Microeconomics Final Review
A black market is a market where buying and selling take place
at prices that violate government price regulations.
A situation in which a country does not trade with other countries is called
autarky
The most profitable price for a monopolist is
the price for which marginal revenue equals marginal cost.
Which of the following statement best describes the concept of consumer surplus?
"I was going to pay $200 for new sunglasses that I had seen at the Oakley store but I ended up paying only $140 for the same sunglasses."
If a firm expects that the price of its product will be lower in the future than it is today
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An increase in the demand for bananas will NOT be caused by:
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A supply schedule
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Farmers can plant either corn or soybeans in their fields. Which of the following would cause the supply of soybeans to increase.
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One would speak of the change in the quantity of a good supplied, weather than change in supply if
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The popularity of digital camera has enticed large discount stores like Walmart and Costco to offer digital printing services. How does this affect the digital photo printing market?
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Which of the following would shift the supply for MP3 players to the right?
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Brett buys a new cell phone for $100. He receives consumer surplus of $80 from the purchase. How much does Brett value his cell phone?
180
Suppose the marginal utilities for the first three cans of soda are 100, 80 and 60, respectively. The total utility received from consuming 2 cans is
180
What is the difference between an 'increase in supply' and an 'increase in quantity supplied'?
An 'increase in supply' means the supply curve has shifted to the right while an 'increase in the quantity supplied' refers to a movement along a given supply curve in response to an increase in price.
Two firms would sometimes be better off if they got together and agreed to charge a high price, rather than to compete and risk having to charge a lower, competitive price. What is the greatest deterrent to this strategy?
An agreement by firms to charge high prices is illegal. The government can fine the firms and send their managers to jail.
An economist observes two consumers in a supermarket. One of the consumers buys a case of Coca-Cola and the other buys a case of Pepsi-Cola. Both colas sell for the same price and the ages and incomes of the consumers are also the same. Based on this information, how would the economist explain the consumers' choices?
Apparently, the consumers had different tastes.
Economists believe that individuals
Are rational and respond to incentives
The law of demand implies, holding everything else constant, that:
As the price of the bagels increase, the quantity of bagels demanded will decrease.
Which of the following is the correct way to describe equilibrium in a market?
At equilibrium quantity demanded equals quantity supplied
Which of the following Paris of goods would be an examples of substitutes (in consumption)?
Automobiles and motorcycles
Assume that China has a comparative advantage in producing corn and exports corn to Japan. We can conclude that
China has a lower opportunity cost of producing corn relative to Japan
Which of the following is a consequence of minimum wage laws?
Employers will be reluctant to offer low-skilled workers jobs with training.
True of False: scarcity is defined as the situation that exists when the quantity demanded for a good is greater than quantity supplied
False
True or False: If the number of firms producing mouthwash increases and consumer preference for mouthwash increases, the equilibrium price of mouthwash will definitely increase
False
True or False: The demand for heating oil in the short run is more elastic than the long run demand for heating oil.
False
Which of the following statements is true?
If the price of a good is lowered and total revenue decreases, demand is elastic.
A situation in which each firm chooses the best strategy given the strategies chosen by other firms is called a
Nash equilibrium
Ordinarily, governments attempt to promote competition in markets. Why do governments use patents to block entry into some markets when this prohibits competition?
Patents encourage firms to spend money on research necessary to create new products.
Which of the following statements is true about scarcity?
Scarcity refers to the situation in which unlimited wants exceed limited resources.
Assume there is a shortage in the market for digital music players. Which of the following statements correctly describes this situation?
Some consumers will be unable to obtain digital music players at the market price, and will have an incentive to offer to buy the product at a higher price.
Health Clubs typically experience an increase in one-year memberships in January, but many new customers cancel their memberships before the end of the year. Which of the following is the best explanation for this behavior?
Some people are overly optimistic about their future behavior.
Assume that the demand curve for sunblock is linear and downward sloping. Which of the following statements about the slope of the demand curve for sunblock and the price elasticity of demand for sunblock are true?
