FINAL EXAM REVIEW

How long do patents​ last? A patent is the exclusive right to a product for a period of ___ years from the date the patent is filed with the government.

20

What is the difference between the average cost of production​ (ATC) and marginal cost of production​ (MC)? A. ATC = TC/Q​; MC =ΔTC/ΔQ. B. ATC =TC ×Q​; MC =ΔTC/Q. C. ATC =Q/TC​; MC =ΔQ/ΔTC. D. ATC=VC/Q​;MC =ΔVC/ΔQ.

A. ATC = TC/Q​; MC =ΔTC/ΔQ.

How did De Beers attempt to convince consumers that used diamonds were not good substitutes for new​ diamonds? A. De Beers developed the slogan​ "a diamond is​ forever" to increase sentimental value. B. De Beers claimed that used diamonds were​ "blood diamonds." C. De Beers claimed that their diamonds are mined under​ ethical, environmentally friendly conditions. D. De Beers eliminated microscopic branding from their diamonds. E. Both a and b.

A. De Beers developed the slogan​ "a diamond is​ forever" to increase sentimental value.

​________ goods are​ non-excludable and​ non-rival in consumption. A. Public B. All consumption C. Private D. Common Resource E. Club​ (Quasi-Public)

A. Public

Why do most regulatory agencies require natural monopolies to charge a price equal to average cost​ instead? A. Regulating price instead to equal marginal cost would result in the firm suffering a loss. B. Regulating price to equal average cost results in no deadweight loss. C. Regulating price to equal average cost maximizes consumer surplus. D. Regulating price instead to equal marginal cost would result in deadweight loss. E. Both a and b.

A. Regulating price instead to equal marginal cost would result in the firm suffering a loss.

You are planning to open a new Italian restaurant in your hometown where there are three other Italian restaurants. You plan to distinguish your restaurant from your competitors by offering northern Italian cuisine and using locally grown organic produce. What is likely to happen in the restaurant market in your hometown after you​ open? A. The demand curve facing each restaurant owner becomes more elastic. B. Your competitors are likely to change their menus to make their products more similar to yours. C. The demand curve facing each restaurant owner shifts to the right. D. While the demand curves facing your competitors becomes more​ elastic, your demand curve will be inelastic.

A. The demand curve facing each restaurant owner becomes more elastic.

At the profit−maximizing level of output for a perfectly competitive​ firm, price equals marginal cost. Which of the following is also true​? A. The difference between total revenue and total cost is the greatest. B. Average revenue equals average total cost. C. Total revenue equals total cost. D. Marginal profit equals marginal cost.

A. The difference between total revenue and total cost is the greatest.

Which of the following would provide economic evidence that there are many substitutes to​ Google's search engine app that smartphone owners can use instead. A. The​ cross-price elasticity between​ Google's app and other search engines is positive and fairly large. B. The income elasticity for​ Google's app is negative. C. The​ cross-price elasticity between​ Google's app and other search engines is negative and fairly large in absolute terms. D. The income elasticity for​ Google's app is positive. E. The demand for​ Google's app is elastic.

A. The​ cross-price elasticity between​ Google's app and other search engines is positive and fairly large.

Is it possible to tell from the income elasticity of demand whether a product is a luxury good or a​ necessity? A. Yes. If the income elasticity of demand is greater than​ 1, then the good is a luxury. If the income elasticity of demand is positive but less than​ 1, then the good is a necessity. B. Yes. If the income elasticity of demand is greater than​ 1, then the good is a necessity. If the income elasticity of demand is positive but less than​ 1, then the good is a luxury. C. Yes. If the income elasticity of demand is greater than 10​, then the good is a luxury. If the income elasticity of demand is positive but less than 10​, then the good is a necessity. D. Yes. If the income elasticity of demand is​ positive, then the good is a necessity. If the income elasticity of demand is​ negative, then the good is a luxury. E. No. It is not possible to tell from the income elasticity of demand whether a good is a luxury or a necessity.

A. Yes. If the income elasticity of demand is greater than​ 1, then the good is a luxury. If the income elasticity of demand is positive but less than​ 1, then the good is a necessity.

As a result of the NCAA acting like a​ cartel, ______. A. athletic departments benefit because they have lower​ costs, but athletes lose because they cannot be compensated for playing. B. athletic departments lose because they have higher​ costs, but athletes gain because they can be compensated for playing. C. athletic departments lose because they have a smaller pool of athletes to choose​ from, but athletes gain because they can be compensated for playing for as many years as they are enrolled. D. athletic departments benefit because they have more available​ players, but athletes lose because they can only get paid to play for two years.

A. athletic departments benefit because they have lower​ costs, but athletes lose because they cannot be compensated for playing.

State whether each of the following events will result in a movement along the demand curve for​ McDonald's Big Mac hamburgers or whether it will cause the curve to shift. The price of Burger​ King's Whopper hamburger increases. This will cause _____. A. demand for​ McDonald's Big Mac hamburgers to increase. B. demand for​ McDonald's Big Mac hamburgers to decrease. C. a movement along the demand curve for​ McDonald's Big Mac hamburgers.

A. demand for​ McDonald's Big Mac hamburgers to increase.

The production of paper creates pollution. In an unregulated​ market, when deciding how much paper to​ buy, customers typically​ ________ the cost of​ pollution, and producers typically​ ________ the cost of pollution. A. do not take into​ account; do not take into account B. take into​ account; do not take into account C. do not take into​ account; take into account D. take into​ account; take into account E. None of the above answers are correct.

A. do not take into​ account; do not take into account

What effect might market power have on technological​ change? Market power results in _____. A. economic profits that can be spent on research to develop new products. B. no barriers to​ entry, allowing new firms to begin producing​ technologically-improved substitutes. C. economic​ efficiency, which eliminates the need for new technology. D. marginal-cost pricing, leaving no resources with which to invest in new technology. E. economic​ profits, leaving no incentive to develop new products.

A. economic profits that can be spent on research to develop new products.

A patent or copyright is a barrier to entry based on _____. A. government action to protect a producer. B. ownership of a key necessary raw material. C. widespread network externalities. D. large economies of scale as output increases.

