Summer Micro

Which of the following is NOT true about externalities?

People face the full consequences of their actions when they create externalities.

_____ haggle because haggling can be a very powerful form of price discrimination, allowing them to tailor the price they offer to _____.

Sellers; each customer

Many buyers use a futures contract to agree to purchase a commodity at a specific time in the future. What is the benefit of looking at the prices of such futures contracts to businesses that produce these commodities?

Businesses can obtain useful information about future disruptions to input costs.

Which of these BEST explains what markets do?

Markets reallocate stuff to its best uses, which make people better off.

When a company like Google, which allows its workers to widely distribute information, sets up its own prediction market, what is the outcome?

The internal prediction markets used yield better, more accurate forecasts.

How do Chinese tea farmers learn about a rise in the popularity of tea in the West?

They communicate with buyers through the price.

One of the profit-boosting objectives of perfect price discrimination is to:

charge each person the highest price you possibly can

Mergers laws prevent competing businesses from:

combining to consolidate market power.

Customer lock-in strategies, such as having prices so low that no rival can compete with them, is an example of a _____ strategy.

demand-side

Working to build and preserve a good reputation is a _____ strategy designed to both entice new customers and hold on to existing ones.

demand-side

Building excess production or sales capacity acts as a _____ strategy.

deterrence

The benefits of mass production are sometimes called:

economies of scale.

Most laws aimed at mitigating the harm inflicted on third parties by market transactions work by increasing the _____ of creating _____.

opportunity cost; negative externalities

An example of gains from trade is that people sell their labor for money and spend that money on food because

people want that food more than they want another hour of time.

Perfect competition is rare because:

sellers rarely sell products that are identical to their competitors'.

Contracts locking out key points in a distribution chain are examples of _____ barriers to entry

supply-side

High prices communicate to buyers that:

the marginal cost of producing more is high.

An abundance of spare parts being available for popular models of cars, as opposed to rare and expensive replacements for foreign sports cars, is an example of _____.

the network effect

Price discrimination is:

the practice of selling the same good at different prices.

Group pricing can be an effective price discrimination strategy when _____ and hard-to-change factors like a customer's home address do a good job in sorting out which buyers have high _____.

verifiable; reservation prices

When haggling for an item such as a lot of land, your goal as a savvy buyer should be to convince the seller that:

you have a low reservation price.

When you don't price discriminate, all of the following apply EXCEPT:

your marginal revenue is the price you charge that marginal buyer.

The goal of financial accounting is to _____, while the goal of economic accounting is to _____.

keep track of money; help make the best decision

_____ is price discriminating by charging different prices to different groups of people.

Group pricing

______________are markets within a company that allows different divisions to buy and sell its scarce resources.

Internal Markets

What determines your customers' reservation price?

Their marginal benefit

Which role do both regular markets and internal markets have in common?

They efficiently allocate scarce resources to the best uses.

Why do firms decide to make relationship-specific investments with their partners?

They increase efficiency.

To create barriers to entry in a market, existing firms can employ any of the following strategies EXCEPT:

allow customers to easily switch to another business (demand-side strategies).

International trade has been a growing share of the U.S. economy throughout the entire postwar period. This trend, which has transformed the economy, is sometimes called _____.

globalization

Bundling creates a(n) _____ to(for) getting the second good at a _____.

hurdle; lower price

The opportunity cost principle reminds you that marginal costs:

include all relevant opportunity costs.

The shape of the demand curve of a firm can be relatively flat, or steep, depending on:

market power.

The market structure in which firms have the least market power is:

perfect competition.

If you're doing business in a(n) _____ market, you have no market power.

perfectly competitive

When a restaurant is so popular that there are long waits for reservations and high prices, people will _____.

settle for lower-quality options

If your firm has a lot of market power, a price hike will lead you to lose very few customers. This means your firm's demand curve is relatively _____ and it is relatively _____.

steep; inelastic

Does the discount effect affect companies in perfect competition. Why?

Does the discount effect affect companies in perfect competition. Why?

In general, companies with an identical product have _____ market power ____ those with a unique product.

Nice job! The correct answer is: less; than

Markets expand or contract until the demand curve is _____ the average cost curve.

just touching

An increase in the demand for tomatoes raises the price and sends a signal to tomato farmers to:

produce more tomatoes

Does the discount effect affect companies in perfect competition. Why?

No, because they can sell any quantity at the market price.

One of the profit-boosting objectives of perfect price discrimination is to sell to every single customer whose marginal benefit _____ your marginal cost.

exceeds