Calhoun Final Exam

Identify two good that are normal:

fuel, electricity

What is collusion?

It involves cooperative actions by sellers at the expense of buyers.

According to Adam Smith, what role does individual self-interest play in directing human activity?

It is a powerful force for economic progress when it is directed by competitive markets.

Which one of the following is an area of agreement among modern macroeconomists with regard to the use of fiscal policy?

It is difficult to time changes in discretionary fiscal policy in a manner that will promote stability.

c.enough market share to be somewhat insulated from competition

"Market power" indicates that a firm has a. the power to sell at a given output at whatever price it chooses b. monopoly over the product it produces c.enough market share to be somewhat insulated from competition

Noah drinks Dr. Pepper. He can buy as many cans of Dr. Pepper as he wishes at a price of $0.50 per can. On a particular day, he is willing to pay $0.95 for the first can, $0.80 for the second can, $0.60 for the third can, and $0.40 for the fourth can. Assume Noah is rational in deciding how many cans to buy. How much is his consumer surplus?

$.85

You run a business producing FSU-branded t-shirts. To produce these t-shirts, you first buy 1,000 blank white 100% cotton t-shirts from a large distributor, for $5 each. You will later dye and print these shirts, then sell them to consumers. The contribution of these t-shirts to GDP is...

$0

What will happen to a firm earning zero economic profit?

It is doing as well as typical firms in other markets.

What will a tax imposed on the sellers of a good do?

Raise the price paid by buyers and lower the equilibrium quantity.

Which of the following would tend to increase the wage of coal miners?

An increase in the price of oil, a substitute for coal.

Why do long lags make discretionary policy less effective?

By the time the impact of a policy is felt, the problem may have been ed by market forces.

Suppose the interest rate is 9%, compounded annually. If you deposit $5,000 today, how much will you have in 10 years?

$11,836.82

Isabella buys a new camera for $80. She receives consumer surplus of $35 on her purchase if her willingness to pay is

$115.

Shannon buys a new CD player for her car for $135. She receives consumer surplus of $25 on her purchase if her willingness to pay is

$160

Shannon buys a new CD player for her car for $135. She receives consumer surplus of $25 on her purchase if her willingness to pay is

$160.

Harry, a wheat farmer, is deciding whether or not to add fertilizer to his crops. If he adds 1 pound of fertilizer per acre, the value of the resulting crops rises from $80 to $100 per acre. According to marginal analysis, Harry should add fertilizer if it costs less than

$20 per pound

Harry, a wheat farmer, is deciding whether or not to add fertilizer to his crops. If he adds 1 pound of fertilizer per acre, the value of the resulting crops rises from $80 to $100 per acre. According to marginal analysis, Harry should add fertilizer if it costs less than how much?

$20 per pound

Andre, a wheat farmer, is deciding whether or not to add fertilizer to his crops. If he adds 1 pound of fertilizer per acre, the value of the resulting crops rises from $80 to $100 per acre. According to marginal analysis, Andre should add fertilizer if it costs less than

$20 per pound.

Andrew decides that he would pay as much as $3,000 for a new laptop computer. He buys the computer and realizes consumer surplus of $700. How much did Andrew pay for his computer?

$2300

Suppose Katie, Kendra, and Kristen each purchase a particular type of cell phone at a price of $80. Katie's willingness to pay was $100, Kendra's willingness to pay was $95, and Kristen's willingness to pay was $80. What is the combined consumer surplus for the three girls?

$35

Suppose Katie, Kendra, and Kristen each purchase a particular type of cell phone at a price of $80. Katie's willingness to pay was $100, Kendra's willingness to pay was $95, and Kristen's willingness to pay was $80. What is the combined consumer surplus for the three girls

$35.

Use the table below to answer the following question. Units of Output Total Fixed Cost Total Variable Cost (dollars) (dollars) 1 150 50 2 150 96 3 150 140 4 150 180 What is the marginal cost of producing the third unit of output?

$44

Suppose a country had net exports of $8.3 billion and sold $52.4 billion of goods and services abroad. This country had

$52.4 billion of exports and $44.1 billion of imports.

Given the supply and demand conditions illustrated in Figure 3-2, the equilibrium price of steak is

$6 per pound.

If average fixed costs equal $60 and average total costs equal $120 when output is 100, the total variable cost must be

$6,000.

If Lisa and Mark operate as a profit-maximizing monopoly in the market for water, what price will they charge? Imagine a small town in which only two residents, Lisa and Mark, own wells that produce safe drinking water. Each week Lisa and Mark work together to decide how many gallons of water to pump. They bring the water to town and sell it at whatever price the market will bear. To keep things simple, suppose that Lisa and Mark can pump as much water as they want without cost so that the marginal cost of water equals zero. The weekly town demand schedule and total revenue schedule for water is shown in the table below:

$60

Liam notes that if he produces 10 pairs of shoes per day, his average fixed cost (AFC) is $14 and his marginal cost (MC) is $8; if he produces 20 pairs of shoes per day, his MC is $15. What is his AFC when output is 20 pairs of shoes per day?

