MICRO FINAL
INCOME ELASTICITY OF DEMAND
% CHANGE IN QD / % CHANGE IN INCOME
CROSS PRICE ELASTICITY OF DEMAND
% CHANGE IN QD IN GOOD 1 / % CHANGE IN PRICE FOR GOOD 2
PRICE ELASTICITY OF SUPPLY =
% IN QS / % CHANGE IN P
The characteristic used in price discrimination is ___________________ ____ _____
WILLINGNESS TO PAY
When the marginal product of an input declines as the quantity of that input increases, the production function exhibits a. increasing marginal product. b. diminishing marginal product. c. diminishing total product. d. Both b and c are correct.
a
Which of the following firms is the closest to being a perfectly competitive firm? a. a hot dog vendor in New York b. Microsoft Corporation c. Ford Motor Company d. the on-campus bookstore
a
Which of the following statements best expresses a firm's profit-maximizing decision rule? a. If marginal revenue is greater than marginal cost, the firm should increase its output. b. If marginal revenue is less than marginal cost, the firm should shut down in the short run. c. If marginal revenue equals marginal cost, the firm should produce exactly one less unit of output. d. All of the above are correct.
a
When, in our analysis of the gains and losses from international trade, we assume that a country is small, we are in effect assuming that the country a. cannot experience significant gains or losses by trading with other countries. b. cannot have a significant comparative advantage over other countries. c. cannot affect world prices by trading with other countries. d. All of the above are correct.
c
Which of these curves is the perfectly competitive firm's short-run supply curve? a. the average variable cost curve above marginal cost b. the average total cost curve above marginal cost c. the marginal cost curve above average variable cost d. the average fixed cost curve
c
Fixed costs can be defined as costs that a. vary inversely with production. b. vary in proportion with production. c. are incurred only when production is large enough. d. are incurred even if nothing is produced.
d
If the size of a tax increases, tax revenue a. increases. b. decreases. c. remains the same. d. may increase, decrease, or remain the same.
d
Profit maximizing firms in perfectly competitive industries with free entry and exit face a price equal to the lowest possible a. marginal cost of production. b. fixed cost of production. c. total cost of production. d. average total cost of production
d
Suppose a tax is imposed on the buyers of fast-food French fries. The burden of the tax will a. fall entirely on the buyers of fast-food French fries. b. fall entirely on the sellers of fast-food French fries. c. be shared equally by the buyers and sellers of fast-food French fries. d. be shared by the buyers and sellers of fast-food French fries but not necessarily equally.
d
The marginal cost curve crosses the average total cost curve at a. the efficient scale. b. the minimum point on the average total cost curve. c. a point where the marginal cost curve is rising. d. All of the above are correct.
d
When a country that imported a particular good abandons a free-trade policy and adopts a notrade policy, a. producer surplus increases and total surplus increases in the market for that good. b. producer surplus increases and total surplus decreases in the market for that good. c. producer surplus decreases and total surplus increases in the market for that good. d. producer surplus decreases and total surplus decreases in the market for that good.
d
When a nation first begins to trade with other countries and the nation becomes an exporter of soybeans, a. this is an indication that the world price of soybeans exceeds the nation's domestic price of soybeans in the absence of trade. b. this is an indication that the nation has a comparative advantage in producing soybeans. c. the nation's consumers of soybeans become worse off and the nation's producers of soybeans become better off. d. All of the above are correct.
d
When a tax is placed on the sellers of lemonade, a. the sellers bear the entire burden of the tax. b. the buyers bear the entire burden of the tax. c. the burden of the tax will be always be equally divided between the buyers and the sellers. d. the burden of the tax will be shared by the buyers and the sellers, but the division of the burden is not always equal.
d
Which of the following arguments for trade restrictions is often advanced? a. Trade restrictions make all Americans better off. b. Trade restrictions increase economic efficiency. c. Trade restrictions are necessary for economic growth. d. Trade restrictions are sometimes necessary for national security.
d
Which of the following is an example of a public good? a. A newspaper b. An ice cream cone c. Air conditioning d. The scenic view on Interstate 49
d
Economists are particularly adept at understanding that people respond to a. laws. b. incentives. c. punishments more than rewards. d. rewards more than punishments
B
For a good that is a necessity, a. quantity demanded tends to respond substantially to a change in price. b. demand tends to be inelastic. c. the law of demand does not apply. d. All of the above are correct.
