microeconomics

what conditions must be present for productive efficiency

given available inputs and technology, it is impossible to produce more of one good without decreasing the quantity that is produced of another good

What are two reasons a business may exit from the market?

losses made in the long-run & unproductive workers

In situations in which there are substantial economies of scale, the ___________ of adding an additional customer is very _________ once the fixed costs of the overall system are in place.

marginal cost; low

True or false: A consequence of a minimum wage set above the equilibrium wage rate in the market for unskilled retail workers will be a surplus of unskilled retail workers.

true

If the cross-price elasticity of demand for two goods is positive, then the goods are ____

substitutes

Which of the following is not a form of product differentiation?

suppliers costs

Those who save money are on the _________ side of the financial market. Those who borrow money are on the _________ side of the financial market.

supply; demand

All of the following led to the creation of the Dodd-Frank Act except:

the failure of Sarbanes-Oxley Act

If a minimum wage (a price floor) for dentists is set below the prevailing market wage rate, then this will result in _____________

the free market equilibrium quantity of dentists

Which of the following best describes biodiversity?

the full spectrum of animal and plant genetic material

Economists call a simplified description of how two or more variables interact with each other a _______.

theory

True or false: The production possibilities frontier (PPF) demonstrates how society's limited resources affect the quantities of goods and services produced.

true

true or false: A duopoly is a type of oligopoly consisting of only two firms.

true

true or false: Addictive substances, for which demand is inelastic, are products for which producers can pass higher costs on to consumers.

true

If demand is constant unitary elastic, then total revenue __________.

does not change

The long-run average cost curve is typically _______________________.

downward-sloping at first but then upward-sloping

Which of the following descriptions explains how government subsidies on education and job training impact labor supply?

Government subsidies make training and education more attainable, increasing the supply of labor.

A cost paid out of pocket is an ______ cost.

explicit

Identify the two groups that do not interact in a circular flow diagram for a two-sector economy

exporters & importers

True or false: As consumers purchase more using credit cards, the supply of financial capital increases.

false

True or false: The principle of diminishing marginal utility states that people's total utility declines when increasing the number of units consumed

false

The simplest example of a ________________is the interest rate.

rate of return

True or false: the law of diminishing returns states that as more variable inputs are added to production, the productivity of these inputs increases.

false

When a demand curve is perfectly elastic or has infinite elasticity, the demand curve will be ___________________.

horizontal

When all firms earn zero economic profits producing the output level where P=MR=MC and P=AC and there is no incentive to leave or join the market, the market is in __________.

long run equilibrium

what is true of a budget constraint

straight line

A pencil producing plant sells pencils for $0.25. The marginal cost to produce each pencil is $0.25. The firm is operating at ______.

allocative efficiency

What term is best described as the idea that the particular mix of goods a society produces represents the combination that society most desires?

allocative efficiency

For a firm, what is the name of the point in which the price the firm receives per item is exactly equal to its average cost of production?

break even point

In a(n) ______ industry, an increase in market demand and price will result in a rightward shift in supply, new firms will enter, and supply will stop at the point where the new long-run equilibrium intersects at the previous market price.

constant cost

the law of diminishing returns states that the marginal productivity of additional resources employed

can be high initially but will eventually decrease

A group of firms that have a formal agreement to collectively produce the monopoly output and sell at the monopoly price is called a(n) ________.

cartel

Demand for cartel output depends on ______________ between firms and is explained by the kinked demand curve.

competition

the difference between supply and quantity supplied is that supply refers to the _____ and the quantity supplied refers to the ______

curve; point on the curve

Which of the following best defines international externalities?

externalities that cross national borders and that a single nation acting alone cannot resolve

True or false: When practicing intertemporal decision making, college students who need money today when their income is low (or nonexistent) to pay their college expenses will save today so that they can afford college tuition eventually.

false

true or false: The price elasticity of demand for candles is elastic because as the price of candles rises by 10%, the quantity demand of candles falls by 5%

false

true or false: Variable inputs cannot be easily increased or decreased in a short period of time.

false

true or false: When it comes to inferior goods (also called Giffen goods), we can conclude that the income elasticity of demand will be equal to zero given that an increase in income will make people buy less of these goods.

false

true or false: While the Great Deregulation Experiment led to the creation of new jobs and cheaper airfare, it failed to make the airline industry more efficient because flights had a higher percentage of seats sold prior to deregulation.

false

true or false: in command economies, decision making is decentralized.

false

Firms make production decisions primarily based on

production conditions & cost conditions

Cost and production conditions can affect

production decisions, amount of employees, and price of product

a price floor is

the minimum amount that can legally be charged for a good or service

Which of the following best defines deregulation?

the removal of government controls over setting prices and quantities in certain industries

The price of oil fell considerably over the last few months. Researches have plotted the data to evaluate the supply and demand schedules for oil and have found that the data illustrates a nearly vertical supply curve. This means that its elasticity of supply is almost equal to _____

0

Which of the following can increase the demand for paper factory workers in a town where only 30% of the residents graduate from high school?

