflect greater inequality

57. Assume that an industry is significantly affected by import competition from foreign suppliers. Taking this factor into account, it would mean that:

B. The industry is less concentrated than suggested by domestic concentration ratios

45. Refer to the above graph of the representative firm in monopolistic competition. Point b indicates:

B. The price-output combination that yields maximum profits

26. One difference between monopolistic competition and pure competition is that:

B. There is some control over price in monopolistic competition

23. Google gained its monopoly power in the market for internet-search service because it:

B. Was first to market and gained consumer loyalty

76. Since 1950, the energy efficiency of the U.S. economy in terms of producing goods and services has:

B. more than doubled.

8. The table shows the demand schedule facing Nina, a monopolist selling baskets. Refer to the above table for Nina. What is the change in total revenue if she lowers the price from $20 to $18?

C. $30

93. Perfect income equality would yield a Gini ratio of:

C. 0

59. Industry Y is dominated by five large firms that hold market shares of 20, 25, 15, 10, and 25 percent. The four-firm concentration ratio for this industry is:

C. 85 percent

60. Collusion refers to a situation where rival firms decide to:

C. Agree with each other to set prices and output

10. A firm will earn economic profits whenever:

C. Average revenue exceeds average total costs

41. The long-run equilibrium position of the monopolistically competitive firm occurs at a point where average costs are:

C. Decreasing

25. Which set of characteristics below best describes the basic features of monopolistic competition?

C. Easy entry, many firms, and differentiated products

3. Natural monopolies result from:

C. Extensive economies of scale in production

43. Monopolistic competition is characterized by excess capacity because:

C. Firms produce at an output level less than the least-cost output

88. A Lorenz curve showing perfect equality in the distribution of income:

C. Is a straight line with a 45-degree angle

97. When taxes and transfer payments are taken into account, the distribution of income in the United States:

C. Is more equally distributed

15. When compared with the purely competitive industry with identical costs of production, a monopolist will produce:

C. Less output and charge a higher price

90. The greater the degree of inequality in the distribution of income, the more bowed will be the Lorenz curve toward the:

C. Lower right-hand corner

35. Refer to the above graph of a representative firm in monopolistic competition. If curve (2) represents ATC and line (3) represents demand, then curve (1) and line (4) would be:

C. MC and MR, respectively

22. The problem with socially-optimal pricing regulation of a natural monopoly is that:

C. P < ATC

21. Refer to the above graph for a pure monopoly. If the government regulated the monopoly and made the firm set a fair-return price, what price and quantity levels would we observe in the short run?

C. P3 and Q2

19. Refer to the above graph for a pure monopoly. A profit-maximizing monopolist would set what price and quantity levels in the short run?

C. P3 and Q2'

67. Given the oligopolistic firm pictured above, what is the profit-maximizing price?

C. P4

27. The goal of product differentiation and advertising in monopolistic competition is to make:

C. Price less of a factor and product differences more of a factor in consumer purchases

34. In monopolistic competition, a firm has a limited degree of "price-making" ability. This means that the firm will:

C. Set price above marginal cost

12. Which of the following does not necessarily apply to a pure monopoly?

C. The firm will charge the highest price possible

1. One defining characteristic of pure monopoly is that:

C. The monopolist produces a product with no close substitutes

38. In the long run, the economic profits for a monopolistically competitive firm will be:

C. The same as the profits for a purely competitive firm

68. On the above graph, if the oligopolist's MC curve shifts from MC1 to MC2, the firm will charge:

C. The same price as before and sell the same amount of output; total revenue will remain the same

39. Firms in an industry will not earn long-run economic profits if:

C. There is free entry and exit of firms in the industry

. 114. Refer to the demand and supply diagram that relates to the health care market. The efficiency loss caused by the availability of health insurance is shown by area:

C. adc

. 84. Profit-maximizing extraction companies will attempt to:

C. find rates of extraction that maximize the flow of profits over time.

99. In a labor market generally biased against Hispanics, a reduction in the collective discrimination coefficients of employers will:

C. increase the Hispanic wage rate, increase Hispanic employment, and increase the actual Hispanic-white wage ratio.

85. Forestry companies typically harvest and replant an area when trees are:

C. near the end of their rapid growth period

83. Refer to the diagram, representing Slippery Slope Oil Company. What price of oil would make 15 million barrels the optimal quantity to extract and sell this year?