$7

Suppose a country had $2.4 billion of net exports and bought $4.8 billion of goods and services from foreign countries. This country would have

$7.2 billion of exports and $4.8 billion of imports.

A family has decided to go away for the summer. The monthly mortgage payment on the family's house is $1,000. Water, electricity, natural gas, and maintenance bills, to be paid by the family, will be $700 per month if the house is occupied and zero otherwise. If the family wishes to minimize losses from being away, it should rent the house for as much as the market will bear, as long as the monthly rent is above which of the following? (Assume wear and tear to be the same whether or not the house is occupied.)

$700

Which of the following best illustrates the concept of "derived demand"?

An increase in the demand for bread leads to an increase in the demand for flour.

formula for the price elasticity of supply:

% change in quantity supplied / % change in price

Which of the following is true of saving and investment?

c. If investment is going to be undertaken, someone must save

The average fixed costs of a firm equal

(total cost minus variable cost) divided by output.

Which of the following will lead to a decrease in supply of a good?

An increase in the price of an important resource used to produce the good.

Discounting is a procedure used to

determine the present value of income or costs expected in the future

List five key factors that dictate consumer behavior:

1. Limited income necessitates choice 2. Consumers make decisions purposefully 3. One good can be substituted for another 4. Consumers must make decisions without perfect information, but knowledge and past experience will help. 5. The law of diminishing marginal utility applies

What are the three primary factors that determine the elasticity of demand?

1. availability of substitutes 2. Product's share of the consumer's total budget 3. time (second law of demand)

Factors that cause inefficiencies in a market or cause "market failure": (4)

1. lack of competition 2. externalities 3. public goods 4. poorly informed buyers or sellers

What are the four key factors that shift cost curves?

1. resource prices 2. taxes - lax levied on seller, cost curve goes up 3. regulations- increase in regulatory compliance costs = up cost curve 4. technology

What are common secondary effects of price controls? (5)

1. shortages and black markets will develop 2. future supply of rental housing will decline 3. the quality of rental housing will deteriorate 4. nonprice methods of rationing will become more important 5. inefficient of housing space will result

If most businesses in an industry are earning a 13 percent rate of return on their assets, but your firm is earning 23 percent, your rate of economic profit is

10 percent

If most businesses in an industry are earning a 13 percent rate of return on their assets, but your firm is earning 23 percent, your rate of economic profit is

10 percent.

U.S. Nominal GDP in 2014 was $17,419,000. U.S. Real GDP in 2014 was $16,150,000. GDP Deflator in 2014 was therefore

107.8

From 2002 to 2014 France's Real GDP grew at an annual rate of 0.8%. At this economic growth rate, France's GDP will double in...

87.5 years

Refer to Table 12-3. Suppose that the firm pays its workers $75 per day. Each unit of output sells for $10. How many days of labor should the firm hire?

2

Suppose the Pleasant Corporation cuts the price of its American Girl dolls by 10 percent, and as a result, the quantity of the dolls sold increases by 25 percent. This indicates that the price elasticity of demand for the dolls over this range is

2.5

Refer to Figure 2-9. If the economy moves from point A to point D, the opportunity cost is

20 toasters.

If the price of apples decreases by 2 percent and causes apple consumption to increase by 4 percent, the price elasticity of demand is ____, indicating the demand is ____.

2; elastic

At the beginning of 2016, Japan had 64,580,000 employed people, and 2,120,000 unemployed people. Japan's total population is 126,395,390. What was the unemployment rate?

3.18%

If the economy of the nation of Fingle-Fargle is growing at 6% per year, its money supply grows at 10% per year, and its velocity growth is stable, then Fingle-Fargle's inflation rate is...

4%

Suppose the nominal interest rate on a 30-year mortgage is 5%. If the expected inflation rate is 1%, what is the real interest rate on this mortgage?

4%

Refer to Figure 2-10. If this economy put all available resources into the production of bananas, it could produce

400 bananas and no baseballs.

If the price elasticity of demand for opera tickets is estimated to be 4.5, then a 10 percent increase in opera ticket prices would be expected to cause a

45 percent decrease in quantity demanded.

If Lisa and Mark operate as a profit-maximizing monopoly in the market for water, how many gallons of water will be produced and sold? Imagine a small town in which only two residents, Lisa and Mark, own wells that produce safe drinking water. Each week Lisa and Mark work together to decide how many gallons of water to pump. They bring the water to town and sell it at whatever price the market will bear. To keep things simple, suppose that Lisa and Mark can pump as much water as they want without cost so that the marginal cost of water equals zero. The weekly town demand schedule and total revenue schedule for water is shown in the table below:

600

Refer to Table 12-3. What is the marginal product of the third worker?

7

Suppose people anticipate inflation will be 3 percent during the next several years. If this is true, when the real interest rate is 4 percent, what will be the nominal (money) interest rate?

7 percent.