A government mandate requiring that all workers have a high school diploma

Which of the following scenarios does not represent characteristics of a monopoly?

An individual firm has very little market power.

A government-imposed tax on a good with a demand elasticity of 0.1 and a supply elasticity of 2.2 is put into effect. Which of the following is most likely to follow?

Consumers will bear significantly more of the tax burden than sellers.

Consider a market where demand is relatively more inelastic than supply. If the price of a major input increases, how will this increase in input costs be split between producers and consumers?

Consumers will face a greater portion of the burden of the cost increase than producers.

Which of the following best describes the condition that leads to a natural monopoly?

Economies of scale are large relative to quantity demanded in a market.

Which type of efficiency is discussed in the following statement? The particular mix of goods a society produces represents the combination that society most desires.

allocative efficiency

_____ is the total revenue minus total costs.

profit

The term collusion best fits which of the following descriptions?

the situation in which firms act together to behave like a monopoly by holding quantity low and price high

A college student's need to pay for college and other expenses immediately has what effect on the long term supply of financial capital?

the supply increases

The sum of the fixed plus variable costs is known as _________.

total cost

according to the law of demand, if all else remains equal, as the price of a good becomes lower, then ______

the quantity demanded of the good will increase

assuming the market is currently at the equilibrium price and quantity, when a price ceiling is set below the equilibrium price

the quantity demanded will rise and the quantity supplied will fall causing a shortage

true or false: marginal analysis compares total benefits and total costs to determine the optimal outcome or choice rather than how costs and benefits change from one option to another

false

true or false: sunk costs change with the level of output

false

When considering factors that shift supply curves, which of the following will increase supply?

favorable natural conditions for production & lower taxes levied on producers

microeconomics concentrates on what

firms, household debt management plans, and household budgets

Jenna changes the amount of butter she purchases depending on whether it costs $3, $4, or $6 a pound. In order to derive her demand curve for butter, what other information do we need?

how much butter she buys at each price point

division of labor may also be referred to as human specialization. Overall, it is beneficial to firms because it

increases output by enabling workers to take advantage of differences in their skills

true or false: Constant returns to scale occur when the long-run average cost of producing each individual unit increases as total output increases.

false

true or false: Exit occurs in response to increased industry profits.

false

true or false: If demand is more inelastic than supply, then sellers will bear more of a tax burden.

false

true or false: In a perfectly competitive market, there are limited amounts of buyers and sellers in the industry.

false

What does the perceived demand curve for a monopolistic competitor look like?

it slopes downward

In a circular flow diagram, who pays wages?

firms

Price ceilings typically affect which of the following?

rent

Which of the following restrictive practices are the most related?

tying sales and bundling

The opportunity cost of producing one bushel of wheat in Canada is equal to 1/2 TV set. The opportunity cost of producing one bushel of wheat in the US is 2 TV sets. If these two countries specialize according to comparative advantage and then trade with each other

Canada will export wheat and import televisions

What do economists say is problematic with the allocative efficiency of a monopoly?

Consumers will suffer from a monopoly because it will sell a lower quantity in the market at a higher price compared to a firm in a perfectly competitive market.

A monopoly is a firm that sells all or nearly all of the goods and services in a given market. What determines if a firm is a monopoly producer?

If a firm produces a product without close substitutes, then we can consider the firm a monopoly producer in a single market.

According to the prisoner's dilemma, which of the following are true about oligopolies?

If oligopolists agree to cooperate, each oligopolist must worry about being betrayed. & Even when oligopolists agree to cooperate, they are self-interested and want to pursue higher profit opportunities. This could result in firms betraying one another.

Which of the following is a true statement about the relationship between perceived demand and market demand?

In a monopoly, perceived demand equals market demand.

Which of the following are accurate statements regarding globalization?

International agreements and treaties between countries have contributed to globalization & One way to measure globalization is examining the amount of imports and exports

Which of the following statements is false?

Allocatively efficient firms are typically monopolists, whereas perfectly competitive firms are allocatively inefficient.

Which of the following scenarios is an example of a company having control of physical resources as being a barrier to entry into a market?

An aluminum company controls most of the supply of bauxite, a key mineral used in making aluminum.

Which of the following is an example of a positive externality?

Bob paints a nature scene on a large canvas at the park and people passing by stop to watch him paint.

Suppose that when income falls by 20%, the demand for bologna increases by 10% at the current price. Therefore, the income elasticity of demand for bologna is −0.5 Is bologna a normal good or an inferior good?

Bologna is an inferior good.

Which of the following will increase the demand for financial capital?

Businesses look to increase investment.

The rule of profit maximization in a world of perfect competition is for each firm to produce the quantity of output where P = MC. The allocative inefficiency of a monopoly violates this rule. Who does it affect?

It affects society as a whole. Minimally, it affects consumers because there will be a lower quantity of these goods in the market at higher monopoly prices. Moreover, it stifles innovation that is brought on by competitors because monopolies do not need to please their customers.

In general, what effect does a technological improvement have on labor demand?

It increases demand for certain types of workers. & It decreases demand for certain types of workers.