The slope is constant, but the price elasticity of demand is not constant at all points along the demand curve for sunblock.
Which of the following is a result of imposing a rent ceiling?
There is an increase in the quantity of apartments demanded.
Which of the following statements is true?
Total cost= fixed cost + variable cost
True of False: As the number of firms in a market decreases, the supply curve will shift to the left and the equilibrium price will rise.
True
True or False: In response to a surplus, the market price of a good will fall; as the price falls, the quantity demanded will increase and quantity supplied will decrease until equilibrium is reached
True
Which of the flooring statements is true?
When a firm lowers its price its total revenue may either increase or decrease.
A decrease in the equilibrium price for a product will result
When there is an increase in supply and a decrease in demand for the product
A movement along the demand curve for toothpaste would be caused by
a change in the price of toothpaste.
In a competitive market when there is no deadweight loss
a consumer surplus plus producer surplus is maximized.
An explicit cost is defined as
a cost that involved spending money.
If, in response to an increase in the price of chocolate, the quantity demanded of chocolate decreases economists would describe this as
a decrease in quantity demanded
The phrase 'demand has increased' means that
a demand curve has shifted to the right.
Of the following, which is the best example of good with a perfectly inelastic demand?
a diabetic's demand for insulin
A price maker is
a firm that has some control over the price of the product it sells.
A monopolistically competitive market is described as one in which there are
a large number of firms selling similar, but not identical, products.
A firm that is the only seller of a good or service that does not have a close substitute is called
a monopoly
If opportunity costs are constant, the production possibilities frontier would be graphed as:
a negatively sloped straight line.
An equilibrium in a game in which players pursue their own self-interest is called
a noncooperative equilibrium
If an increase in income leads to an increase in the demand for peanut butter, then peanut butter is
a normal good
The minimum wage is an example of
a price floor
Comparative advantage means:
a producing unit can produce a good or services at a lower opportunity cost than any other producing unit.
An agreement negotiated by two countries that places a numerical limit on the quantity of a good that can be imported by one country from another country is called
a voluntary export restraint
In making decisions about what to consume, a person's goal is to
allocate her limited income among all the products she wishes to buy so that she receives the highest total utility.
Which of the following is not a barrier to entry?
an inelastic demand curve
In the United States, government policies with respect to monopolies and collusion are embodied in
antitrust laws
Firms that are price takers
are able to sell all their output at the market price.
In the podcast, Rocky Pipkin Private Eye..., the raisin industry is exposed as having a 'government sanctioned cartel'. This is an example of what concept that relates to market structures?
barrier to entry
Oligopoly differs from perfect competition and monopolistic competition in that
because oligopoly firms often react when other firms in their industry change their prices, it is difficult to know what the oligopolist's demand curve looks like.
A new area of economic studies situations in which people appear t be making choices that do not appear to be economically rational. This area is called
behavioral economics
We can derive the market demand curve for gold earrings
by adding horizontally the individual demand curves of each gold earring consumer.
Both monopolistically competitive firms and perfectly competitive firms maximize profits
by producing where marginal revenue is equal to marginal cost
You have absolute advantage whenever you:
can produce more of something than others with the same resources.
You have comparative advantage whenever you
can produce something at a lower opportunity cost than others.
Diminishing marginal product of labor occurs when adding another unit of labor
changes output by an amount smaller than the output added by the previous unit of labor.
The ____ model demonstrated the roles played by households and firms in the market system
circular flow
Trade that is within a country or between countries is based on the principle of:
comparative advantage
________ is the ability of an individual, a firm, or a country to produce a good or service at a lower opportunity cost than competitors.
comparative advantage
Economic surplus is maximized in a competitive market when
marginal benefit equals marginal cost.
Which of the following can a firm do in the long run but not in the short run?
decrease the size of its physical plant.
Tastes for products such as beer differ. As a result
different countries may each have a comparative advantage in producing different types of beer.