Suppose people expect inflation to be 3 percent during the next several years. When the real interest rate is 5 percent, what will be the nominal (money) interest rate?

8 percent.

14. Which of the following statements is (are) true of the prisoners' dilemma? (i) Rational self-interest leads neither party to confess. (ii) Cooperation between the prisoners is difficult to maintain. (iii) Cooperation between the prisoners is individually rational. a. (ii) only b. (ii) and (iii) c. (i) and (iii) d. (i), (ii), and (iii)

A

25. Antitrust laws in general are used to a. prevent oligopolists from acting in ways that make markets less competitive. b. encourage oligopolists to pursue cooperative-interest at the expense of self-interest. c. encourage frivolous lawsuits among competitive firms. d. encourage all firms to cut production levels and cut prices.

A

26. The practice of tying is illegal on the grounds that a. it allows firms to expand their market power. b. it allows firms to form collusive arrangements. c. it prevents firms from forming collusive agreements. d. the Sherman Act explicitly prohibited such agreements.

A

28. Which of the following is necessarily a problem with antitrust laws? a. They may target a business whose practices appear to be anti-competitive but in fact have legitimate purposes. b. They promote competition. c. They limit monopoly power. d. They prohibit firms from entering or exiting a market.

A

3. Because each oligopolist cares about its own profit rather than the collective profit of all the oligopolists together, a. they are unable to maintain the same degree of monopoly power enjoyed by a monopolist. b. each firm's profit always ends up being zero. c. society is worse off as a result. d. Both a and c are correct.

A

A market structure with only a few sellers, offering similar or identical products, is known as a. oligopoly. b. monopoly. c. monopolistic competition. d. perfect competition.

A

OPEC can be classified as a (i) group whose concern is to control production levels of oil. (ii) cartel. (iii) resale price maintenance group. a. (i) and (ii) b. (ii)and (iii) c. (i) and (iii) d. (i), (ii), and (iii)

A

Which of the following forms of money is the most liquid?

A $20 bill in your wallet.

Which of the following is the best example of a business firm operating in a competitive price-taker market?

A Midwest farmer producing beef cattle, an Indiana hog farmer that raises pigs

Which of the following is an example of a non-pecuniary job characteristic?

A comfortable work environment.

Which of the following will cause the U.S. money supply to expand?

A commercial bank uses excess reserves to extend a loan to a customer.

surplus

A condition in which the amount of a good offered for sale by producers is greater than the amount that buyers will purchase at the existing price. A decline in price would eliminate the surplus. Qs-Qd

shortage

A condition in which the amount of a good offered for sale by producers is less than the amount demanded by buyers at the existing price. An increase in price would eliminate the shortage. Qd-Qs

Why is the demand curve downward sloping?

A consumer's willingness to pay for a good is directly linked to the additional benefit received. Since the consumer's marginal benefit falls as more units of the good are obtained, the willingness to pay falls. The substitution and income effects result from a change in the price of a good.

laffer curve

A curve illustrating the relationship between the tax rate and tax revenues. Tax revenues will be low at both very high and very low tax rates. When tax rates are quite high, lowering them can increase tax revenue.

Suppose a market is initially competitive with many firms selling an identical product. Over time, however, suppose the merging of firms results in the market being served by only three or four firms selling this same product. As a result, which of the following would be expected?

A decrease in market output and an increase in the price of the product.

Which of the following would most likely cause a firm's cost curve to shift downward?

A decrease in taxes.

If a government price control succeeds in affecting price, which of the following is the expected result?

A decrease in the quantity of sales whether the price is forced up or down.

Which of the following will be the most likely impact of an unanticipated increase in the money supply?

A decrease in the real interest rate, which in turn stimulates investment and GDP.

CHAPTER 3 Which of the following would explain an increase in the price of a good and a decrease in the amount of the good bought and sold?

A decrease in the supply of the good.

Which of the following would explain an increase in the price of a good and a decrease in the amount of the good bought and sold?

A decrease in the supply of the good.

Which of the following best represents the effects of a decrease in the price of socks, other things being equal?

A downward movement along the demand curve for socks.

the only seller of a good in which there are no good substitutes and the market has high barriers to entry

A firm that is a "pure monopoly" is

inferior good

A good that has a negative income elasticity, so that as consumer income rises, the demand for the good falls.

normal good

A good that has a positive income elasticity, so that as consumer income rises, demand for the good rises, too.

Which of the following is the best definition of a normal good?

A good whose demand increases when incomes increase.

Which of the following would be officially classified as unemployed?

A laid-off construction worker waiting to return to a previous job.

Price ceiling

A legally established maximum price sellers can charge for a good or resource. P1 below P0

price floor

A legally established minimum price buyers must pay for a good or resource. P1 above P0

consists of two or more people who are co-owners of a business firm. There is no difference between a proprietorship and a partnership in terms of owner liability.