If the price of a good were to change will it shift demand or change quantity demanded?

It will change quantity demanded.

As adolescents become increasingly interested in electronics - as opposed to books - where would you find the greatest increase in demand?

Kindle books for iPads and other tablets

Use the market's HHI and the FTC's historical guidelines for mergers to answer the following question: Suppose the top five firms in a market have market shares of 26%,11%,9%, 8% and 6% respectively. The remaining 20 firms in the market each have a market share of 2%. Would the FTC be likely to approve a merger between the top two firms in this market?

Maybe. The FTC would scrutinize the merger and make a decision on a case-by-case basis

What is the main difference between a monopoly and monopolistic competition?

Monopolistic competition is characterized by an industry with many firms, differentiated products and easy entry and exit, while monopoly is a single firm with high barriers to entry.

Which choice below correctly matches the legal protection with the intellectual property it protects?

Trademarks protect images or a name of a company. Copyrights protect books, songs, and art. Patents protect the right to make, use, or sell an invention for a limited time.

In the United States, before a large merger can take place, antitrust regulators from which two organizations must agree to allow the merger?

U.S. Department of Justice & Federal Trade Commission (FTC)

In 1914, the ___________ outlawed mergers and acquisitions, price discrimination, and tied sales.

clayton antitrust act

A long-run average cost curve with a ___________ allows fewer firms to compete because any firm producing at a different quantity will have higher costs.

clear minimum point

Because attempting to define a particular market can be difficult and controversial, the Federal Trade Commission has begun to look less at market share and more at the data on actual ______________________________.

competition between businesses

One condition that must be met if the market's allocation is to be efficient is that the marketplace must be ________________.

competitive or function as if it were

How would an increase in the high school graduation rate of a town impact the demand for labor?

demand for labor would increase

A firm finds that producing 30,000 vases costs $180,000 and producing 40,000 vases costs $280,000. This pattern might be explained by ___________________.

diseconomies of scale

Which of the following occurs when the long-run average cost of producing each individual unit increases as total output increases?

diseconomies of scale

Economies of scale occur when a firm's long-run average total cost curve is ___________________.

downward sloping

Natural monopolies often arise in industries where the marginal cost of adding an additional customer is very low once the fixed costs of the overall system are in place. This results in what?

economies of scale

A price elasticity of demand greater than 1 is called __________ and a price elasticity of demand less than 1 is called ___________

elastic; inelastic

In the short run, it is difficult for a person to make changes to their energy consumption habits. In the long run, they can purchase a car that is more efficient, live closer to work, and buy energy efficient appliances. Because of this, you can say that __________

elasticity is lower in the short run than the long run

Which of the following is demand closest to perfectly inelastic?

emergency ambulance services

Given that there are significant economies of scale involved in making flat screen television sets, the cost of manufacturing a flat screen television set most likely will ____________________.

falls as the industry matures

True or false: the slope of either the supply or demand curve defines its elasticity

false

true or false A firm competing in a market where the LRAC curve has a clear minimum point has flexibility in its output.

false

true or false: A firm competing in a market where the LRAC curve has a clear minimum point has flexibility in its output.

false

true or false: A firm is facing constant returns to scale if its total cost of production does not change with increases in output produced.

false

true or false: Because firms can easily expand their markets in the long run, elasticity of supply is lower in the long run.

false

true or false: Because of market pressures, monopolies frequently demonstrate allocative efficiency.

false

true or false: Perfect elasticity and zero elasticity refer to the same event, which occurs when quantity demanded or quantity supplied change by an infinite amount in response to any change in price.

false

true or false: Quantities supplied and demanded are more flexible in the short run than in the long run.

false

Which of the following explains a firm's output when the long-run average cost curve has a flat bottom?

firms are able to produce at a variety of outputs along the flat bottom of the curve.

What does the perceived demand curve for a perfectly competitive firm look like?

flat

A long-run average cost curve with a __________ allows firms to compete because they have a variety of outputs to produce at.

flat bottom

When a long-run average cost curve has a ______, ________ are able to compete in the market.

flat bottom; more firms of different sizes & definite minimum; fewer firms of different sizes

All of the following have highly elastic demand curves except _______.

gasoline and oil

Which of the following is least likely to have a supply curve of zero elasticity?

goods with readily available inputs and whose production can easily expand (like pizza or pencils)

Billy has been choosing between going to the movies and eating out on Friday nights. Of the two, going to the movies has been considered a normal good while eating out an inferior good. What happens when his income increases?

his budget constraint shifts out and he will chose to maximize his utility such that he would optimize going to the movies.