B
If firms in a monopolistically competitive market are earning economic profits, which of the following scenarios would best describe the change existing firms would face as the market adjusts to the long-run equilibrium? a. an increase in demand for each firm b. a decrease in demand for each firm c. a downward shift in the marginal cost curve for each firm d. an upward shift in the marginal cost curve for each firm
B
Jean-Paul is currently spending $10 a day on M&Ms. Suppose the price of M&Ms increased by 17% and he dropped his quantity of M&Ms purchased by 23%. Jean-Paul's demand for M&Ms is a. perfectly elastic. b. elastic. c. inelastic. d. unit elastic.
B
Price discrimination is the business practice of a. bundling related products to increase total sales. b. selling the same good at different prices to different customers. c. pricing above marginal cost. d. hiring marketing experts to increase consumers' brand loyalty.
B
Suppose that in a particular market, the demand curve is highly elastic and the supply curve is highly inelastic. If a tax is imposed in this market, then a. the buyers will bear a greater burden of the tax than the sellers. b. the sellers will bear a greater burden of the tax than the buyers. c. the buyers and sellers are likely to share the burden of the tax equally. d. the buyers and sellers will not share the burden equally, but it is impossible to determine who will bear the greater burden of the tax without more information.
B
The "invisible hand" directs economic activity through a. advertising. b. prices. c. central planning. d. government regulations.
B
The demand for Werthers candy is likely a. elastic because candy is expensive relative to other snacks. b. elastic because there are many close substitutes for Werthers. c. elastic because Werthers are regarded as a necessity by many people. d. inelastic because it is usually eaten quickly, making the relevant time horizon short.
B
Each firm in a monopolistically competitive firm faces a downward-sloping demand curve because a. there are many other sellers in the market. b. there are very few other sellers in the market. c. the firm's product is different from those offered by other firms in the market. d. that firm faces the threat of entry into the market by new firms.
C
Firms that engage in extremely expensive advertizing campaigns for a product are likely to be providing consumers with a. information about the availability of the product. b. information about product price. c. a signal of product quality. d. a good example of wasted resources.
C
If the price elasticity of demand for a good is 0.4, then a 10 percent increase in price results in a a. 0.4 percent decrease in the quantity demanded. b. 2.5 percent decrease in the quantity demanded. c. 4 percent decrease in the quantity demanded. d. 40 percent decrease in the quantity demanded.
C
In a competitive market free of government regulation, a. price adjusts until quantity demanded is greater than quantity supplied. b. price adjusts until quantity demanded is less than quantity supplied. c. price adjusts until quantity demanded equals quantity supplied. d. supply adjusts to meet demand at every price.
C
In a perfectly competitive market, the process of entry and exit will end when a. price equals minimum marginal cost. b. marginal revenue equals marginal cost. c. economic profits are zero. d. accounting profits are zero.
C
In economics, the true opportunity cost of something is a. the dollar amount of obtaining it. b. always measured in units of time given up to get it. c. what you give up to get it. d. often impossible to quantify, even in principle.
C
In the short run, a firm in a monopolistically competitive market operates much like a a. firm in a perfectly competitive market. b. firm in an oligopoly. c. monopolist. d. monopsonist.
