Microeconomics Final Exam

When trade is voluntary, who gains from it?

Both the seller and buyer gain, although not necessarily equally

a tariff is:

tax on imported products

The law of supply refers to:

the positive relationship between price and quantity supplied

A dominant strategy

is one that is the best for a firm, no matter what strategies other firms use

What standard is used to determine the most efficient economic outcome?

largest economic surplus

Following the rational rule implies economic surplus is maximized when:

marginal benefits equal marginal costs

Efficient outcomes:

may not make everyone happy

If the opportunity costs of production for two goods is different between two countries, then:

mutually beneficial trade is possible

The marginal benefit of consuming an item is:

the additional from buying one more unit of the item

Marginal revenue product for a perfectly competitive seller is equal to:

the change in total revenue that results from hiring another worker

The phrase "demand has decreased" means that:

the demand curve has shifted to the left

Market failure occurs when market forces lead to:

an inefficient outcome

If an increase in income leads to a decrease in the demand for popcorn, then popcorn is

an inferior good

a characteristic of monopolistic competition that is not present in other market structures is that there

are many sellers and each produces a differentiated version of the product

An external benefit:

a benefit accruing to bystanders

An external cost:

a cost imposed on bystanders

What is the prisoner's dilemma?

a game in which players act in rational, self-interested ways that leave everyone worse off

An inferior good is:

a good whose demand has a negative relationship with changes in income

An increase in a perfectly competitive firm's demand for labor could be caused by

an increase in the market demand for the firms product

A firm that can effectively price discriminate will charge a higher price to

Customers who have the more inelastic demand for the product

Buyers bear a smaller incidence (share) of a tax when:

Demand is more elastic than supply

Which of the following is a positive economic statement?

If the government raises taxes, people will have less income available for purchases and saving

An equilibrium in which the choice that each player makes is the best response to the choices other players are making is the definition of a:

Nash equilibrium

What happens to the equilibrium wage and quantity of labor if output price rises?

The equilibrium wage and quantity of labor rise

price discrimination

The product cannot be resold

The Rational Rule of Employers implies that they keep hiring until

The wage equals the marginal revenue product of the last worker hired

How does the price customers pay under price discrimination compare to the price with no price discrimination or the one that is set according to the marginal cost=marginal benefit?

Under price discrimination, some customers pay a higher price, and some pay a lower price.

If the social cost of producing a good or service exceeds the private cost

a negative externality exists

How does marginal revenue compare to price for a seller with market power?

beyond the first unit sold, marginal revenue is less that price

An oligopoly firm is similar to a monopolistically competitive firm in that

both firms have market power

Diminishing marginal benefit:

can be seen in the downward slope of the demand curve

The prisoner's dilemma shows how markets:

can deliver inefficient outcomes

price discrimination occurs when a company

charges different prices to a different customers who are all buying the same product

The equilibrium price is:

determined by the intersection of the demand and supply curves

In economics, the study of the decisions of firms in industries where the profits of each firm depend on it interactions with other firms is called

game theory

If you can complete a task at a lower opportunity cost than anyone else, then you:

have a comparative advantage at the task

When people focus on their comparative advantage and then trade for other things, they:

improve their standard of living or increase their leisure time

When you calculate marginal costs, they should include:

only variable costs

Sunk costs are costs that are incurred:

regardless of which decision is made

How does government regulation affect market efficiency?

some regulations correct for market failure; other regulations cause inefficient outcomes

a tax collected from sellers shifts the:

supply curve to the left

A minimum wage law dictates:

the lowest wage that firms may pay for labor

A price floor is:

the minimum price that a seller can charge in a market

Which of the following is the size of a corrective tax to resolve a negative externality problem

the tax is equal to the marginal external cost

Average cost equals:

total cost divided by output

An import is a good or service:

purchased from a foreign seller

A perfect competitor cannot:

raise the market price of a product

Price minus marginal cost equals the:

producer surplus of a unit sold

What attracts sellers to a new market?

Existing sellers in the market earning economic profits

When trade is based on comparative advantage:

both trading partners end up better off

Rising marginal costs imply:

an upward-sloping supply curve