An outward shift of a nation's production possibilities frontier represents
economic growth
If an airport decides to expand by building an additional passenger terminal, and in doing so it lowers its average cost per airplane landing, then the expansion would provide ________ to the airlines.
economies of scale
If there are many substitutes available for a product demand for that good is likely to be
elastic
Wall Street, in the borough of Manhattan in New York City, is the heart of the U.S. financial system, where banks, brokerage houses, other financial firms, and the New York Stock Exchange are all located. What is the reason for New York City's comparative advantage in the financial market?
external economies
________ refers to reductions in a firm's costs that result from an increase in the size of an industry.
external economies
The natural resources used in production are made available in the
factor market
Some markets have many buyers and sellers but fall into the category of monopolistic competition rather than perfect competition. The most common reason for this is
firms in these markets do not sell identical products.
In the podcast, Manufacturing the Song of the Summer, the songs on Rihanna's album were written at a writing camp. The Planet Money team calculated the cost of the writing camp at $200,000 and referred to this as the 'overhead,' which includes the costs of the recording studios, hotel rooms, etc. all before Rihanna comes to the studio to make one song. This is an example of what kind of cost?
fixed cost
The study of how people make decisions in situations in which attaining their goals depends on their interactions with others is called
game theory
The podcast, Revenge of the Tariffs, refers to the same government document discussed in the Cotton Wars podcast. The document lists all the tariffs set by the U.S. government. What is it called?
harmonized tax schedule
A perfectly competitive firm faces a demand curve that is
horizontal
A perfectly elastic demand curve is
horizontal
Price elasticity of demand measures:
how responsive quantity demanded is to a change in price.
The production possibilities frontier shows that
if all resources are fully and efficiently utilized, more of one good can be produced only by producing less of another good.
A tariff is a tax imposed by a government on
imports
Goods and services bought domestically but produced in other countries are referred to as
imports
Which of the following is not part of an oligopolist's business strategy?
independently setting a product's price without consideration of its rivals' pricing policies
If the tolls on a toll road can be raised significantly before commuters will consider using a free alternative, demand for using the toll road must be
inelastic
HP will not raise the prices of its laptops without first considering how Dell might respond. This is evidence of
interdependence
A perfectly competitive firm has to charge the same price as every other firm in the market.
is a price taker
The price a perfectly competitive firm receives for its outputs
is determined by the interaction of all sellers and all buyers in the firm's market
the demand curve of a monopolistically competitive firm
is downward-sloping because it must cut its price to sell more.
The area above the market supply curve and below the market price
is equal to the total amount of producer surplus in a market.
protectionism
is the use of trade barriers to protect domestic firms from foreign competition
If a country has comparative advantage in producing a good then:
it has a lower opportunity cost of producing that good than another country
As of 2013, he Organization of Petroleum Exporting Countries (OPEC) controlled about 75% of the world's proven oil reserves. Economists refer to OPEC as a cartel because
it is a group of firms that collude to restrict output to increase prices and profits
Which of the following statements best describes the economic short run?
it is a period during which at least one of the firm's inputs is fixed.
Opera Estate Girls' School is considering increasing its tuition to raise revenue. If the school believes that raising tuition will increase revenue
it is assuming that the demand for attending the school is inelastic.
Compared to a perfectly competitive firm, the demand curve facing a monopolistically competitive firm is
less elastic because monopolistically competitive firms produce similar, but not identical, products.
The additionally cost to a firm of producing one more unit of a good or service is the
marginal cost
Using marginal analysis terminology, what is another economic term for the incremental revenue received from the sale of the last 3,000 cell phones.
marginal revenue
The additional utility that George receives from consuming one more slice of pizza is called
marginal utility
The term ______ in economics refers to a group of buyers and sellers of a product and the arrangement by which they come together to trade.
market
The demand by all the consumers of a given good or service is the ____ for the good or service
market demand
The existence of a shortage in a market will cause
market price to rise and quantity supplied to increase.
In the United States, the average person mostly patronizes firms that operate in
monopolistically competitive markets.