C
_____________ goods: excludable, rival in consumption
PRIVATE EX: FOOD
__________ goods: not excludable, not rival
PUBLIC EX: NATIONAL DEFENSE
DEMAND CURVE SHIFTERS
# OF BUYERS INCOME PRICES OF RELATED GOODS TASTES EXPECTATIONS
3 SOURCES TO BARRIERS TO ENTRY
1. Monopoly Resources: a single firm owns a key resource. E.g., DeBeers owns most of the world's diamond mines 2. Government Regulation: the gov't gives a single firm the exclusive right to produce the good. E.g., patents, copyright laws 3. Natural Monopoly: a single firm can produce the entire market Q at lower cost than could several firms. E.g., utilities such as the electric company
TOTAL REVENUE =
= PRICE X QUANTITY
Economic profit =
= total revenue minus total costs (including explicit and implicit costs)
A bagel shop sells fresh baked bagels from 5 a.m. until 7 p.m. every day. The shop does not sell dayold bagels, so all unsold bagels are thrown away at 7 p.m. each day. The cost of making and selling a dozen bagels is $1.00; there are no costs associated with throwing bagels away. If the manager has 8 dozen bagels left at 6:30 p.m. on a particular day, which of the following alternatives is most attractive? a. Lower the price of the remaining bagels, even if the price falls below $1.00 per dozen. b. Lower the price of the remaining bagels, but under no circumstances should the price fall below $1.00 per dozen. c. Throw the bagels away. d. Starting tomorrow, raise the price on all bagels to increase profits.
A
A decrease in input costs to firms in a market will result in a. a decrease in equilibrium price and an increase in equilibrium quantity. b. a decrease in equilibrium price and a decrease in equilibrium quantity. c. an increase in equilibrium price and a decrease in equilibrium quantity. d. an increase in equilibrium price and an increase in equilibrium quantity.
A
An oligopoly is a market in which a. there are only a few sellers, each offering a product similar or identical to the products offered by other firms in the market. b. firms are price takers. c. the actions of one seller in the market have no impact on the other sellers' profits. d. there are many price-taking firms, each offering a product similar or identical to the products offered by other firms in the market.
A
Excess capacity is a. an example of the inefficiencies of monopolistically competitive markets. b. a short-run problem but not a long-run problem. c. a characteristic of rising average total cost curves. d. Both a and b are correct.
A
In a typical cartel agreement, the cartel maximizes profit when it a. behaves as a monopolist. b. behaves as a duopolist. c. is flexible in enforcing production targets. d. behaves as a perfectly competitive firm.
A
In markets, prices move toward equilibrium because of a. the actions of buyers and sellers. b. government regulations placed on market participants. c. increased cooperation among sellers. d. buyers' ability to affect market outcomes
A
Suppose that when the price of good X falls from $10 to $8, the quantity demanded of good Y rises from 20 units to 25 units. Using the midpoint method, a. the cross-price elasticity of demand is -1.0, and X and Y are complements. b. the cross-price elasticity of demand is -1.0, and X and Y are substitutes. c. the cross-price elasticity of demand is 1.0, and X and Y are complements. d. the cross-price elasticity of demand is 1.0, and X and Y are substitutes.
A
Suppose you like to make, from scratch, pies filled with bananas and vanilla pudding. You notice that the price of bananas has increased. How would this price increase affect your demand for vanilla pudding? a. It would decrease. b. It would increase. c. It would be unaffected. d. There is insufficient information given to answer the question.
A
The overriding reason as to why households and societies face many decisions is that a. resources are scarce. b. goods and services are not scarce. c. incomes fluctuate with business cycles. d. people, by nature, tend to disagree.
A
The prisoners' dilemma provides insights into the a. difficulty of maintaining cooperation. b. benefits of avoiding cooperation. c. benefits of government ownership of monopoly. d. ease with which oligopoly firms maintain high prices
A
The term price takers refers to buyers and sellers in a. perfectly competitive markets. b. monopolistic markets. c. markets that are regulated by the government. d. markets in which buyers cannot buy all they want and/or sellers cannot sell all they want at the market price
A
A monopolistically competitive industry is characterized by a. many firms, differentiated products, and barriers to entry. b. many firms, differentiated products, and free entry. c. a few firms, identical products, and free entry. d. a few firms, differentiated products, and barriers to entry.
B
A tax on a good a. raises the price that buyers effectively pay and raises the price that sellers effectively receive. b. raises the price that buyers effectively pay and lowers the price that sellers effectively receive. c. lowers the price that buyers effectively pay and raises the price that sellers effectively receive. d. lowers the price that buyers effectively pay and lowers the price that sellers effectively receive.