What was the Sarbanes-Oxley Act in 2002 designed to do?

increase confidence in financial information provided by public corporations to protect investors from accounting fraud

Which of the following best completes the statement below? If the price of coffee falls by 90%, we would expect demand for coffee stirrers to _____________. This occurs because the two goods are close ______________.

increase; complements

If the price of indoor cycling classes increase by $10, we would expect the demand for fitness classes to _______________. This is because indoor cycling classes and fitness classes are _________

increase; substitutes

As output increases, a firm experiencing diseconomies of scale will see the long-run average cost (LRAC) curve ___________.

increasing

The marginal costs of reducing pollution are generally _____________. The marginal benefits of reducing pollution are generally ____________.

increasing; decreasing

In a perfectly competitive market in long-run equilibrium, an increase in demand creates economic profit in the short run and _________________ in the long run.

induces entry

Instead of defining a market and counting up total sales, what are antitrust regulators looking at today when determining whether to allow a merger or not?

industry competition

When the price of keyboards changes, the % change in the price of keyboards is greater than the % change in the quantity of keyboards demanded. Which of the following best describes the price elasticity of demand for keyboards?

inelastic

Which of the following is not one of the three common types of elasticities?

infinite elasticity

The money paid in addition to what is owed on a loan is called _______.

interest rate

which scenario is asking you to apply marginal analysis?

it costs $3 to go down the water slide. the first time you go down the slide, youre excited, but your interest decreases each time you go down. how many times should you go down the water slide?

what is true of allocative efficiency

it is the combination of products that society most desires & it is one of many combinations of products that use all available resources

If a firm is experiencing economies of scale in its production process, which of the following will occur when the firm increases its output?

its long-run average total costs will fall

As additional increments of marginal resources are added to either healthcare or education, the marginal benefit from those additional increments will decline. What do economists call this pattern?

law of diminishing returns

Property rights are an important component of any system intended to minimize negative externalities because they establish ________________, obligating the responsible party to seek out and pay for the least costly method of reducing the risk or impact of negative effects.

legal responsibility

Barriers to entry occur in a monopoly market because ________.

legal, technological, or market forces discourage or prevent potential competitors from entering the market

When a $1 loss of money pains an individual 2.25 times more than a $1 gain in money, we refer to this as _______________________.

loss aversion

Suppose government regulators allow a public utility with a natural monopoly to go unregulated. Under such a scenario, the public utility will produce at a level where ________ is equal to ________ .

marginal revenue; marginal cost

A monopolist's perceived demand curve is the same as the market demand curve. The price the monopolist firm charges is constrained by what?

market demand

Suppose you earn $50 working at the ice cream shop for 5 hours. On your way home, you find $50 next to a garbage can. You are excited for the extra money and decide to spend it on new shoes as soon as you can, whereas you are saving your paychecks to pay off your credit card debt. This scenario of viewing money differently is an example of ________________________.

menta accounting

What type of market occurs when a company has control of a scarce physical resource? Examples include ALCOA—the Aluminum Company of America and DeBeers.

natural monopoly

Your roommate is a smoker who often smokes in the common areas of the apartment you share. You are a nonsmoker who dislikes the smell of smoke. Is this considered a negative externality or a positive externality?

negative externality

All of the following statements are true about the Airline Deregulation Act except:

no major airlines went bankrupt as a result of the Airline Deregulation Act.

Regulatory capture occurs when firms being regulated end up _______________ setting the regulations they will follow.

playing a large role in

For most products, most of the time, the income elasticity of demand is _____

positive

If you love country music and hate rock music, would having a neighbor play country music so loud that you can hear it be considered a positive or a negative externality?

positive externality

__________ occurs when an existing firm (or firms) reacts to a new firm by dropping prices very low and, as a result, drives the new firm out of the market. The existing firm then raises prices again.

predatory pricing

When the regulator sets a price that a firm cannot exceed over the next few years, the regulator is enforcing

price cap regulation

The mathematical equation that explains the engineering relationship between inputs and outputs is called the ________

production function

Average profit, or profit divided by quantity, is also known as ________.

profit margin

A natural monopoly occurs when ______________ is less than the minimum quantity it takes to be at the bottom of the long-run average cost curve.

quantity demanded

Predatory pricing occurs when an existing firm

reduces prices very low to drive out competition and then increases prices once competition is eliminated.

The long-run average cost (LRAC) curve is actually based on a group of ______________, each of which represents one specific level of fixed costs.

short run average cost curves

While advocates of a market-oriented economy tend to argue that consumers benefit substantially when firms seek short-term profits by providing differentiated products, critics of market-oriented economies may argue that product differentiation (along with marketing and advertising) is _______________.

socially wasteful

All of the following statements about the Dodd-Frank Act are true, except:

the Dodd-Frank Act was designed to protect the American taxpayer by promoting government bailouts.

All of the following are examples of regulatory capture during the deregulation of the airline industry except:

the airlines did not provide most of the information on which the regulatory board made decisions.

The government puts in place a regulation saying only certified nurses are allowed to draw blood. How does this affect the demand for phlebotomists (blood draw specialists)?

the demand for phlebotomists will decrease.