A. government action to protect a producer.

One study found that the price elasticity of demand for soda is −​0.78, while the price elasticity of demand for​ Coca-Cola is −1.22. ​Source: Kelly D.Brownell and Thomas R.​ Frieden,"Ounces of Prevention—The Public Policy Case for Taxes on Sugared​ Beverages," New England Journal of Medicine​, April​ 30, 2009, pp. 1805−1808. The price elasticity of​ Coca-Cola is ​(interpret the absolute value of these​ elasticitiies, i.e., ignore the minus sign​): A. greater than it is for soda as a product because there are more substitutes for​ Coca-Cola than soda. B. less than it is for soda as a product because there are more substitutes for​ Coca-Cola than soda. C. greater than it is for soda as a product because soda is an inferior good. D. less than it is for soda as a product because​ Coca-Cola usually has a higher price.

A. greater than it is for soda as a product because there are more substitutes for​ Coca-Cola than soda.

A profit maximizing​ monopoly's price is _____. A. greater than the price that would prevail if the industry is perfectly competitive. B. less than the price that would prevail if the industry is perfectly competitive. C. not consistently related to price that would prevail if the market is perfectly competitive. D. the same as the price that would prevail if the industry is perfectly competitive.

A. greater than the price that would prevail if the industry is perfectly competitive.

If the price elasticity of demand for toilet paper is −0.17​, the demand for toilet paper is _____. A. inelastic. B. perfectly elastic. C. perfectly inelastic. D. elastic. E. unit elastic.

A. inelastic.

Economists have developed broad and narrow definitions to identify monopolies. What is a characteristic that supports a firm being classified as a​ monopoly? Economists could find that a firm is a monopoly if _____. A. it earns profits in the long run. B. it produces a large quantity. C. it is a price taker. D. its production decisions are unresponsive to price. E. it achieves productive efficiency.

A. it earns profits in the long run.

When are firms likely to be price​ takers? A firm is likely to be a price taker when _____. A. it sells a product that is exactly the same as every other firm. B. It has market power. C. firms in the industry collude. D. It represents a substantial portion of the total market. E. Barriers to entry are substantial.

A. it sells a product that is exactly the same as every other firm.

What is the purpose of the antitrust​ laws? Antitrust laws are intended to _____. A. make illegal any attempts to form a monopoly or to collude. B. exempt natural monopolies from government regulations. C. allow firms to charge buyers different prices. D. allow firms to buy stock in competitors. E. both a and b.

A. make illegal any attempts to form a monopoly or to collude.

One key characteristic of monopolistic competition is that it has _____. A. many firms producing a slightly differentiated product. B. many firms producing identical goods. C. one firm producing a unique good. D. a few firms producing a slightly differentiated product. E. large barriers to entry.

A. many firms producing a slightly differentiated product.

Coca-Cola has been focusing on selling more​ 7.5-ounce cans in displays near supermarket checkout lines.​ Previously, Coke had relied more heavily on​ 20-ounce bottles displayed in the beverage sections of supermarkets. A news story noted​ that, "The smaller 7.5 ounce​ mini-cans are typically priced at five to seven cents an​ ounce, compared with three or four cents an ounce for​ 12-ounce cans." It quoted a​ Coca-Cola executive as arguing about consumers​ that, "They​ don't care about the price. They will pick it up if you put Coke within​ arm's reach". The executive believed that having the cans​ "within arm's​ reach" in the checkout line was important because it could result in _____. A. more impulse buying on the part of​ shoppers, reinforcing the elasticity of demand. B. less impulse buying on the part of​ shoppers, reinforcing the elasticity of demand. C. more impulse buying on the part of​ shoppers, conflicting with the elasticity of demand. Your answer is not correct. D. less impulse buying on the part of​ shoppers, conflicting with the elasticity of demand.

A. more impulse buying on the part of​ shoppers, reinforcing the elasticity of demand.

Use income elasticity to distinguish a normal good from an inferior good. For a normal​ good, the income elasticity of demand will be _____. A. positive, but for an inferior​ good, the income elasticity of demand will be negative. B. inelastic​, but for an inferior​ good, the income elasticity will be elastic. C. negative, but for an inferior​ good, the income elasticity of demand will be positive. D. positive or​ negative, but for an inferior​ good, the income elasticity will be zero. E. zero​, but for an inferior​ good, the income elasticity will be one.

A. positive, but for an inferior​ good, the income elasticity of demand will be negative.

State whether each of the following events will result in a movement along the demand curve for​ McDonald's Big Mac hamburgers or whether it will cause the curve to shift. KFC raises the price of a bucket of fried chicken. This will _____. A. shift the demand for McDonald's Big Mac hamburgers to the right. B. shift the demand for McDonald's Big Mac hamburgers to the left. C. cause a movement along the demand curve for​ McDonald's Big Mac hamburgers.

A. shift the demand for McDonald's Big Mac hamburgers to the right.

If a typical firm in a perfectly competitive industry is incurring​ losses, then _____. A. some firms will exit in the long run causing market supply to decrease and market price to​ rise, increasing profits for the remaining firms. B. some firms will enter in the long run causing market supply to increase and market price to​ rise, increasing profit for all firms. C. all firms will continue to lose money. D. some firms will exit in the long run causing market supply to decrease and market price to​ fall, increasing losses for the remaining firms.

A. some firms will exit in the long run causing market supply to decrease and market price to​ rise, increasing profits for the remaining firms.

Marginal benefit is _____. A. the additional benefit from consuming one more unit. B. the difference between the highest price a consumer is willing to pay and the price the consumer actually pays. C. the additional cost of producing one more unit. D. a legally determined maximum price that sellers may charge.

A. the additional benefit from consuming one more unit.

An increase in the price of a product causes a decrease in quantity demanded because of the income and substitution effects. More​ specifically, _____. A. the substitution effect is the decrease in quantity demanded because the product is more expensive relative to other goods and the income effect is the decrease in quantity demanded owing to the decline in​ consumers' purchasing power. B. the substitution effect is the decrease in quantity demanded because consumer tastes have changed and the income effect is the decrease in quantity demanded because consumer incomes have fallen. C. the substitution effect is the decrease in quantity demanded because the​ consumers' purchasing power is reduced and the income effect is the decrease in quantity demanded owing to the fact that the product is more expensive relative to other goods. D. the substitution effect is the decrease in quantity demanded because there are fewer consumers and the income effect is the decrease in quantity demanded because consumer incomes failed to increase.