B
Comparing marginal revenue to marginal cost (i) reveals the contribution of the last unit of production to total profit. (ii) is helpful in making profit-maximizing production decisions. (iii) tells a firm whether its fixed costs are too high. a. (i) only b. (i) and (ii) only c. (ii) and (iii) only d. (i) and (iii) only
B
The supply of aged cheddar cheese is inelastic, and the supply of bread is elastic. Suppose that a large income tax increase decreases the demand for both goods by the same amount. The change in equilibrium quantity will be a. greater in the aged cheddar cheese market than in the bread market. b. greater in the bread market than in the aged cheddar cheese market. c. the same in the aged cheddar cheese and bread markets. d. may be greater in either the aged cheddar cheese market or the bread market.
B
When quantity demanded responds strongly to changes in price, demand is said to be a. fluid. b. elastic. c. dynamic. d. highly variable.
B
Which of the following statements is correct? a. When duopoly firms reach a Nash equilibrium, their combined level of output is the monopoly level of output. b. When oligopoly firms collude, they are behaving as a cartel. c. In an oligopoly, long run economic profits are always zero. d. An oligopoly is an example of monopolistic competition.
B
The main cause of monopolies is __________ ____ __________
BARRIERS TO ENTRY
Cartels are difficult to maintain because a. antitrust laws are difficult to enforce. b. cartel agreements are conducive to monopoly outcomes. c. there is always tension between cooperation and self-interest in a cartel. d. firms pay little attention to the decisions made by other firms.
C
Currently you purchase 6 packages of hot dogs a month. You will graduate from college in December, and you will start a new higher paying job in January. You have no plans to purchase hot dogs in January. For you, hot dogs are a. a substitute good. b. a normal good. c. an inferior good. d. a complementary good.
C
. From society's standpoint, cooperation among oligopolists is a. desirable, because it leads to less conflict among firms and a wider variety of products for consumers. b. desirable, because it leads to an outcome closer to the competitive outcome than what would be observed in the absence of cooperation. c. undesirable, because it leads to output levels that are too low and prices that are too high. d. undesirable, because it leads to output levels that are too high and prices that are too high
C
A decrease in the price of a good will a. increase demand of that good. b. decrease demand of that good. c. increase quantity demanded of that good. d. decrease quantity demanded of that good.
C
A profit-maximizing perfectly competitive firm currently earning positive economic profits will... a. Always earn economic profits. b. Always earn economic losses. c. Face competition from new entrants. d. None of the above.
C
A tradeoff exists between a clean environment and a higher level of income in that a. studies show that individuals with higher levels of income pollute less than low-income individuals. b. efforts to reduce pollution typically are not completely successful. c. laws that reduce pollution raise costs of production and reduce incomes. d. employing individuals to clean up pollution causes increases in employment and income.
C
A very hot summer in Atlanta will cause a. the demand curve for lemonade to shift to the left. b. the demand for air conditioners to decrease. c. the demand for jackets to decrease. d. a movement downward and to the right along the demand curve for tank tops.
C
On a vacation to Cancun, Mexico, you find yourself eating every meal at the local McDonald's rather than having a hamburger from one of the street vendors. Your traveling companion claims that you are irrational, since you never eat McDonald's hamburgers when you are home, and McDonald's hamburgers cost more than those prepared and sold by Cancun's street vendors. An economist would most likely explain your behavior by suggesting that a. your behavior is rational, but your friend's behavior is clearly irrational. b. you are clearly irrational, but your friend's behavior is rational. c. the McDonald's brand name suggests consistent quality, while the quality of the product from the street vendors is unknown. d. the advertising by McDonald's in Cancun is more persuasive than the advertising by McDonald's in your home town.
C
Suppose a firm in a perfectly competitive market produces and sells 8 units of output and has a marginal revenue of $8.00. What would be the firm's total revenue if it instead produced and sold 4 units of output? a. $4 b. $8 c. $32 d. $64
C
Suppose the equilibrium price of a physical examination ("physical") by a doctor is $200, and the government imposes a price ceiling of $150 per physical. As a result of the price ceiling, a. the demand curve for physicals shifts to the right. b. the supply curve for physicals shifts to the left. c. there is a shortage of physicals. d. the number of physicals performed stays the same.