A partnership

subsidy

A payment the government makes to either the buyer or the seller, usually on a per-unit basis, when a good or service is purchased or sold.

free rider

A person who receives the benefit of a good without paying for it. Because it is often virtually impossible to restrict the consumption of public goods to those who pay, these goods are subject to free-rider problems.

According to the Keynesian view, if policy makers thought the economy was about to fall into a recession, which of the following would be most appropriate?

A planned increase in the budget deficit.

The notion that specialization in goods that one can produce at a low opportunity cost will make it possible for trading partners to produce a larger joint output is called

A point outside the production possibilities curve represents a combination of goods that is

What is the difference between a positive economic statement and a normative statement?

A positive statement can be proved; a normative statement cannot.

a. has most elastic demand

A price-discriminating firm charges the lowest price to the group that a. has most elastic demand b.purchases largest quantity c. least responsive to price changes d. engages in the most arbitrage

Which of the following about price discrimination is true?

A price-discriminating seller will charge consumers with an elastic demand a lower price than consumers with an inelastic demand.

In essence, patents grant their owners which of the following?

A property right to new products and production processes that they have developed.

is a business firm owned by a single individual who is fully liable for the debts of the firm.

A proprietorship

Which of the following best describes the economic way of thinking?

A set of basic concepts that helps one understand human choices.

economic efficiency

A situation that occurs when (1) all activities generating more benefit than cost are undertaken and (2) no activities are undertaken for which the cost exceeds the benefit.

Which of the following is most likely to contribute to economic growth?

A stable, predictable legal system (i.e., rule of law)

Which of the following is the best example of an investment in human capital?

A summer internship at a law firm for someone going to law school.

When a price floor is imposed above the equilibrium price of a commodity, which of the following is true?

A surplus of the good will develop.

Which of the following will most likely occur when government price controls fix the price of a good above market equilibrium?

A surplus of the good will develop.

regressive tax

A tax in which the average tax rate falls with income. People with higher incomes will pay a lower percentage of their income in taxes.

proportional tax

A tax in which the average tax rate is the same at all income levels. Everyone pays the same percentage of income in taxes.

According to the Keynesian view, if policy makers thought the economy was about to enter an expansionary period, which of the following would be most appropriate?

A tax increase.

long run

A time period long enough to allow the firm to vary all of its factors of production.

short run

A time period so short that a firm is unable to vary some of its factors of production. The firm's plant size typically cannot be altered in the short run.

A tax on the buyers of coffee will result in which one of the following?

An increase in the price of coffee paid by buyers, a decrease in the net price of coffee received by sellers, and a decrease in the equilibrium quantity of coffee.

As output is expanded, if marginal cost (MC) is less than average total cost (ATC),

ATC must be decreasing.

As quantity increases, if ATC is less than MC

ATC must be increasing.

If Aaliyah's marginal benefit derived from the consumption of another milkshake is greater than the price of the milkshake,

Aaliyah will increase his total satisfaction by purchasing the milkshake.

The recent growth records of Japan and Hong Kong during the last fifty years indicate that a nation can grow rapidly without which of the following?

Abundant domestic natural resources.

For most firms, what is the major difference between accounting profit and economic profit?

Accounting profit does not consider the opportunity cost of the firm's equity capital and, therefore, generally overstates economic profit.

Countries with more economic freedom during 1980-2009 tended to do which of the following?

Achieve both more rapid growth and higher income levels than those that were less free.

Which of the following is true if education creates external benefits?

Actual market outcomes provide less than the efficient quantity of education.

"He [the producer] intends only his gain, and he is in this, as in many other cases, led by an invisible hand to promote an end which was no part of his intention." What famous economist made this statement?

Adam Smith

Modern economics as a field of study is usually thought to have begun with

Adam Smith and the writing of The Wealth of Nations.

Modern economics as a field of study is usually thought to have begun with which of the following?

Adam Smith and the writing of The Wealth of Nations.

Which of the following does the crowding-out effect stress?

Additional government borrowing to finance a larger deficit will increase the demand for loanable funds, causing real interest rates to rise.

Which of the following best explains why making automobiles completely safe is not efficient?

After some level of safety is reached, making cars even safer will not be worth the additional cost.

Which of the following provides the most reasonable explanation for why agricultural interests lobby for higher farm subsidies and price supports?

Agricultural interests seek a redistribution of income favoring themselves.

Compared to a situation where transaction costs are zero, the existence of transaction costs

All of the above are correct.

Which of the following explains why pork-barrel spending is often approved, even when the spending is inefficient?

All of the above are correct.

Why is trade an important source of economic progress?

All of the above are correct.

Which of the following is part of the economic way of thinking?

All of the above are part of the economic way of thinking.

Which of the following represents why private production tends to be more efficient then government production?

All of the above are reasons why private production tends to be more efficient then government production.

Which of the following is true about earnings and productivity?

All of the above are true.

In Figure 2-5, which of the following is true?

All of the above are true. Point A is inefficient, Point B is efficient, Point C is unattainable.

In the simple Circular Flow Diagram we saw in class,

All of the above.

Which of the following could be an institutional barrier to employment?