A. the substitution effect is the decrease in quantity demanded because the product is more expensive relative to other goods and the income effect is the decrease in quantity demanded owing to the decline in​ consumers' purchasing power.

What is the difference between total cost and variable cost in the long​ run? In the long​ run, _____ A. the total cost of production equals the variable cost of production. B. the total cost of production minus the variable cost of production is the marginal cost of production. C. the total cost of production minus the variable cost of production is the fixed cost of production. D. the total cost of production equals the fixed cost of production and the variable cost of production equals zero. E. the variable cost of production minus the total cost of production is the fixed cost of production.

A. the total cost of production equals the variable cost of production.

In a column of​ forbes.com, Patrick​ Rishe, an economist at Washington​ University, notes that in recent years the National Football League has significantly expanded the number of games it broadcasts. As a​ result, he​ argues: "The NFL has oversaturated the market with its product.... TV​ ratings, consequently, have fallen. At least in​ part, diminishing marginal utility is a likely explanation as to​ why." ​Source: Patrick​ Rishe, "2016 NFL TV Ratings​ Decline: Has Diminishing Marginal Utility Set​ In?" forbes.com, December​ 6, 2016. Briefly explain his reasoning. A. NFL fans enjoy watching NFL games less when the number of other fans increases. B. NFL fans experience less additional satisfaction as they watch more NFL games. C. Football fans receive little enjoyment or satisfaction from watching NFL games on TV. D. Fans of the National Football League have a limited amount of income available to spend on NFL games.

B. NFL fans experience less additional satisfaction as they watch more NFL games.

What is the definition of marginal​ utility? A. Utility measured in utils. B. The change in utility from consuming an additional unit of a good or service. C. The average utility from consuming a good or service multiplied by the number of units of that good or service consumed. D. The utility from consuming a good or service divided by the number of units of that good or service consumed. E. The enjoyment or satisfaction people receive from consuming goods and services.

B. The change in utility from consuming an additional unit of a good or service.

The substitution effect is the change in the quantity demanded of a good that results from​ ______________, holding constant the effect of the price change on consumer purchasing power. A. the tendency of people to be unwilling to sell something they own B. a change in price making the good more or less expensive relative to other goods C. an increase in the usefulness of a product as the number of consumers who use it increases D. a change in the price of a substitute for the good

B. a change in price making the good more or less expensive relative to other goods

Relative to a perfectly competitive​ market, a monopoly results in _____. A. a gain in producer surplus equal to the loss in consumer surplus. B. a gain in producer surplus less than the loss in consumer surplus. C. greater economic efficiency. D. a gain in producer surplus equal to the gain in consumer surplus.

B. a gain in producer surplus less than the loss in consumer surplus.

In discussing the​ NCAA, the late Nobel laureate economist Gary Becker​ wrote, "It is impossible for an outsider to look at these​ [NCAA] rules without concluding that their main aim is to make the NCAA an effective cartel that severely constrains competition among schools for​ players." ​Source: Gary​ Becker, "The NCAA as a Powerful​ Cartel," ​becker-posnerlog.com​, April​ 4, 2011. A cartel is _____. A. a single firm that dominates the pricing and production in a market. B. a group of firms that collude by agreeing to restrict output to increase prices and profits. C. a group of firms that meet periodically to discuss the state of the industry. D. a group of firms that collude by agreeing to divide the market for their products into segments.

B. a group of firms that collude by agreeing to restrict output to increase prices and profits.

A good for which demand increases as income rises is​ ________, and a good for which demand increases as income falls is​ ________. A. a​ substitute; a complement B. a normal​ good; an inferior good C. a​ complement; a substitute D. an inferior​ good; a normal good

B. a normal​ good; an inferior good

Assume that a consumer buys only two goods—pizza and Coke. He is faced with a budget constraint because he has a limited amount of income to spend on the two goods. All of the following statements regarding the​ individual's demand curve for pizza are true except that _____. A. at each point on the demand​ curve, marginal utility per dollar spent on pizza equals marginal utility per dollar spent on Coke. B. at each point on the demand​ curve, marginal utility from the consumption of pizza equals marginal utility from the consumption of Coke. C. at each point on the demand​ curve, the individual maximizes his utility. D. at each point on the demand​ curve, the​ individual's budget constraint holds—the consumer spends only the limited amount of income that he has.

B. at each point on the demand​ curve, marginal utility from the consumption of pizza equals marginal utility from the consumption of Coke.

What are the differences between the​ long-run equilibrium of a perfectly competitive firm and the​ long-run equilibrium of a monopolistically competitive​ firm? Unlike perfectly competitive​ firms, in the long run monopolistically competitive firms _____. A. earn positive economic profits and charge a price greater than marginal cost. B. charge a price greater than marginal cost and do not produce at minimum average total cost. C. charge a price greater than marginal cost and have no excess capacity. D. charge a price greater than marginal cost and achieve allocative efficiency.

B. charge a price greater than marginal cost and do not produce at minimum average total cost.

The law of diminishing marginal utility suggests that _____. A. consumers experience less total satisfaction from inferior goods than from normal goods. B. consumers experience diminishing additional satisfaction as they consume more of a good or service. C. consumers experience less total satisfaction as they consume more of a good or service. D. consumers experience less total satisfaction on lower budget constraints. E. consumers experience less total satisfaction from a good or service over time.

B. consumers experience diminishing additional satisfaction as they consume more of a good or service.

There are about 400 wineries in​ California's Napa Valley. Suppose the owner of one of the wineries—​Jerry's Wine Emporium—raises the price of his wine by​ $5.00 per bottle. If the industry is monopolistically​ competitive, the reaction of consumers _____. A. would be to buy none of​ Jerry's wine. B. could be to remain loyal to​ Jerry's and pay the higher price. C. would be to switch to a​ lower-priced wine. D. would be to stop drinking wine.