To affect the market outcome, a price floor
must be set above the equilibrium price.
Marginal revenue
the change in total revenue divided by the change in the quantity of output.
In order to be binding (or to have immediate impact on the market), a price floor
must lie above the free market equilibrium
An equilibrium in a game in which players pursue their own self-interests and do not cooperate is called a
noncooperative equilibrium
When considering a graph, if a line is upward sloping (upward to the right) that represents what kind of relationship between the x and y variable?
positive relationship
A game in which pursuing dominant strategies results in noncooperation that leaves all parties worse off is
prisoner's dilemma
A game in which pursuing dominant strategies results in noncooperation that leaves all parties worse off is a
prisoner's dilemma
When you purchase a new pair of jeans you do so in the
product market
The relationship between the inputs employed by a firm and the maximum output that it can produce with those inputs is the firm's
production function
The World Trade Organization (WTO) promotes foreign trade and investment, or globalization. In recent years opposition to globalization has led to violent protests at meetings of the WTO. One reason for these anti-globalization protests is
protesters believe that free trade destroys the distinctive cultures of many countries.
Which of the following offers the best reason why restaurants are not considered to be perfectly competitive firms?
restaurants do not sell identical products.
The supply curve for watched
shows the relationship between the price of watched and the quantity of watched supplied.
When the price of a good falls, consumers buy larger quantity because of the ____ effect and the ___ effect.
substitution; income
Absolute advantage is
the ability to produce more of a good or service than competitors when using the same amount of resources.
All of the following cost curves are U-shaped except one. Which curve is not U-shaped?
the average fixed cost curve
The total output produced by a firm divided by the quantity of workers employed by the firm is the definition of
the average product of labor
If the absolute value of the price elasticity of demand for aspirin equals 0.8 then
the demand for aspirin is inelastic.
If the price of automobiles were to increase, then
the demand for gasoline would decrease
The sum of consumer surplus and producer surplus is equal to
the economic surplus
Opportunity cost is defined as:
the highest valued alternative that must be given up to engage in an activity.
A consumer is willing to purchase a product up to the point where
the marginal benefit is equal to the price of the product.
If the demand for steak is unit-elastic, then
the percentage change in quantity demanded is equal to the percentage change in price.
If the demand for cell phone service is inelastic, then
the percentage change in quantity demanded is less than the percentage change in price (in absolute value).
A demand curve shows the relationship between
the price of a product and the quantity of the product demanded
Total revenue is equal to
the price of a product multiplies by the number of units of the products sold.
Which of the following is evidence of a surplus of bananas?
the price of bananas is lowered in order to increase sales.
At a product's equilibrium price
the products demand curve crosses the products supply curve
Deadweight loss refers to
the reduction in economic surplus resulting from not being in competitive equilibrium.
In a graph that illustrates a perfectly competitive firm, marginal revenue is
the same as the firm's demand curve
The ratio at which a country can trade its exports for imports from other countries is called
the terms of trade
In the long run which of the following is true?
there are no fixed costs.
Average total cost is
total cost divided by the quantity of output produced.
Producing where marginal revenue equals marginal cost is equivalent to producing where
total profit is maximized
Profit is the difference between
total revenue and total cost
A Federal Reserve publication proclaimed that "Trade is a win-win situation for all countries that participate." This statement is
true because it refers to countries; individuals may be losers as a result of international trade.
Many people assume that if child workers in developing countries weren't working in factories, they would be in school. In fact, children in developing countries
usually have few good alternatives to work.
The satisfaction a person receives from consuming goods and services is called
utility
If the price elasticity of demand for insulin is equal to zero then the demand curve for insulin is
vertical
When larger firms in oligopoly markets cut their prices,
we don't know for sure how rival firms will respond
If the slope of a demand curve is equal to -0.1 then
we don't know whether the demand is elastic or inelastic
A successful market economy requires
well-defined property rights and an independent court system to adjudicate disputes base on the law.
The maximum price that a buyer is willing to pay for a good measure his
willingness to pay