C
The practice of requiring someone to buy two or more items together, rather than separately, is called a. resale maintenance. b. product fixing. c. tying. d. free-riding.
C
What happens to the total surplus in a market when the government imposes a tax? a. Total surplus increases by the amount of the tax. b. Total surplus increases but by less than the amount of the tax. c. Total surplus decreases. d. Total surplus is unaffected by the tax.
C
When profit-maximizing firms in perfectly competitive markets are earning economic profits, a. market demand must exceed market supply at the market equilibrium price. b. market supply must exceed market demand at the market equilibrium price. c. new firms will enter the market. d. the most inefficient firms will be encouraged to leave the market.
C
Which of the following is an example of a monopolistically competitive industry? a. computer operating systems b. tennis balls c. restaurants in New York City d. cable television
C
Which of the following is not a characteristic of a perfectly competitive market? a. Buyers and sellers are price takers. b. Each firm sells a virtually identical product. c. Free entry is limited. d. Each firm chooses an output level that maximizes profits.
C
Which of the following is the most likely explanation for the imposition of a price floor on the market for milk? a. Policymakers have studied the effects of the price floor carefully, and they recognize that the price floor is advantageous for society as a whole. b. Buyers of milk, recognizing that the price floor is good for them, have pressured policymakers into imposing the price floor. c. Sellers of milk, recognizing that the price floor is good for them, have pressured policymakers into imposing the price floor. d. Buyers and sellers of milk have agreed that the price floor is good for both of them and have therefore pressured policymakers into imposing the price floor.
C
Which of these statements best represents the law of demand? a. When buyers' tastes for a good increase, they purchase more of the good. b. When income levels increase, buyers purchase more of most goods. c. When the price of a good decreases, buyers purchase more of the good. d. When buyers' demands for a good increase, the price of the good increases.
C
Workers at a bicycle assembly plant currently earn the mandatory minimum wage. If the federal government increases the minimum wage by $1.00 per hour, then it is likely that the a. demand for bicycle assembly workers will increase. b. supply of bicycles will shift to the right. c. supply of bicycles will shift to the left. d. firm must increase output to maintain profit levels.
C
MARGINAL PRODUCT OF LABOR =
CHANGE IN OUTPUT / CHANGE IN LABOR
MARGINAL REVENUE =
CHANGE IN TOTAL REVENUE / CHANGE IN QUANTITY
___________ _______________: rival but not excludable
COMMON RESOURCES Example: fish in the ocean
is one with many buyers and sellers, each has a negligible effect on price
COMPETITIVE MARKET
: the percentage of the market's total output supplied by its four largest firms.
CONCENTRATION RATIO
is the amount a buyer is willing to pay minus the amount the buyer actually pays:
CONSUMER SURPLUS
a table that shows the relationship between the price of a good and the quantity demanded
DEMAND SCHEDULE
____________________ _____________ ____________ : the marginal product of an input declines as the quantity of the input increases (other things equal)
DIMINISHING MARGINAL PRODUCT
A profit-maximizing monopoly will... a. Always earn economic profits. b. Always earn economic losses. c. Face competition from new entrants. d. None of the above.
D
At a price of $1.00, a local coffee shop is willing to supply 100 cinnamon rolls per day. At a price of $1.20, the coffee shop would be willing to supply 150 cinnamon rolls per day. Using the midpoint method, the price elasticity of supply is a. 0.45 b. 0.90 c. 1.11 d. 2.20
D
Games that are played more than once generally a. lead to outcomes dominated by pure competition. b. lead to outcomes that do not reflect joint rationality. c. encourage cheating on cartel production quotas. d. make collusive arrangements easier to enforce.
D
If the price elasticity of demand for a good is 0.8, then which of the following events is consistent with a 4 percent decrease in the quantity of the good demanded? a. a 0.2 percent increase in the price of the good b. a 3.2 percent increase in the price of the good c. a 4.8 percent increase in the price of the good d. a 5 percent increase in the price of the good
D
In a market economy, a. supply determines demand and demand, in turn, determines prices. b. demand determines supply and supply, in turn, determines prices. c. the allocation of scarce resources determines prices and prices, in turn, determine supply and demand. d. supply and demand determine prices and prices, in turn, allocate the economy's scarce resources.