B. could be to remain loyal to​ Jerry's and pay the higher price.

State whether each of the following events will result in a movement along the demand curve for​ McDonald's Big Mac hamburgers or whether it will cause the curve to shift. The U.S. economy enters a period of rapid growth in incomes. This will cause _____. A. demand for​ McDonald's Big Mac hamburgers to shift to the right if they are inferior goods. B. demand for​ McDonald's Big Mac hamburgers to shift to the left if they are inferior goods. C. a movement along the demand curve for​ McDonald's Big Mac hamburgers if they are normal goods.

B. demand for​ McDonald's Big Mac hamburgers to shift to the left if they are inferior goods.

A natural monopoly occurs when _____. A. the average variable cost curve is increasing. B. economies of scale are large enough so that one firm can supply the entire market at a lower average total cost than can two or more firms. C. diseconomies of scale are large enough so that one firm can supply the entire market at a lower average total cost than can two or more firms. D. None of the above is true.

B. economies of scale are large enough so that one firm can supply the entire market at a lower average total cost than can two or more firms.

Consider firms that introduce new​ products, such as DVDs in 2001. When firms introduce new​ products, how do they typically determine the price elasticity of demand for those​ products? Firms with new products often _____. A. identify price elasticity of demand by asking for government assistance. B. estimate price elasticity of demand by experimenting with different prices. C. approximate price elasticity of demand with market signals such as shortages. D. guess price elasticity of demand based on market competition. E. identify price elasticity of demand by using price controls to set price ceilings.

B. estimate price elasticity of demand by experimenting with different prices.

In class we learned​ that, in the long​ run, monopolistically competitive firm earns zero profits.​ However, in reality there are some strategies by which a firm can avoid losing profits. Which of the following is an example for such a​ strategy? A. price at marginal cost to undercut competitors that charge a markup B. identify new markets and develop products precisely for those new markets C. gradually increase the​ mark-up on the goods produced D. find a market niche and keep it as narrow as possible so as to prevent other producers from entering this market segment E. lower the price of its products to expand its market share

B. identify new markets and develop products precisely for those new markets

Coca-Cola has been focusing on selling more​ 7.5-ounce cans in displays near supermarket checkout lines.​ Previously, Coke had relied more heavily on​ 20-ounce bottles displayed in the beverage sections of supermarkets. A news story noted​ that, "The smaller 7.5 ounce​ mini-cans are typically priced at five to seven cents an​ ounce, compared with three or four cents an ounce for​ 12-ounce cans." It quoted a​ Coca-Cola executive as arguing about consumers​ that, "They​ don't care about the price. They will pick it up if you put Coke within​ arm's reach". If the​ Coca-Cola executive is​ correct, the effect of this marketing strategy should be to _____. A. increase the​ firm's quantity of Cokes sold. B. increase the​ firm's revenue. C. decrease the​ firm's revenue. D. have no influence on the​ firm's quantity of Cokes sold.

B. increase the​ firm's revenue.

A budget​ constraint: A. shows the change in total utility a consumer receives from consuming one additional unit of a good or service. B. indicates the limited amount of income available to consumers to spend on goods and services. C. shows the combinations of consumption bundles that give the consumer the same utility. D. shows the rate at which a consumer would be willing to trade off one good for another. E. indicates the marginal rate of substitution.

B. indicates the limited amount of income available to consumers to spend on goods and services.

What are the three conditions for a market to be perfectly​ competitive? For a market to be perfectly​ competitive, there must be _____. A. many buyers and one​ seller, with the firm producing a product that has no close​ substitutes, and barriers to new firms entering the market. B. many buyers and​ sellers, with all firms selling identical​ products, and no barriers to new firms entering the market. C. many buyers and a few ​sellers, with all firms selling identical​ products, and no barriers to new firms entering the market. D. many buyers and​ sellers, with firms selling similar but not identical​ products, with low barriers to new firms entering the market. E. many buyers and a small number of firms that​ compete, selling differentiated ​products, and barriers to new firms entering the market.

B. many buyers and​ sellers, with all firms selling identical​ products, and no barriers to new firms entering the market.

Why was De Beers worried that people might resell their old​ diamonds? If people resell their old​ diamonds, then _____. A. used diamonds would not have a brand name. B. market competition would​ increase, decreasing market prices. C. market supply would​ increase, increasing profits. D. De Beers would become a natural monopoly. E. De Beers would not be able to gain patent protection.

B. market competition would​ increase, decreasing market prices.

The NCAA acts like a cartel because it _____. A. controls the operations of the athletic departments of the member colleges. B. restricts the number of games that the member​ schools' teams can play. C. coordinates the broadcasts of televised sporting events. D. sets ticket prices for all of the member​ schools' events.

B. restricts the number of games that the member​ schools' teams can play.

Product differentiation involves making a product that is _____. A. no different than the products of competing firms. B. slightly different from the products of competing firms. C. very different from the products of competing firms. D. completely different from the products of competing firms. E. cheaper than the products of competing firms.

B. slightly different from the products of competing firms.

Assume that a consumer buys only two goods—pizza and Coke. He is faced with a budget constraint because he has a limited amount of income to spend on the two goods. When the price of pizza falls along the demand curve for​ pizza, ______. A. the consumer only adjusts the consumption of pizza since price of Coke remains unchanged and does not follow the rule of equal marginal utility per dollar. B. the consumer adjusts the consumption of both pizza and Coke following the rule of equal marginal utility per dollar. C. the consumer may adjust the consumption of both pizza and Coke provided he does not consume fractional slices of pizza or fractional cups of Coke and does not follow the rule of equal marginal utility per dollar. D. the consumer follows the rule of equal marginal utility per dollar but does not always adjust the consumption of pizza or Coke because that may lead to consuming fractional slices of pizza or fractional cups of Coke.

B. the consumer adjusts the consumption of both pizza and Coke following the rule of equal marginal utility per dollar.

What is the economic definition of​ utility? Utility is _____. A. the change in enjoyment or satisfaction a person receives from consuming one additional unit of a good or service. B. the enjoyment or satisfaction people receive from consuming goods and services. C. the decrease in additional satisfaction consumers receive as they consume more of a good or service during a given period of time. D. the difference between the highest price a consumer is willing to pay and the price the consumer actually pays. E. the sum of consumer and producer surplus.