All of the above.

What do economists mean when they use the term ceteris paribus?

All other variables except the ones specified are assumed to be constant.

Who among the following is most likely to favor an appreciation of the U.S. dollar?

An American professor on a tour of Austrian universities.

Which of the following is the best definition of economics

An analysis of how individuals and societies deal with the problem of scarcity.

inelastic

An elasticity less an 1 is elastic or inelastic?

What is meant by the expression, "There is too much money chasing too few goods"?

An expansion in the supply of money relative to the availability of goods and services is causing an increase in the general level of prices.

Which of the following best describes the crowding-out effect?

An increase in borrowing by the government will push interest rates upward, which will lead to a reduction in private spending.

Which of the following would cause a firm's cost curves to shift upward?

An increase in government regulations.

Which of the following is the strongest evidence of a shift toward a more expansionary fiscal policy?

An increase in government spending as a share of the economy and an expansion in the size of the budget deficit

If rice is an inferior good,

An increase in income will cause the demand curve for rice to shift to the left.

An unanticipated shift to a more restrictive monetary policy by the Fed will result in which of the following?

An increase in interest rates and, thereby, reduced investment, current consumption, and aggregate demand.

In the short run, which of the following is the most likely effect of an unanticipated move to expansionary monetary policy?

An increase in real output.

Which of the following will reduce the supply of motorcycles?

An increase in taxes imposed on motorcycle producers.

Other things being equal, the effect of a decrease in the price of orange juice would be illustrated by which of the following?

An increase in the quantity demanded for orange juice.

Which of the following is the most likely outcome of minimum wage laws?

An increase in the quantity of labor supplied by workers and a decrease in the quantity of labor demanded by firms.

Other things constant, which of the following would you expect to increase the output growth rate of a country?

An increase in the rate of investment as a share of total output

Which of the following factors is least likely to be a barrier limiting the entry of potential competitors into a market?

An inelastic demand for a product.

"There is no such thing as a free lunch." This statement best reflects which of the following statements?

An opportunity cost is always present when scarce resources are used to produce a good.

CHAPTER 1 There is no such thing as a free lunch." This statement best reflects which of the following?

An opportunity cost is always present when scarce resources are used to produce an item.

c. cartel

An organization of sellers designed to coordinate their supply decisions to maximize joint profits is called a a. consumer cooperative b. marketing association c. cartel d. regulatory agency

An improvement in a country's legal system that enhanced the ability of citizens to protect their property rights and enforce contracts would result in which of the following changes to the country's production possibilities curve?

An outward shift of the curve.

Which of the following is most likely to lead to an increase in the rental price of apartments near a university campus?

An unexpected increase in enrollment at the university.

excess burden of taxation

Another name for deadweight loss

excess burden of taxation

Another term for deadweight loss. It reflects losses that occur when beneficial activities are forgone because they are taxed.

When full employment is present in the United States, which of the following is true?

Approximately 95 percent of the labor force will be employed.

Which of the following is an example of a person responding to incentives?

As a result of an increase in her pay, Maria chooses to take a lighter course load in college, and work more hours at her job. As a result of an increase in gas prices, Donna begins carpooling to work with her friends.

b. there will be a leftward shift in demand curve

Assuming that bus travel is an inferior good, when consumer income increases... a. there will be a downward movement along the demand curve b. there will be a leftward shift in demand curve c. rightward shift in demand curve d. upward movement along curve

Why does the short-run average total cost (ATC) curve of a firm tend to be U-shaped?

At small output rates, average fixed cost (AFC) will be high, while at large output rates, marginal cost (MC) will be high.

Which of the following will become smaller and smaller as the firm expands output?

Average fixed cost.

13. In a game, a dominant strategy is, by definition, a. the best strategy for a player to follow only if other players are cooperative. b. the best strategy for a player to follow, regardless of the strategies followed by other players. c. a strategy that must appear in every game. d. a strategy that leads to one player's interests dominating the interests of the other players.

B

29. Although the practice of predatory pricing is a common claim in antitrust suits, some economists are skeptical of this argument because they believe a. the evidence of its practice is nearly impossible to collect. b. predatory pricing is not a profitable business strategy. c. even though predatory pricing is a profitable business strategy, it is on balance beneficial to society. d. predatory pricing actually attracts new firms to the industry.

B

8. The equilibrium quantity in markets characterized by oligopoly is a. higher than in monopoly markets and higher than in perfectly competitive markets. b. higher than in monopoly markets and lower than in perfectly competitive markets. c. lower than in monopoly markets and higher than in perfectly competitive markets. d. lower than in monopoly markets and lower than in perfectly competitive markets.

B

According to the Clayton Act a. lawyers are given an incentive to reduce the number of cases involving cooperative arrangements. b. individuals can sue to recover damages from illegal cooperative agreements. c. the government was able to incarcerate the CEO of a firm for illegal pricing arrangements. d. private lawsuits are discouraged.

B

Which one of the following is an area of continued disagreement among modern macroeconomists with regard to the use of fiscal policy?