D
In general, elasticity is a measure of a. the extent to which advances in technology are adopted by producers. b. the extent to which a market is competitive. c. how firms' profits respond to changes in market prices. d. how much buyers or sellers respond to changes in market conditions
D
Rent-control laws dictate a. the exact rent that landlords must charge tenants. b. both a minimum rent and a maximum rent that landlords may charge tenants. c. a minimum rent that landlords may charge tenants. d. a maximum rent that landlords may charge tenants.
D
The reason to regulate utilities instead of using antitrust laws to promote competition is that a utility is usually a a. profit-maximizing monopoly. b. producer of externalities. c. revenue-maximizing monopoly. d. natural monopoly.
D
When a tax is placed on the sellers of lemonade, a. the sellers bear the entire burden of the tax. b. the buyers bear the entire burden of the tax. c. the burden of the tax will be always be equally divided between the buyers and the sellers. d. the burden of the tax will be shared by the buyers and the sellers, but the division of the burden is not always equal.
D
Clean air and water Congested roads Fish, whales, and other wildlife
EXAMPLES OF COMMON RESOURCES
Air pollution from a factory The neighbor's barking dog Late-night stereo blasting from the apartment next to yours Noise pollution from construction projects Health risk to others from second-hand smoke Talking or texting on cell phone while driving makes the roads less safe for others
EXAMPLES OF NEGATIVE EXTERNALITIES
National defense Knowledge created through basic research Fighting poverty Scenic views
EXAMPLES OF PUBLIC GOODS
A good is _______________ if a person can be prevented from using it.
EXCLUDABLE Excludable: hamburgers, wireless internet access Not excludable: FM radio signals, national defense
__________ costs require an outlay of money, e.g., paying wages to workers.
EXPLICIT
___________ costs do not require a cash outlay, e.g., the opportunity cost of the owner's time.
IMPLICIT
SUPPLY CURVE SHIFTERS
INPUT PRICES TECHNOLOGY # OF SELLERS EXPECTATIONS
the claim that the quantity demanded of a good falls when the price of the good rises, other things equal
LAW OF DEMAND
the claim that the quantity supplied of a good rises when the price of the good rises, other things equal
LAW OF SUPPLY
The ___________ ____________ of any input is the increase in output arising from an additional unit of that input, holding all other inputs constant.
MARGINAL PRODUCT
THE CHANGE IN TR FROM SELLING ONE MORE UNIT
MARGINAL REVENUE
MONOPOLY SUPPLY CURVE
MONOPOLIES DONT HAVE SUPPLY CURVE
many firms sell similar but not identical products.
MONOPOLISTIC COMPETITION
Characteristics: Many sellers Product differentiation Free entry and exit Examples: restaurants textbooks banks clothing fast food coffee shops
MONOPOLISTIC COMPETITOIN
ONE FIRM
MONOPOLY
the rate at which a consumer is willing to trade one good for another.
Marginal rate of substitution (MRS): MRS = PF/PM
A price ceiling above the eq'm price is ______ ___________ has no effect on the market outcome.
NOT BINDING
a situation in which economic participants interacting with one another each choose their best strategy given the strategies that all the others have chosen
Nash equilibrium:
only a few sellers offer similar or identical products.
OLIGOPOLY
PRICE ELASTICITY OF DEMAND =
PERCENTAGE CHANGE IN QD / PERCENTAGE CHANGE IN P
In a ___________ _______________ market: All goods exactly the same Buyers & sellers so numerous that no one can affect market price - each is a "_______ _________"
PERFECTIVELY COMPETITIVE MARKET PRICE TAKER
_____________ ________________of any good is the amount of the good that buyers are willing and able to purchase.
QUANTITY DEMANDED
A good is _________ ____ __________________ if one person's use of it diminishes others' use.
RIVAL IN CONSUMPTION
when quantity demanded is greater than quantity supplied
SHORTAGE
A table that shows the relationship between the price of a good and the quantity supplied.