B. the enjoyment or satisfaction people receive from consuming goods and services.

When demand is price​ elastic, a fall in price causes total revenue to rise because _____. A. the percentage change in quantity supplied is greater than the percentage change in price. B. the increase in revenue from selling additional units is large enough to offset the decrease in revenue from lowering the price of all units. C. the demand curve shifts. D. percentage increase in quantity demanded is less than the percentage fall in price. E. when price​ falls, quantity sold increases so total revenue automatically rises.

B. the increase in revenue from selling additional units is large enough to offset the decrease in revenue from lowering the price of all units.

Why does the government issue​ patents? The government issues patents _____. A. to encourage competition among firms in markets with barriers to entry. B. to encourage firms to spend money on the research and development necessary to create new products. C. to prevent firms from keeping secret how a product is made. D. to ensure that new products are safe and effective for consumers. E. to limit excessive economic profits in the short run before new firms have had time to enter profitable markets.

B. to encourage firms to spend money on the research and development necessary to create new products.

If a firm does not produce any​ output, its _____. A. economic profit must be positive. B. total variable cost must be zero. C. total costs must be zero. D. marginal cost must be zero. E. total fixed cost must be zero.

B. total variable cost must be zero.

Suppose that Alonso receives 400 units of additional utility from his last soda and 700 units of additional utility from his last slice of pizza. What can we conclude about Alonso​'s choices if the price of a soda is​ $1.50 and the price of a slice of pizza is​ $2? A. Alonso needs to buy less soda and less pizza to maximize his utility. B. Alonso should buy more soda to maximize his utility. C. Alonso should buy more pizza to maximize his utility. D. Alonso is maximizing utility because he buys more of the good providing the most utility. E. None of the above answers is correct.

C. Alonso should buy more pizza to maximize his utility.

Give an example of an antitrust law and give a brief description of how that law affects the​ government's antitrust policy. A. The Robinson−Patman Act prohibited market entry of new firms if the result would reduce competition. B. The Family and Medical Leave Act guaranteed new mothers unpaid leave from work after giving birth. C. The Sherman Act prohibited restraint of trade including price fixing and collusion. D. The Federal Trade Commission Act legalized monopolies. E. The​ Taft-Hartley Act prohibited firms from buying stock in competitors.

C. The Sherman Act prohibited restraint of trade including price fixing and collusion.

​Luke's Express Diner is the only place that sells burgers in a remote town in Arizona. As one of the​ long-time residents of the​ town, Bertha Hayes contends that the burgers at​ Luke's are priced a bit too high. She claims that this is because the diner enjoys monopoly power in the town. Her​ neighbor, Ruth​ Ernes, disagrees that the diner is in a position to​ over-price products due to monopoly power because she herself knows a lot of people who​ don't like the food there. Which of the​ following, if​ true, will strengthen​ Bertha's argument? A. The ratio of returning customers to new ones at​ Luke's is high. B. The number of people in town who eat out has increased over the last ten years. C. The ratio of the​ burger's price to the cost of producing the burger is high. D. Like most other restaurants in​ town, Luke's Express Diner offers specials and regular discounts to attract customers. E. Luke's Express Diner recorded a 5 percent decline in net profits this year as compared to the previous year.

C. The ratio of the​ burger's price to the cost of producing the burger is high.

If the price elasticity of demand for a good is −0.64​, then this means that _____. A. the demand is elastic. B. the demand is inelastic and therefore the supply of the good must also be inelastic. C. a 10 percent increase in price results in a 6.4 percent decrease in quantity demanded. D. a 10 percent decrease in price results in a 6.4 percentage decrease in quantity demanded. E. the percentage decrease in quantity demanded is greater in absolute terms than the percentage increase in price.

C. a 10 percent increase in price results in a 6.4 percent decrease in quantity demanded.

State whether each of the following events will result in a movement along the demand curve for​ McDonald's Big Mac hamburgers or whether it will cause the curve to shift. McDonald's eliminates ​$1.00 off coupons. This will cause _____. A. demand for​ McDonald's Big Mac hamburgers to shift to the right. B. demand for​ McDonald's Big Mac hamburgers to shift to the left. C. a movement along the demand curve for​ McDonald's Big Mac hamburgers.

C. a movement along the demand curve for​ McDonald's Big Mac hamburgers.

An article in the Wall Street Journal in 2019 noted that oil prices had increased to a​ 3-month high following an agreement by Russia and the members of OPEC to reduce their oil production by a combined 1.2 million barrels per day. World oil production is over 100 million barrels per day. ​Source: Christopher​ Alessi, "Oil Prices Reach​ Three-Month Highs on OPEC​ Cuts," Wall Street Journal​, February​ 20, 2019. A small decrease in supply can lead to a large increase in equilibrium price when _____. A. demand is perfectly elastic. B. demand is relatively elastic. C. demand is relatively inelastic. D. supply is perfectly elastic.

C. demand is relatively inelastic.

The rule of equal marginal utility per dollar spent suggests that consumers maximize utility by A. maximizing marginal utility for each good or service. B. equalizing the last dollar spent across goods and services. C. equalizing the marginal utility per dollar spent across goods and services. D. minimizing the marginal utility per dollar spent across goods and services. E. maximizing the marginal rate of substitution.

C. equalizing the marginal utility per dollar spent across goods and services.

Both individual buyers and sellers in perfect competition _____. A. can influence the market price by their own individual actions. B. have the market price dictated to them by government. C. have to take the market price as a given. D. can influence the market price by joining with a few of their competitors.