While a monopolist can technically charge any price for its product, the price is constrained by ________________.

the demand for the firm's product & the market demand

When the government attempts to set prices at marginal cost and quantities produced through force of regulation, firms likely will lose money and go out of business unless ______________.

the government offers the firm an ongoing public subsidy

Behavioral economists seek to enrich our understanding of decision-making by integrating _____________________ into economics

the insights of psychology

assume brandon can buy either 1 dvd for $20 or 3 CDs for $25. what is the opportunity cost if he decides to buy 3 cds

the lost opportunity to buy 1 dvd

a price ceiling is

the maximum amount that can legally be charged for a good or service

Which description best fits the definition of opportunity cost?

the measure of cost by what is given up in exchange for what is obtained

All of the following statements are true about the Airline Deregulation Act except:

the new law led to a decrease of air passengers.

A nation's comparative advantage in the production of an item is determined by

the opportunity cost if producing the item relative to a trading partner's opportunity cost

Which of the following best defines the term cross-price elasticity of demand?

the percentage change in the quantity of good A that is demanded as a result of a percentage change in the price of good B

How would a government subsidy to help fund education for children of employees impact the supply for labor?

the supply increases

The result of a prisoner's dilemma in a duopoly is often that even though Firm A and Firm B could make the highest combined profits by cooperating,

the two firms may well end up in a situation where they each end up with lower profits

Which of the following are characteristics of a perfectly competitive market?

there are many buyers and sellers & firms can enter and exit the market with no restrictions

The total amount of money a firm receives from selling its products before it must pay any costs is known as ________.

total revenue

True or false: An expanding company would be more likely to build a new headquarters in an area where most of the workforce has graduated college.

true

True or false: In financial markets, those who supply financial capital by saving and investing expect to receive a rate of return, while those who demand financial capital by receiving funds expect to pay a rate of return.

true

true or false: Behavioral economists seek to explain irrational behavior by examining how different dollar amounts have different meanings to individuals, depending on the circumstances.

true

true or false: Bob owns a piece of land that the Green Stream flows through. An industrial polluter dirties the Green Stream and Bob attempts to sue the polluter and get an injunction to stop the practice. This is an example of how property rights can affect individual incentives.

true

true or false: Both demand and supply are generally more elastic in the long run than in the short run.

true

true or false: Economists would say that when the net benefits of all economic activities are maximized, the allocation of resources is efficient.

true

true or false: Goods with a limited supply of inputs have nearly zero elastic supply curves.

true

true or false: If the price elasticity of demand at the current price is 0.7 while the price elasticity of supply is 1.5 and the price of a major input to production falls, then consumers will reap more of the benefit than producers.

true

true or false: In a constant cost industry, an increase in demand is matched by an equal increase in supply.

true

true or false: In an increasing cost industry, the equilibrium price increases in response to an increase in quantity.

true

true or false: Large pizza ovens leased by a pizza franchise from an industrial kitchen supply company are an example of a fixed input.

true

true or false: Prior to the Great Deregulation Experiment, the government body of the airline industry essentially prevented the entry of new airlines on the main routes in the United States.

true

true or false: Productive efficiency occurs when price equals minimum average total cost.

true

true or false: The cross-price elasticity of demand between butter and margarine is positive.

true

true or false: The difference between accounting and economic profit is that economic profit subtracts implicit costs, whereas account profit does not.

true

true or false: The kinked demand curve can explain how a cartel like OPEC does not need a legally enforceable agreement to hold down output, increase price, and share a monopoly level of profits.

true

true or false: The prisoner's dilemma demonstrates that following a rational, self-interested strategy may not result in the best outcome for decision makers.

true

true or false: The production function answers the question "how much output can the firm produce given different amounts of inputs?"

true

true or false: The shape of the long-run average cost curve determines the number and size of firms competing in the industry.

true

true or false: To find average profit, simply divide profit by the quantity produced.

true

true or false: When demand is elastic, total revenue decreases when prices increase.

true

true or false: When the price elasticity of demand is less than the price elasticity of supply, then consumers will carry a greater burden of the tax compared to suppliers.

true

true or false: When the price elasticity of demand is less than the price elasticity of supply, then consumers will carry a greater tax burden when compared to producers.

true

If a 1% drop in price causes a 1% increase in quantity demanded, it is considered _______________________ demand.

unit elastic

In the context of limiting pollution, command-and-control regulation _______.

usually requires the same standard for all polluters, and often the same pollution-control technology as well

Inputs that can easily be increased or decreased in a short period of time are called _____________.

variable inputs

what cannot be determined by using a production possibilities curve

what combination of outputs maximizes benefits for society

When do constant returns to scale occur?

when the LRATC remains constant as quantity increases

A merger is ____________.

when two formerly separate firms combine to become a single firm

If a manufacturing firm ends its year with a total revenue equal to its production costs and opportunity costs combined, then which of the following terms best describes its economic profit for the year?

zero

If there is a situation where the quantity demand of a product does not decrease or increase as a result of a percentage change in its price, we call this a situation of _______________.

zero elasticity

Which of the following is an example of price cap regulation?

A government setting a price level for a public utility several years in advance.

Select all of the following descriptions that are true about market economies

A market economy is based on private enterprise & A person's income is based on his or her ability to convert resources (especially labor) into something society values

Looking at the two graphs below, perceived demand for a perfectly competitive firm is flat compared to that of a monopolist. Why?