SUPPLY SCHEDULE
when quantity supplied is greater than quantity demanded
SURPLUS
PROFIT =
TOTAL REVENUE - TOTAL COST
AVERAGE REVENUE =
TOTAL REVENUE / QUANTITY = P
The Laffer curve relates a. the tax rate to tax revenue raised by the tax. b. the tax rate to the deadweight loss of the tax. c. the price elasticity of supply to the deadweight loss of the tax. d. government welfare payments to the birth rate.
a
The fundamental source of monopoly power is a. barriers to entry. b. profit. c. decreasing average total cost. d. a product with close substitutes.
a
The size of the deadweight loss generated from a tax is affected by the a. elasticities of both supply and demand. b. elasticity of demand only. c. elasticity of supply only. d. total revenue collected by the government.
a
When directed at pollution, corrective or Pigouvian taxes... a. Are market based solution to solving the problem of pollution. b. Are a non-market based solution to solving the problem of pollution. c. Cause deadweight loss. d. Suffer from the free rider problem.
a
A private good exhibits rivalry, which can be thought of as... a. The fact that good can be consumed by only one person at a time b. The fact that you can exclude people who have not paid from enjoying or using the good c. Both A and B d. None of the above
a
Economic profit a. will never exceed accounting profit. b. is most often equal to accounting profit. c. is always at least as large as accounting profit. d. is a less complete measure of profitability than accounting profit
a
If you are increasing output when marginal cost is greater than average total cost, average total cost is a. rising. b. falling. c. constant. d. either rising or falling depending on the economies of scale.
a
Kevin quit his $65,000 a year corporate lawyer job to open up his own law practice. In Kevin's first year in business his total revenue equaled $150,000. Kevin's explicit cost during the year totaled $85,000. Using the information from Kevin's first year in business, what is his economic profit? a. $0 b. $20,000 c. $65,000 d. $85,000
a
Laura is a gourmet chef who runs a small catering business in a perfectly competitive industry. Laura specializes in making wedding cakes. Laura sells 20 wedding cakes per month. Her monthly total revenue is $5,000. The marginal cost of making a wedding cake is $200. In order to maximize profits, Laura should a. make more than 20 wedding cakes per month. b. make fewer than 20 wedding cakes per month. c. continue to make 20 wedding cakes per month. d. We do not have enough information with which to answer the question.
a
____________ _________ _________ equals total cost divided by the quantity of output: ATC = TC/Q
average total cost
"Owners of firms in young industries should be willing to incur temporary losses if they believe that those firms will be profitable in the long run." This observation helps to explain why many economists are skeptical about the a . national-security argument. b. infant-industry argument. c. unfair-competition argument. d. jobs argument.
b
A monopolist produces a. more than the socially efficient quantity of output at a higher price than in a competitive market. b. less than the socially efficient quantity of output at a higher price than in a competitive market. c. the socially efficient quantity of output at a higher price than in a competitive market. d. possibly more or possibly less than the socially efficient quantity of output, but definitely at a higher price than in a competitive market.
b
A production function describes a. how a firm maximizes profits. b. how a firm turns inputs into output. c. the minimal cost of producing a given level of output. d. the relationship between cost and output.
b
Accounting profit is equal to a. marginal revenue minus marginal cost. b. total revenue minus the explicit cost of producing goods and services. c. total revenue minus the opportunity cost of producing goods and services. d. average revenue minus the average cost of producing the last unit of a good or service.
b
In the long run, a. inputs that were fixed in the short run remain fixed. b. inputs that were fixed in the short run become variable. c. inputs that were variable in the short run become fixed. d. variable inputs are rarely used.
b
Suppose a tax of $5 per unit is imposed on a good, and the tax causes the equilibrium quantity of the good to decrease from 200 units to 100 units. The tax decreases consumer surplus by $350 and decreases producer surplus by $400. The deadweight loss from the tax is a. $100. b. $250. c. $500. d. $750.
b
The marginal product of labor can be defined as a. change in profit/change in labor. b. change in output/change in labor. c. change in labor/change in output. d. change in labor/change in total cost.