C. have to take the market price as a given.

Coca-Cola has been focusing on selling more​ 7.5-ounce cans in displays near supermarket checkout lines.​ Previously, Coke had relied more heavily on​ 20-ounce bottles displayed in the beverage sections of supermarkets. A news story noted​ that, "The smaller 7.5 ounce​ mini-cans are typically priced at five to seven cents an​ ounce, compared with three or four cents an ounce for​ 12-ounce cans." It quoted a​ Coca-Cola executive as arguing about consumers​ that, "They​ don't care about the price. They will pick it up if you put Coke within​ arm's reach". ​Source: Mike​ Esterl, "Coke Under Pressure as Sales Abroad​ Weaken," Wall Street Journal​, July​ 30, 2014. Part 1: The​ Coca-Cola executive is assuming that the demand for Coke is: A. elastic because he says consumers​ "don't care about the​ price." B. elastic because the executive is ignoring consumer behavior. C. inelastic because he says consumers​ "don't care about the​ price." D. inelastic because the executive is ignoring consumer behavior.

C. inelastic because he says consumers​ "don't care about the​ price."

When a monopolistically competitive firm cuts its price to increase its​ sales, it experiences a gain in revenue due to the _____. A. price effect. B. substitution effect. C. output effect. D. income effect.

C. output effect.

A​ fast-food restaurant decides to raise the price of its hamburgers. Assume the firm is in a monopolistically competitive industry. What will happen to the demand for its​ hamburgers? When the​ fast-food restaurant raises the price of​ hamburgers, _____. A. all of its customers will be willing to pay the higher price because they prefer this brand of hamburgers. B. all of its customers will be willing to pay the higher price because this restaurant faces no competition. C. some of its customers will be willing to pay a higher price because this restaurant is close to them. D. none of its customers will be willing to pay the higher price and will stop buying hamburgers. E. none of its customers will be willing to pay the higher price because this restaurant faces competition from other restaurants.

C. some of its customers will be willing to pay a higher price because this restaurant is close to them.

What are the four most important ways a firm becomes a​ monopoly? The four main reasons a firm becomes a monopoly​ are: A. antitrust​ legislation, control of a key​ resource, arbitrage, and economies of scale. B. antitrust​ legislation, control of a key​ resource, no close​ substitutes, and economies of scale. C. the government blocks​ entry, control of a key​ resource, network​ externalities, and economies of scale. D. the government blocks​ entry, control of a key​ resource, network​ externalities, and diseconomies of scale. E. the lack of patents and​ copyrights, control of a key​ resource, network​ externalities, and economies of scale.

C. the government blocks​ entry, control of a key​ resource, network​ externalities, and economies of scale.

The law of demand is the assertion that _____. A. the demand for a product is negatively related to its price. B. the quantity demanded of a product is directly related to its price. C. the quantity demanded of a product is inversely related to its price. D. changes in price and changes in quantity demanded move in the same direction.

C. the quantity demanded of a product is inversely related to its price.

Sony went a decade suffering losses selling televisions before finally earning a profit in 2014. Given the strong consumer demand for​ plasma, LCD, and LED television​ sets, shouldn't Sony have been able to raise prices to earn a profit during that decade of​ losses? ​Source: Eric Pfanner and Takashi​ Mochizuki, "Sony's TV Business​ Mends, but Will It Be​ Enough?" Wall Street Journal​, December​ 12, 2014. How could an increase in demand result in a lower market​ price? An increase in demand could result in a lower market price if _____. A. the supply curve shifts to the left. B. the supply curve does not shift. C. the supply curve shifts farther to the right than the demand curve. D. the supply curve shifts to the right by less than the demand curve.

C. the supply curve shifts farther to the right than the demand curve.

If patents reduce​ competition, why does the federal government grant​ them? The federal government grants patents _____. A. to prevent network externalities. B. to increase the number of close substitutes available. C. to encourage firms to spend money on research to create new products. D. to create natural monopolies. E. to encourage firms to collude.

C. to encourage firms to spend money on research to create new products.

A monopolist is a price maker because _____. A. when price makers raise their​ prices, they lose all customers. B. a monopolist can charge any price it​ wants, regardless of demand. C. when a monopolist raises its​ prices, it loses some but not all customers. D. a​ monopolist's price and marginal revenue are the same.

C. when a monopolist raises its​ prices, it loses some but not all customers.

The income effect causes quantity demanded to​ ________ when the price of a normal good​ decreases, and causes quantity demanded to​ ________ when the price of an inferior good decreases. A. decrease; decrease B. decrease; increase C. ​increase; decrease D. increase; increase

C. ​increase; decrease

Goods and services that can be used for the same purpose are​ ________, and goods and services that are used together are​ ________. A. normal​ goods; inferior goods B. ​complements; substitutes C. ​substitutes; complements D. inferior​ goods; normal goods

C. ​substitutes; complements

Which of the following would cause an unambiguous decrease in the equilibrium quantity of DVD​ players? A. A downward shift of the supply curve and an upward shift of the demand curve. B. A downward shift of the supply curve and a downward shift of the demand curve. C. The supply curve remains unchanged and an upward shift of the demand curve. D. An upward shift of the supply curve and a downward shift of the demand curve. E. An upward shift of the supply curve and an upward shift of the demand curve.

D. An upward shift of the supply curve and a downward shift of the demand curve.

Who is in charge of enforcing​ antitrust laws? A. The Federal Trade Commission. B. The Antitrust Division of the U.S. Department of Justice. C. The U.S. Department of Transportation. D. Both a and b. E. All of the above.

D. Both a and b.

Why would it be economically efficient to require a natural monopoly to charge a price equal to marginal​ cost? A. Economic efficiency requires natural monopolies to earn zero economic profits. B. Economic efficiency requires the last unit of a good produced to provide an additional benefit to consumers greater than the additional cost of producing it. C. Economic efficiency requires the total benefit of producing a good to equal the total cost of producing it. D. Economic efficiency requires the last unit of a good produced to provide an additional benefit to consumers equal to the additional cost of producing it. E. Economic efficiency requires the last unit of a good produced to provide an additional benefit to consumers equal to the average cost of producing it.

D. Economic efficiency requires the last unit of a good produced to provide an additional benefit to consumers equal to the additional cost of producing it.