Budget deficits are a highly effective tool with which to combat a severe recession.

a proprietorship, a partnership, or a corporation.

Business firms can be organized in one of three primary ways

Refer to Figure 3-15. Which area represents producer surplus when the price is P1?

BCE

Which of the following is always true in competitive price-taker markets?

Barriers to entry into the market are low.

A firm in a competitive price-searcher market can raise its price without losing all of its customers. Why?

Because of product differentiation.

Why does a price floor set above an equilibrium price tend to cause persistent imbalances in the market?

Because quantity supplied exceeds quantity demanded but price cannot fall to remove the surplus.

Why must criteria for rationing goods and resources be established?

Because scarcity is imposed by nature.

What is the primary benefit of a monetary system of exchange compared to a barter system?

Better efficiency in arranging transactions.

Isabella decides to buy a dress that Olivia has for sale; they agree on a price of $20. Which of the following best describes who gains and who loses from the transaction?

Both parties expect to gain from this transaction.

If Harry Bartolini's Ford dealership sells Rosa Brown a new automobile for $30,000, economic analysis suggest which of the following is true?

Both parties to the transaction will gain.

What is the effect when a customer deposits $100 into a checking account?

Both the bank's liabilities and its assets will increase.

Which of the following best characterizes the circular flow of income?

Businesses buy resources from households, and households use their income to buy goods and services from businesses.

23. The Sherman Act made cooperative agreements a. unenforceable outside of established judicial review processes. b. enforceable with proper judicial review. c. a criminal conspiracy. d. a crime, but did not give direction on possible penalties.

C

30. Suppose that Makemoney Movies produces two new films — The Hulk and The Piano. Makemoney offers theaters the two films together at a single price but will not supply the movies separately. What do economists call this business practice? a. Predatory pricing b. Resale price maintenance c. Tying d. Leverage

C

31. A law that encourages market competition by prohibiting firms from gaining or exercising excessive market power is a. a patent. b. impossible to enforce. c. antitrust law. d. externality law.

C

9. A group of firms that are acting in unison to maximize collective profits is called a a. monopolistically competitive industry. b. monopoly. c. cartel. d. Nash equilibrium market.

C

As a group, oligopolists would always earn the highest profit if they would a. produce the perfectly competitive quantity of output. b. produce more than the perfectly competitive quantity of output. c. charge the same price that a monopolist would charge if the market were a monopoly. d. operate according to their own individual self-interests.

C

Game theory is important for the understanding of a. competitive markets. b. monopolies. c. oligopolies. d. all market structures.

C

A business firm owned by shareholders who possess ownership rights to the firm's profits, but whose liability is limited to the amount of their investment in the firm.

Corporations:

prove causation

Correlation does NOT

TC / Q

Calculate Average Total Cost

Change in tax liability / Change in taxable income

Calculate Marginal Tax Rate

What is the most fundamental concept in economics?

Changes in incentives influence behavior in a predictable way--people will be less likely to choose an option as it becomes more expensive.

Which of the following about economic thinking is true?

Changes in personal costs and benefits will exert a predictable influence on the choices of people.

Suppose an airline company has several empty seats on a flight and the full price of an air ticket is $700 while the marginal cost per passenger is $200. The flight leaves in one hour. Which of the following actions will be the best profitable way to ensure the remaining seats are sold?

Charge a stand-by passenger more than $200.

People vote, lobby, do political bargaining to answer economic questions

Collective decision making

a wider variety of products and lower prices

Compared to the outcome when the firms are price takers, competitive price searcher markets will result in

Which of the following best explains why productive workers can command high wages?

Competition among employers for productive workers.

Why do externalities cause the market mechanism to allocate goods and resources inefficiently?

Competitive markets fail to give producers and consumers correct price signals.

consumers from too high prices and employees from the power of any single employer

Competitive markets protect...

Which of the following correctly represents the invisible hand principle, as developed by Adam Smith in The Wealth of Nations?

Competitive markets will bring individual self-interest and the public interest into harmony.

Which of the following is true because of the free-rider problem?

Competitive markets will tend to undersupply public goods.

Which of the following is an important ingredient of efficient economic organization?

Competitive markets.

b retail selling

Competitive price searcher markets are common in which of the following industries a. manufacturing b retail selling c. electric power generation d. farming

Special-interest legislation is characterized by which of the following?

Concentrated benefits and widespread costs.

When private ownership rights are well-defined and enforced, owners of physical assets and resources will have an incentive to do which of the following?

Consider the wishes of others before using their resources.

Unit costs that are constant as the scale of the firm is altered. neither economics nor diseconomies of scale are present.

Constant returns to scale

If the Federal government enacts a new excise tax of $1.50 per case of soda. Which of the following is most likely to occur?

Consumers of soda will pay a higher price and buy a smaller quantity.

Which of the following constitutes a barrier limiting the entry of potential competitors into a market?

Control over an essential resource.

Regarding automation, which of the following is true?