b
Which of the following statements best reflects the production decision of a profit-maximizing firm in a perfectly competitive market when price falls below the minimum of average variable cost? a. The firm will continue to produce to attempt to pay fixed costs. b. The firm will immediately stop production to minimize its losses. c. The firm will stop production as soon as it is able to pay its sunk costs. d. The firm will continue to produce in the short run but will likely exit the market in the long run.
b
An increase in the size of a tax is most likely to increase tax revenue in a market with a. elastic demand and elastic supply. b. elastic demand and inelastic supply. c. inelastic demand and elastic supply. d. inelastic demand and inelastic supply.
d
the limit on the consumption bundles that a consumer can afford
budget constraint
0. Binding price ceilings and binding price floors essentially force a. the market out of equilibrium. b. some form of discrimination c. all of the above are forced with binding price controls. d. none of the above are forced with binding price controls
c
Additional firms often do not try to compete with a natural monopoly because a. they fear the natural monopolist will not collude with them.. b. they are unsure of the size of the market in general. c. they know they cannot achieve the same low costs that the natural monopolist enjoys. d. the natural monopoly doesn't make a huge profit.
c
Diseconomies of scale occur when a. average fixed costs are falling. b. average fixed costs are constant. c. long-run average total costs rise as output increases. d. long-run average total costs fall as output increases.
c
Drug companies are allowed to be monopolists in the drugs they discover in order to a. allow drug companies to charge a price that is equal to their marginal cost. b. discourage new firms from entering the drug market. c. encourage research. d. allow the government to earn patent revenue.
c
Economists assume that the typical person who starts her own business does so with the intention of a. donating the profits from her business to charity. b. capturing the highest number of sales in her industry. c. maximizing profits. d. minimizing costs.
c
Grazing sheep on an open-access pasture was an example of the tragedy of the commons. Potential solution(s) to this example include... a. converting the common pasture to private ownership. b. having the government issue grazing permits for the sheep, and limiting the number of permits available. c. Both A and B d. None of the above
c
If a monopolist is able to perfectly price discriminate, a. consumer surplus is always increased. b. total surplus is always decreased. c. consumer surplus and deadweight losses are transformed into monopoly profits. d. the price effect dominates the output effect on monopoly revenue.
c
If a profit-maximizing monopolist faces a downward-sloping market demand curve, its a. average revenue is less than the price of the product. b. average revenue is less than marginal revenue. c. marginal revenue is less than the price of the product. d. marginal revenue is greater than the price of the product.
c
In order to sell more of its product, a monopolist must a. sell to the government. b. sell in international markets. c. lower its price. d. use its market power to force up the price of complementary products
c
The exit of existing firms from a perfectly competitive market will a. increase market supply and increase market price. b. increase market supply and decrease market price. c. decrease market supply and increase market price. d. decrease market supply and decrease market price.
c
Antitrust laws allow the government to a. prevent mergers. b. break up companies. c. promote competition. d. All of the above are correct.
d
A country has a ________________ __________________ in a good if it produces the good at lower opportunity cost than other countries.
comparative advantage
the area below demand and above price
consumer surplus
Because the goods offered for sale in a perfectly competitive market are largely the same, a. there will be few sellers in the market. b. there will be few buyers in the market. c. only a few buyers will have market power. d. sellers will have little reason to charge less than the going market price
d
A tariff is a a. limit on how much of a good can be exported. b. limit on how much of a good can be imported. c. tax on an exported good. d. tax on an imported good.
d
__________ costs do not vary with the quantity of output produced.
fixed
total cost =
fixed cost + variable cost
shows consumption bundles that give the consumer the same level of satisfaction
indifference curve
The higher the concentration ratio, the ______ competition.
less
______________ ___________ is the increase in Total Cost from producing one more unit: change of total cost / change in quantity
marginal cost
A _______________ is a firm that is the sole seller of a product without close substitutes
monopoly
a market structure in which only a few sellers offer similar or identical products. Few sellers Homogeneous or differentiated product Some barriers to entry
oligopoly
The of any good is the amount that sellers are willing and able to sell.
quantity supplied
average total cost formula
total cost / # of goods produced
Accounting profit =
total revenue minus total explicit costs
_____________ costs vary with the quantity produced.
variable