A perfectly competitive firm is a price taker and can sell either a low quantity or a high quantity at exactly the same price.

All of the following are accurate descriptions of traditional economies except:

A person's income is based on his or her ability to convert resources (especially labor) into something society values.

Which of the following is the definition of price floor?

A price floor is the minimum amount that can legally be charged for a good or service.

Assume that the market equilibrium price is 50 cents for a pound of bananas, and the quantity sold is roughly 10 pounds. What kind of price control could generate an excess supply of bananas?`

A price floor of 75 cents per pound

What happens when two goods are complements?

The cross-price elasticity of demand for each good with respect to the other is negative.

Once a water company lays the main water pipes through a neighborhood, the marginal cost of providing water service to another home is fairly low. Where will the demand curve for water intersect the long-run average cost (LRAC) curve for this company?

The demand curve intersects the LRAC curve at its downward-sloping part.

If goods A and B are substitutes, what can we expect to happen to the demand for A if the price of B increases?

The demand for A will increase because the goods are interchangeable.

In the short run, a significant increase in the price of oil has little effect on the quantity of oil demanded. However, in the long run, a significant increase in the price of oil will significantly decrease the quantity demanded. Which of the following reasons explains this?

The demand for oil is less elastic in the short run and more elastic in the long run.

There is a general decrease in the price of airfare tickets. What do you expect to happen to the demand for cross-country train tickets?

The demand for train tickets would decrease.

Which of the following would be considered an incentive-based approach to environmental law when it comes to the protection of an endangered species on privately-owned land?

The government pays a landowner to provide and maintain a suitable habitat for an endangered species found on his property.

Historically, when an endangered species is discovered on private land, what has typically been the reaction of the government under a command-and-control approach to environmental law?

The government prohibits the property owner from using his or her land.

Suppose the market for credit cards is initially in equilibrium. What will happen to price and quantity if there is an increase in the supply of credit cards?

The interest rate will decrease & The quantity will increase

If Firm A is in a cartel and cuts its price from $450 to $300, based on the kinked demand curve, what will other firms in the market do?

The other firms will also cut their price to $300, as can be seen on the steep portion of the kinked demand curve.

Suppose that baby boomers become increasingly concerned about whether or not the government will really have the funds to make Social Security payments to them over their retirement years. How does this concern impact the supply of financial capital in the present?

The supply of financial capital will increase.

Why is the monopolists outcome of producing and selling not allocatively efficient?

Their product is sold at a price above marginal cost.

When the quantity of environmental protection is low so that pollution is extensive, which of the following statements is most true?

There are a lot of cheap and easy ways to fight pollution and the marginal benefits of doing so are quite high.

Which of the following are characteristics of oligopolistic markets?

There are high barriers to entry & They are dominated by a small number of firms

Assuming a market is currently at the equilibrium price and quantity, what happens when a price ceiling is set above the equilibrium price?

There is nothing preventing the price from reaching its equilibrium level

Which of the following is considered a shortcoming of command-and-control regulations?

They provide no incentive for firms to do better than the bare minimum of staying within the pollution limits that the government sets.

Which of the following situations is an example of a negative externality?

a neighbor playing loud music when you're trying to sleep

What events led to the creation of the Sarbanes-Oxley Act in 2002?

a number of major accounting scandals involving prominent corporations

Productive efficiency occurs when _______.

a perfectly competitive market is in long-run equilibrium, an economy is operating on its production possibilities curve, & price equals minimum average total cost

Which of the following is not a characteristic of monopolistic competition?

a single firm dominates the market

The term monopoly best fits which of the following descriptions?

a situation in which one firm produces all of the output in a market

A legal monopoly is _____________________.

a situation in which there are legal prohibitions against competition

businesses typically support globalization because globalization

allows access to more markets

Which of the following is not a valid way in which a firm can differentiate its products from the products of other firms?

altering price

Opportunity cost of a machine a firm already owned is an example of

an implicit cost

Which of the following factors would not result in a change in the supply of automobiles?

an increase in the price of gasoline

Profit margin is synonymous with the term _______ and tells whether or not total profit will be positive.

average profit

______, also known as profit margin, is the profit divided by quantity produced, or average revenue minus average cost.

average profit

What is the name for the legal, technological, or market forces that discourage or prevent potential competitors from entering a monopoly market?

barriers to entry

Why is a perfectly competitive firm called a "price taker"?

because the market determines the price at which the firm must sell its product

The equation for a demand curve is P=2/Q. Would you expect the elasticity of demand as price in dollars falls from 5 to 4 to be the same as the elasticity of demand as the price falls from 9 to 8? Why?

No, because the percent change in price is not equal and the quantity is not the same at each part of the demand curve.

Applying the prisoner's dilemma to a duopoly, can the two firms trust each other?

No, the threat of betrayal and earning less profit discourages firms from trusting one another & No, firms are self-interested. The firm knows it can earn greater profits if it betrays the other firm(s) in the market than it would earn if it were betrayed by the other firms.

In a cartel, if oligopolists always match price cuts by other firms in the cartel, but do not match price increases, which of the following is not a possible outcome?