Cost-reducing automated production techniques will expand output directly and/or release scarce resources for the expansion of output in other areas.

Use the graphs below to calculate the opportunity costs of production for countries A and B.

Country B has a comparative advantage in producing bananas.

The number of cattle slaughtered every year for meat far exceeds the number of elephants slaughtered every year for their ivory. Despite this, cows can be found everywhere while elephants are on the verge of extinction in some countries. Which of the following best explains this difference?

Cows can be privately owned while in many countries elephants can not.

Replacement of old methods and products by innovation

Creative destruction

Use the table below to choose the correct answer. The table outlines the production possibilities of Robinson Crusoe and Joe Friday. Friday Crusoe Good Y GoodX Good Y Good X 1 3 2 3 2 2 4 2 3 1 6 1 If Crusoe and Friday want to maximize their consumption possibilities,

Crusoe should specialize in producing good Y and Friday in producing good X; trade should occur to maximize joint consumption.

Which of the following usually occurs during a recession?

Cyclical unemployment rises

19. Martha and Oleg are competitors in a local market and each is trying to decide if it is worthwhile to advertise. If both of them advertise, each will earn a profit of $5,000. If neither of them advertise, each will earn a profit of $10,000. If one advertises and the other doesn't, then the one who advertises will earn a profit of $15,000 and the other will earn $7,000. To make the most money, Martha a. should advertise, and she will earn $5,000. b. should advertise, and she will earn $15,000. c. should not advertise, and she will earn $10,000. d. has no dominant strategy.

D

20. In game theory, a Nash equilibrium is a. an outcome in which each player is doing their best given the strategies chosen by the other players. b. an outcome in which no player wishes to change their chosen strategy given the strategies chosen by the other players. c. the outcome that occurs when all players have a dominant strategy. d. All of the above.

D

A situation in which firms choose their best strategy given the strategies chosen by the other firms in the market is called a. a competitive equilibrium. b. an open-market solution. c. a socially-optimal solution. d. a Nash equilibrium.

D

The market for copper wiring is in equilibrium, and then a series of earthquakes in South America causes copper mines to collapse. Which graph below depicts what will happen in the market for copper wiring?

D

Suppose demand decreases and supply increases at the same time. Which of the following will happen?

Equilibrium quantity will be indeterminate, while equilibrium price will decrease.

Suppose demand increases and supply decreases. Which of the following will happen?

Equilibrium quantity will rise, fall, or stay the same and equilibrium price will increase.

Which of the following would generate a supply of euros in exchange for dollars?

European demand for U.S. government bonds.

What will be produced? How? For whom??

Every economy faces three questions

a. the local cable company

Example of a monopoly a. the local cable company b. general motors c. IBM, world's largest manufacturer of certain types of computers d. Panasonis, the only company that sells Technics

Dallas buys strawberries, and he would be willing to pay more than he now pays. Suppose that Dallas has a change in his tastes such that he values strawberries more than before. If the market price is the same as before, then

Dallas's consumer surplus would increase.

Daniel values his car at $10,000, and Elizabeth values it at $14,000. If Elizabeth buys it from Daniel for $11,000, which of the following is true?

Daniel gains $1,000 of value, and Elizabeth gains $3,000 of value.

Which of the following are outcomes that taxes and price controls have in common?

Deadweight loss

A firm is currently operating where the MC of the last unit produced is $84, and the MR of this unit is $70. What would you advise this firm to do in order to increase profit?

Decrease output.

Which of the following best expresses the central idea of countercyclical fiscal policy?

Deficits are planned during economic recessions, and surpluses are utilized to restrain expansionary periods.

Explains and predicts the behavior of consumers, government, and firms

Definition of economics

The market for horse-drawn carriages is in equilibrium, but then the automobile is invented. What happens in the market for horse-drawn carriages?

Demand falls, price falls, quantity falls.

Board games and video games are substitutes. If the price of board games falls, ceteris paribus, which of the following will happen in the market for video games?

Demand for video games will fall, price will fall, and quantity will fall.

In which of the following cases will the total revenue on a good decrease?

Demand is elastic and price increases, Demand is inelastic and price decreases.

In which of the following cases will the total spending on a good decrease?

Demand is elastic, and price increases.

Which of the following best describes the economic conditions of the 1930s?

Depressed economic conditions and prolonged high rates of unemployment.

Which of the following is the primary source of cross-country differences in the real earnings of workers?

Differences in output per worker.

How will an increase in lumber prices influence the home construction market?

The supply of newly constructed homes will decrease.

Which of the following results from competition as a dynamic process for the individual firms in an industry?

Each firm will utilize a variety of techniques, such as product, style, and price, to win the dollar votes of consumers.

economic progress for society as a whole has been enhanced

Economic analysis suggests that in a competitive market economy, when an entreprenuer has made a large profit,

total revenues minus total costs

Economic profit

Which of the following is most likely to be true of economic and accounting profits?

Economic profits are less than accounting profits.