There are many wheat farms in the United​ States, and there are also more than​ 14,000 Starbucks coffeehouses. ​Why, then, does a Starbucks coffeehouse face a​ downward-sloping demand curve when a wheat farmer faces a horizontal demand​ curve? A. While both wheat and coffee are homogeneous​ goods, Starbucks has market power. B. Wheat is a heterogeneous​ good, while Starbucks coffee is homogeneous. C. Wheat is a heterogeneous​ good, while Starbucks is able to differentiate its coffee from other coffeehouses. D. Wheat is a homogeneous​ good, while Starbucks is able to differentiate its coffee from other coffeehouses.

D. Wheat is a homogeneous​ good, while Starbucks is able to differentiate its coffee from other coffeehouses.

Which of the following is the best example of the Law of​ Supply? A. When the cost of production of cotton​ increased, all​ suppliers' willingness to accept decreased. B. When the cost of production of cotton​ fell, the market price of cotton also fell. C. When the market price of pens​ increased, sellers started supplying fewer pens. D. When the market price of pens​ increased, sellers started supplying more pens.

D. When the market price of pens​ increased, sellers started supplying more pens.

On a shopping​ trip, Sophia decided to buy a coat that had a price tag of ​$74.95 When she brought the coat to the​ store's sales​ clerk, Sophia was told that the coat was on​ sale, and she would pay 30 percent less than the price on the tag. After the discount was​ applied, Sofia paid ​$52.47​, ​$22.48 less than the original price. What is Sophia​'s consumer surplus from buying the​ coat? A. at least ​$52.47 since she was willing to pay ​$74.95. B. exactly ​$52.47 since this is the actual price she pays. C. exactly ​$74.95 since this is the price she was willing to pay. D. at least ​$22.48 since this is the difference between the price she is willing to pay for the coat and the actual price she pays. E. exactly ​$22.48 since this is the difference between the maximum price she is willing to pay for the coat and the actual price she pays.

D. at least ​$22.48 since this is the difference between the price she is willing to pay for the coat and the actual price she pays.

A monopolistically competitive firm is not productively efficient because it produces a level of output where _____. A. price exceeds marginal cost. B. marginal revenue is less than price. C. average variable cost is not at a minimum. D. average total cost is not at a minimum.

D. average total cost is not at a minimum.

What is the difference between a​ firm's shutdown point in the short run and its exit point in the long​ run? In the short​ run, a​ firm's shutdown point is the minimum point on the _____. A. marginal cost curve and in the long​ run, a​ firm's exit point is the minimum point on the marginal cost curve. B. average total cost curve and in the long​ run, a​ firm's exit point is the minimum point on the average total cost curve. C. average variable cost​ curve, while in the long​ run, a​ firm's exit point is the minimum point on the average fixed cost curve. D. average variable cost​ curve, while in the long​ run, a​ firm's exit point is the minimum point on the average total cost curve. E. average variable cost​ curve, while in the long​ run, a firm cannot exit.

D. average variable cost​ curve, while in the long​ run, a​ firm's exit point is the minimum point on the average total cost curve.

To have a monopoly in an industry there must be _____. A. an inelastic demand for the​ industry's product. B. a public​ franchise, making the monopoly the exclusive legal provider of a good or service. C. a patent or copyright giving the firm exclusive rights to sell a product for 20 years. D. barriers to entry so high that no other firms can enter the industry.

D. barriers to entry so high that no other firms can enter the industry.

Positive technological change is defined as _____. A. being able to produce more output using the same inputs. B. being able to produce the same output using fewer inputs. C. being able to sell more output at higher prices. D. both a and b. E. all of the above.

D. both a and b.

There are about 400 wineries in​ California's Napa Valley. Suppose the owner of one of the wineries—​Jerry's Wine Emporium—raises the price of his wine by​ $5.00 per bottle. If the industry is perfectly​ competitive, the reaction of consumers would be to _____. A. buy more of​ Jerry's wine. B. buy​ some, but less​ of, Jerry's wine. C. stop drinking wine. D. buy wine from another winery.

D. buy wine from another winery.

The demand for each​ seller's product in perfect competition is perfectly elastic at the market price because _____. A. the price is set by the government. B. ​profit-maximization allows each seller to charge the highest price. C. all the sellers get together and set the price. D. each seller is too small to affect the market price. E. all the demanders get together and set the price.

D. each seller is too small to affect the market price.

A running shoe manufacturer spends a lot of money to promote its brand name. This promotion​ ________ consumers because​ ________. ​A. harms; definitely increases average total cost B. helps; it lowers marginal cost C. helps; it is a fixed cost and not a variable cost D. helps; it provides a signal and information about the products the running shoe manufacture makes E. harms; increases the elasticity of demand

D. helps; it provides a signal and information about the products the running shoe manufacture makes

If a perfectly competitive​ firm's price is less than its average total cost but greater than its average variable​ cost, the firm _____. A. is breaking even. B. is earning a profit. C. should shut down. D. is incurring a loss.

D. is incurring a loss.

In the short​ run, a profit-maximizing​ firm's decision to produce should be guided by whether _____. A. it makes a profit. B. its marginal profit is maximized. C. its total revenue exceeds its fixed cost. D. its total revenue covers its variable cost.

D. its total revenue covers its variable cost.

What effect does the entry of new firms have on the demand curve of an existing firm in a monopolistically competitive​ market? The entry of new firms cause the demand curve of an existing firm in a monopolistically competitive market to _____. A. shift to the right and become less elastic. B. shift to the right and become more elastic. C. shift to the left and become less elastic. D. shift to the left and become more elastic.

D. shift to the left and become more elastic.

Sony went a decade suffering losses selling televisions before finally earning a profit in 2014. Given the strong consumer demand for​ plasma, LCD, and LED television​ sets, shouldn't Sony have been able to raise prices to earn a profit during that decade of​ losses? ​Source: Eric Pfanner and Takashi​ Mochizuki, "Sony's TV Business​ Mends, but Will It Be​ Enough?" Wall Street Journal​, December​ 12, 2014. How could an increase in demand result in a lower market​ price? The new equilibrium is where _____. A. the original demand curve intersects the new supply curve. B. the new demand curve intersects the original supply curve. C. the original demand curve intersects the original supply curve. D. the new demand curve intersects the new supply curve.