One firm in the cartel could lower its prices to attract customers from all of the other firms and then be the dominant firm.

What is the equation for determining the price elasticity of a demand curve?

Price elasticity of demand is the percentage change in quantity demanded divided by the percentage change in price.

Considering all other things are held constant, suppose an increase in supply in the market for savings leads to a fall in the savings rate from 5% to 1%. How will this impact the quantity demanded in the market for savings?

Quantity demanded will increase.

A certain product has supply elasticity 0.4 and demand elasticity 2.7. If a tax were placed on the product, what is most likely to happen?

Sellers will bear more of the tax burden.

Consider a member firm in an oligopoly cartel that is supposed to produce a quantity of 10,000 and sell at a price of $500. If this firm raises its price to $600, how does the kinked demand curve explain the market responses to this price increase?

When price by one firm increases on the kinked demand curve, that firm's demand drastically decreases. Output demand for the firms that kept price low will increase.

All of the following statements about property rights and environmental law are true, except:

When the government undermines property rights by prohibiting a landowner from using his land in a way that may violate environmental policy, it is incentivizing the landowner to protect the environment.

All of the following statements are true regarding the possible outcomes if antitrust authorities decide to divide a natural monopoly except:

When there is a downward-sloping average cost curve, two smaller firms will always have lower average costs of production than one larger firm for any quanitity of total output.

Which example is not an example of loss aversion?

While at the zoo, you lose $5 out of your wallet. Later you find $5 outside the penguin exhibit. Since you found $5 you recognize that you are back to where you started regarding money and have neutral feelings about original loss of $5.

If the top two companies in the golf club industry merged, their new market share would equal 15% of the market. This industry's new HHI would be 995. According to the FTC's historical guidelines for mergers, would the FTC approve this merger?

Yes, the FTC would ignore the merger and allow it to go through.

Game theory is defined as

a branch of mathematics often used by economists that analyzes situations in which players must make decisions and then receive payoffs based on what decisions the other players make

Imagine a situation where an increase in the number of workers, as a result of immigration, shifts the labor supply curve to the right. In a competitive market, this will tend toward ______________ of wages

a decrease

When measuring income elasticity, what does a positive result tell us?

a good is normal

Which of the following is not a characteristic of oligopoly?

a large number of competing firms selling non-identical products

Which of the following is an example of a fixed input?

a leased store front for a sandwich shop

Under U.S. law, no organization but the U.S. Postal Service is legally allowed to deliver first-class mail. This is an example of what?

a legal monopoly

Which of the following best defines imperfect competition?

a market type which falls between the extremes of monopoly and perfect competition; firms have more influence over the price they charge than perfectly competitive firms, but not as much as a monopoly would

All of the following are potential effects of advertising for a firm except _______.

a more elastic demand curve

True or false: this statement is of interest to a microeconomist: "Last quarter, GDP growth for the U.S. economy was at 1.2%, slightly below what was expected."

false

On a short road trip, if Mary spends her entire budget on gas and diner meals, Mary can afford either 35 gallons of gas or 7 diner meals. What is the opportunity cost of one diner meal?

5

Which scenario below is an example of scarcity?

A factory has a large need for highly skilled workers, however the majority of applicants do not have any work experience.

true or false: In underground economies, governments are heavily involved in making decisions on the goods sold and the prices set.

false

which of the following is not an example of scarcity

Amanda can play a song as many times as she likes with no additional cost to her

Which of the following best describes the term command economy?

An economy where economic decisions are passed down from government authority and where resources are owned by the government

true or false: graphs are rarely used to express economic models

false

Which scenarios would be best represented by a budget constraint?

Finn has an allowance to spend on his dog. He must decide whether to spend the allowance on new doggy treats for $10 per bag or new water balls for $3 per ball & Sam has received a $500 scholarship that he can use for books and tuition

Which of the following is not an example of scarcity?

Home Depot offered a wage higher than the minimum wage resulting in an influx of job applications

Suppose the price of adoption fees for shelter dogs decreases so that more dogs can be adopted. What would happen to the demand for dog food at the local pet store?

The demand for dog food will go up because the number of dogs being adopted has increased.

In which of the following cases is productive efficiency not satisfied? Assume we start at a point on the PPF between two products.

The economy switches to producing less of one product without increasing the production of the other product

A drought in the Midwest impacts wheat crops grown in the area. Which of the following describes what will happen to the supply of bread in grocery stores?

The supply of bread will decrease.

Assuming all other variables that affect supply are held constant, which of the following outcomes happen in the market for DVD players if the price of DVD players increases?

There will be an increase in the quantity supplied of DVD players.

Which of the following characteristics is a fundamental similarity that nearly all demand curves share?