D. $110

52. Which cannot be a characteristic of an oligopolistic industry?

D. A perfectly elastic firm demand curve

65. If output is set at the kink of the kinked demand model, then there:

D. Are several prices at which marginal revenue equals marginal cost

18. To practice long-run price discrimination, a monopolist must:

D. Be able to separate buyers into different markets with different price elasticities

16. Marginal costs of a producer may be very small due to its product's ability to satisfy a large number of consumers at the same time. This characteristic of a product is called:

D. Consumer sovereignty

95. Refer to the above graph. The Gini ratio would be greatest for which curve?

D. D

91. The Gini ratio or Gini coefficient is a measure of the:

D. Degree of income inequality

37. In the long run, a representative firm in a monopolistically competitive industry will end up:

D. Earning a normal profit, but not an economic profit

48. Product variety in monopolistic competition comes at the cost of:

D. Excess capacity

47. Which statement concerning monopolistic competition is false?

D. Firms may experience positive economic profits in the long run

40. Which is not true for a monopolistically competitive industry?

D. Firms operate at the lowest point of their ATC curves in the long run

24. Google and Amazon have enjoyed barriers to entry in their respective markets due to the following, except:

D. Government licensing and regulation

103. The prominence of employer-provided health insurance in the U.S. has had the following major consequences, except:

D. Heightened awareness of employees about the true costs of their health care

55. Interindustry competition refers to the fact that:

D. In some markets the producers of a certain commodity might face competition from products of other industries

54. The increased use of plastic bags instead of paper bags in grocery stores and retail shops is an example of:

D. Interindustry competition

9. Many people believe that monopolies charge any price they want to without affecting sales. Instead, the output level for a profit-maximizing monopoly is determined by:

D. Marginal cost = marginal revenue

30. Monopolistically competitive firms are similar to monopolies in that they have:

D. Marginal revenues that are less than price

58. The Herfindahl index is a measure of:

D. Market power in the industry

49. A unique feature of an oligopolistic industry is:

D. Mutual interdependence

71. In an oligopolistic market there is likely to be:

D. Neither allocative nor productive efficiency

108. Data on the income elasticity of demand for health care suggest that health care is a(n):

D. Normal good

. 113. Refer to the demand and supply diagram that relates to the health care market. If suppliers provide the quantity of health care demanded and insurance pays one-half of the equilibrium price of the health care good or service depicted, the immediate price to the consumer and the quantity of health care consumed would be:

D. P2 and Q1

44. In monopolistic competition there is an under-allocation of resources at the profit-maximizing level of output, which means that:

D. Price is greater than MC

102. The heavy reliance on private health insurance in the U.S. began during World War II, as a:

D. Response by employers to the wage controls in effect then

70. Price leadership represents a situation where oligopolistic firms:

D. Tacitly collude

101. What are the two major problems facing the health care system of the United States?

D. The need to control costs and make health care accessible

75. Why have commodity prices fallen since 1850?

D. The supply of productive resources has grown faster than the demand for those resources.

100. In the taste-for-discrimination model:

D. competitive forces will tend to reduce discrimination in the very long run.

80. When the benefits of conservation and future use are excluded from a cost-benefit analysis, there is a tendency to:

D. extract and use resources as quickly as possible.

78. Alternative fuels become more economically viable as:

D. the price of oil rises.

81. The cost of not being able to extract and sell a nonrenewable resource in the future (because it is being extracted in the present) is known by natural resource economists as the:

D. user cost