D. the new demand curve intersects the new supply curve.

Income elasticity of demand is _____. A. the percentage change in quantity demanded of one good divided by the percentage change in the price of another good. B. the percentage change in quantity demanded divided by the percentage change in price. C. the percentage change in income divided by the percentage change in prices. D. the percentage change in quantity demanded divided by the percentage change in income. E. the percentage change in quantity supplied divided by the percentage change in price.

D. the percentage change in quantity demanded divided by the percentage change in income.

In​ economics, the best definition of technology is _____. A. the sophistication of the equipment enjoyed by consumers. B. the development of new products. C. the speed of communication. D. the process a firm uses to turn inputs into outputs. E. the process a firm uses to price output.

D. the process a firm uses to turn inputs into outputs.

To maximize​ utility, consumers choose a consumption bundle _____. A. where the marginal utility of each product is equal. B. where the slope of the budget constraint is equal to the ratio of the price of the good on the horizontal axis divided by the price of the good on the vertical axis​ (multiplied by minus​ one). C. where indifference curves intersect one another. D. where the budget constraint is just tangent to an indifference curve. E. where the slope of the highest indifference curve is equal to the marginal rate of substitution.

D. where the budget constraint is just tangent to an indifference curve.

If you are a student who does not play intercollegiate sports but who is enrolled at a​ school, such as the University of Alabama or Ohio State​ University, with prominent sports​ teams, the NCAA acting as a cartel makes you A. better off because the academic reputation of your school is enhanced. B. better off because your school attracts better academically prepared students. C. worse off because the NCAA schools have more space for athletes than​ non-athletes. D. worse off because you would have fewer games to watch and have to pay more to watch them.

D. worse off because you would have fewer games to watch and have to pay more to watch them.

Jess practices her electronic keyboard every evening for an upcoming musical concert. The sound disturbs​ Felix, who usually works on his college assignments around the same time. The value of the practice to Jess is​ $100, while the cost of the practice to Felix is​ $80. According to​ George, a student of​ economics, Jess should pay Felix​ $80 to continue her practice for the musical concert. Which of the following assumptions is being made by​ George? A. He assumes that​ Felix's cost of a college education is more than​ $100. B. He assumes that Felix and Jess are friends. C. He assumes that​ Jess's income from the concert would be less than​ $80. D. He assumes that this is the only concert Jess has this year. E. He assumes that Felix has the right to quiet studying conditions.

E. He assumes that Felix has the right to quiet studying conditions.

What is the difference between the short run and the long​ run? A. In the short​ run, all of a​ firm's inputs are​ fixed, while in the long​ run, a firm is able to vary all inputs but not adopt new technology. B. In the short​ run, a firm can vary all inputs but technology is​ fixed, while in the long​ run, a firm can adopt new technology but all inputs are fixed. C. In the short​ run, a firm can vary all inputs but technology is​ fixed, while in the long​ run, a firm can vary all inputs and adopt new technology. D. In the short​ run, all of a​ firm's inputs are​ fixed, while in the long​ run, a firm is able to vary all its inputs and adopt new technology. E. In the short​ run, at least one of a​ firm's inputs is​ fixed, while in the long​ run, a firm is able to vary all its inputs and adopt new technology.

E. In the short​ run, at least one of a​ firm's inputs is​ fixed, while in the long​ run, a firm is able to vary all its inputs and adopt new technology.

Why is the demand curve referred to as a marginal benefit​ curve? A. It shows the difference between the highest price a consumer is willing to pay and the lowest price a firm would be willing to accept. B. It shows the difference between the highest price a consumer is willing to pay and the marginal benefit of consumption. C. It shows the price consumers actually pay to consume a product. D. It shows the willingness of firms to supply a product at different prices. E. It shows the willingness of consumers to purchase a product at different prices.

E. It shows the willingness of consumers to purchase a product at different prices.

Why are firms willing to accept losses in the short run but not in the long​ run? A. Fixed costs are larger in the long run than in the short run. B. Firms cannot shut down in the short run. C. It is always profitable to incur losses in the short run because profits will always arise in the long run. D. Firms are price takers in the short run but not in the long run. E. There are sunk costs in the short run but not in the long run.

E. There are sunk costs in the short run but not in the long run.

What is a price​ taker? A price taker is _____. A. a firm with a perfectly inelastic demand curve. B. a firm that does not seek to maximize profits. C. a firm that has the ability to charge a price greater than marginal cost. D. a firm with a​ downward-sloping demand curve. E. a firm that is unable to affect the market price.

E. a firm that is unable to affect the market price.

In recent​ years, fewer households have been relying on traditional cable television to provide entertainment. Traditional cable television is sometimes called​ "pay TV." According to an article in the Wall Street Journal​, ​"The pay-TV decline comes as many U.S. households are turning to the internet for entertainment and canceling their traditional​ subscriptions, a phenomenon called​ cordcutting." ​Source: Drew FitzGerald and Benjamin​ Mullin, "Outlook for Traditional TV Goes from Bad to​ Worse," Wall Street Journal​, November​ 19, 2018. Is the decline in the number of cable television subscriptions likely the result of a movement along the demand curve for cable television or a shift in the demand​ curve? What information would you need to be confident in your​ answer? The decline in the number of cable television subscriptions is likely the result of _____. A. an upward movement along the demand​ curve, but you would need to have additional information on changes in consumer preferences to be sure. B. neither a shift nor a movement along the demand curve. C. a rightward shift in the demand​ curve, but you would need to have information on changes​ (if any) in the price of cable television subscriptions to be sure. D. a downward movement along the demand​ curve, but you would need to have information on changes in consumer income to be sure. E. a leftward shift in the demand​ curve, but you would need to have information on changes​ (if any) in the price of cable television subscriptions to be sure.

E. a leftward shift in the demand​ curve, but you would need to have information on changes​ (if any) in the price of cable television subscriptions to be sure.

Marginal utility is more useful than total utility in consumer decision making because _____. A. it is possible to measure marginal utility but not total utility. B. consumers maximize utility by equalizing marginal utility from each good. C. consumers maximize utility by maximizing marginal utility from each good. D. optimal decisions are made by consuming until marginal utility becomes negative. E. optimal decisions are made at the margin.

E. optimal decisions are made at the margin.

Is utility measurable?

No