They slope downward from left to right.

which of the following events will increase the supply of financial capital

a decrease in risk

Which of the following will impact the supply of a good?

a government subsidy to the producers of the good

which of the following is directly associated with usury law

a ceiling on the maximum interest rate

Which of the following is not a factor that could cause a shift in supply for a certain good?

a change in income

All of the following cause the supply curve to shift except

a change in the price of the product

which of the following situations would be most accurately depicted by a production possibilities frontier

a country is debating whether its resources should be used in producing cars or soybeans

In economics, utility can be described as

a level of satisfaction

What is the best definition of an underground economy?

a market where the buyers and sellers make transactions without the government's approval

suppose the market for savings accounts is initially in equilibrium. If the government institutes a minimum interest rate on savings accounts that is above the current equilibrium, what will be the result

a surplus of people looking to save money & a shortage of banks looking to supply bank accounts

True or false: Marginal analysis compares total benefits and total costs to determine the optimal outcome or choice rather than how costs and benefits change from one option to another.

false

The law of diminishing returns states that the marginal productivity of additional resources employed

can be high initially but will eventually decrease

the trend towards globalization encompasses which types of connections between people around the world?

cultural, economic, and political

the production possibilities frontier has a ______ did to the law of diminishing returns

curved shape

a production possibilities frontier

demonstrates the constraints that society faces in production

When goods are produced, the process can be broken down into a number of specific tasks. This is called ___________

division of labor

when the tasks involved with producing a good or service are split up it is called

division of labor

As an economic wizard, you know that a bad recession will strike next year. Which one of the following industries should you choose to invest in to weather out the recession?

dollar stores

a price floor will affect both the price charged for a good and the quantity supplied if

it is set above the equilibrium price

the law of diminishing marginal utility describes the general pattern that continuous consumption of a commodity leads to an eventual decline in _____ from the consumption of that commodity

marginal utility

what term is best described as the additional satisfaction gained from purchasing a good when given the price of the product

marginal utility per dollar

at one time, most of the cars produced in mexico were sold in mexico. today however mexico both exports and imports cars. how could comparative advantage explain this scenario?

mexico specialized in the production of high end cars which it exports and imports low end cars that can be produced at a lower cost elsewhere

_____ may analyze how a mother of three children spends her money each month, while ______ may analyze various influences on the unemployment rate

microeconomists; macroeconomists

suppose the market for credit cards is currently at equilibrium. What will be the consequence if the government sets a limit on credit card interest rates that is above the market equilibrium

nothing

what is a result of a government intervention that sets a maximum interest rate in the market for car loans that is above the equilibrium rate

nothing will change

which of the following is the result of a government intervention that sets a maximum interest rate in the market for car loans that is above the equilibrium interest rate

nothing will change

what term describes the total number of units of a good or service consumers are willing to purchase at a given price

quantity demanded

quantity demanded is different from demand because

quantity demanded is the number of units consumers demand at a specific price, while demand is a schedule comprised of quantity demanded at different prices

suppose a decrease in the supply of savings causes the interest rate to rise from 4% to 6%. All else being equal, how will this impact the quantity of savings demanded?

quantity demanded will decrease

What term is best described as the total number of units of a good or service producers are willing to sell at a given price?

quantity supplied

suppose a decrease in demand for financial capital leads to lower interest rate in the market for financial capital. How will this impact quantity supplied

quantity supply will decrease

sally is a great employee that works for a prominent company that recently announced expansion. Sally decides to borrow financial capital to purchase a house. What could be one reason sally is increasing her financial capital demand now?

sally's consumer confidence is high

the purpose of a theory, in general, is to

take a complex, real-world issue and simplify it down to its essentials

of the following factors, all will always decrease labor demand except

technology as a compliment to labor

Which of the following is the best definition of marginal utility?

the additional utility that a consumer derives from consuming one additional unit of a good

When it comes to watching movies, consumers have moved away from DVDs and into streaming. What has happened to the demand for DVD players over this time?

the demand has decreased

what is not true about financial markets

the market for credit cards is not an example of a financial market

suppose the interest rates for mutual funds market were to decrease by a significant amount. ceretis paribus, how would you expect the supply curve for certificate of deposit accounts (a substitute good) to change in response to this?

the supply curve will shift to the right

Quantity supplied is a term that refers to

the total number of units of a good or service producers are willing to sell at a given price

choose the best option below that illustrates an example of scarcity

the value for ivory has increased leading to an increase of poaching of African elephants and a decrease in the African elephant population

what do you expect to happen to the supply curve of mutual funds (investment funds) if the interest rates for substitute investment, savings bonds, increase by a very significant amount

this supply curve will shift to the left

which type of economy, typically agriculture, can be described as where things are done in the same way as they have always been done

traditional economy

True or False: the slope is the same at every point on a budget line and different at various points on a production possibilities frontier.

true

True or false: A recession is likely to hit a gambling and entertainment mecca like Las Vegas particularly hard compared with the average city

true

True or false: The law of supply states that when there are many sellers of a good, an increase in price results in an increase in quantity supplied

true

True or false: The marginal satisfaction associated with consumption of a product can also be described as the marginal utility.

true

True or false: according to the law of demand, changing the price of sweater vests will only affect the quantity demanded, not demand itself.

true

true or false: The U.S. economy is less affected by globalization than most other countries relative to its GDP

true