Farmers can choose to produce eggs or milk. If there is an increase in the price of milk then what will be the effect in the egg market?

Egg supply will decrease.

If either supply or demand is inelastic, the deadweight loss will be smaller because fewer trades will be eliminated

Elasticity also influences the size of a deadweight loss because

Which one of the following transactions would be included in GDP?

Emily pays $500 to fix the front end of her car damaged in a recent accident.

If you were a government official that wanted to raise the equilibrium price of milk, which of the following actions would you take?

Encourage farmers to produce less milk.

Which of the following is true of entrepreneurship?

Entrepreneurial discovery is an important source of economic growth and higher living standards.

When there is no decision rule that can be applied using only information that is freely available, which of the following is most needed?

Entrepreneurial judgment.

Assume that supply increases greatly and demand increases slightly. Which of the following will happen?

Equilibrium price will fall and equilibrium quantity will rise.

Assume that supply increases slightly and demand increases greatly. Which of the following will happen?

Equilibrium price will rise and equilibrium quantity will rise.

Suppose demand decreases and (at the same time) supply decreases. Which of the following will happen?

Equilibrium price will rise, fall, or stay the same while equilibrium quantity will decrease.

Suppose demand decreases and supply decreases. Which of the following will happen?

Equilibrium price will rise, fall, or stay the same while equilibrium quantity will decrease.

Suppose demand increases and supply increases. Which of the following will happen?

Equilibrium price will rise, fall, or stay the same while equilibrium quantity will increase.

suppose demand increases and supply increases. Which of the following will happen?

Equilibrium price will rise, fall, or stay the same while equilibrium quantity will increase.

When an economy is temporarily operating at an output that is beyond its full- employment rate, which of the following is true?

Excess demand in resource markets will lead to higher resource prices, which will increase costs and direct the economy toward full employment.

In order to increase the money supply, the banking system must have which of the following?

Excess reserves.

Which of the following most accurately states the economic significance of exchange?

Exchange creates value by moving goods from parties who value them less to parties who value them more.

Economic growth will have which of the following effects?

Expand the production possibilities of an economy.

result when the firm makes a monetary payment to resource owners. Money wages, interest, and rental payments are a measure of what the firm gives up to employ the services of labor and capital resources.

Explicit costs

If all of the oligopolists in a market collude to form a cartel, total profit for the cartel is less than that of a monopolist.

FALSE

Larger cartels have a greater probability of reaching the monopoly outcome than do smaller cartels.

FALSE

One way that public policy encourages cooperation among oligopolists is through antitrust law.

FALSE

Resource prices Changes in technology Elements of nature Political disruptions Changes in taxes

Factors that cause a change in supply:

What is good for the individual is good for the whole group

Fallacy of composition

Why is the expected price level important?

Firms and resource owners make long-term agreements based on the expected price level

Why is it difficult to predict the behavior of oligopolistic firms?

Firms in oligopolistic industries react to each other's behavior in many ways.

Competitive price-taker markets are characterized by which of the following?

Firms that all produce the same product.

If fixed cost is $130 when the firm produces 100 units, which of the following statements about fixed cost is true?

Fixed cost is $130 when the firm produces 200 units.

Which of the following adjustments will most likely occur when output exceeds the economy's long-run capacity?

Higher resource prices and costs will reduce short-run aggregate supply until output falls to the economy's long-run capacity.

Which of the following observations was made famous by Adam Smith in his book The Wealth of Nations?

Households and firms interacting in markets are guided by an "invisible hand" that leads them to desirable market outcomes.

c. be able to prevent consumers from reselling the product to other consumers

For effective price discrimination to occur, a seller must a. have large economies of scale and control over a key natural resource b. face a horizontal demand curve for its product c. be able to prevent consumers from reselling the product to other consumers d. be a pure monopolist

When people trade, both gain

Free market economics

Jacqueline, a brilliant new Ph.D. in economics, has turned down many job offers because she hopes eventually to teach at one of the top ten universities in her field. What type of unemployment is she experiencing?

Frictional

less of a public good that would be efficient

From the standpoint of economic efficiency, markets tend to provide less of a public good that would be efficient or more of a public good that would be efficient

If Nominal GDP goes up, and Real GDP stays the same, what must have happened to the GDP Deflator?

GDP Deflator = (Nominal / Real) *100, so if Nominal goes up and Real stays the same, GDP Deflator must be rising.

Which of the following is a shortcoming of GDP?

GDP excludes nonmarket transactions.

When a conflict arises in a major oil-exporting area of the world, such as the Middle East, the price of gasoline already in the storage tanks at gas stations near you usually increases immediately. Which of the following best explains this occurrence?

Gas station owners anticipate higher replacement costs for their supply of gasoline and, therefore, raise their prices in response to this increased expected cost.

Given freedom of movement for both goods and resources, if Florida producers specialize in oranges and Georgia producers specialize in peaches, then it would be reasonable to conclude that

Georgia has a comparative advantage in producing peaches.

The nation of Goldbug has a rapidly growing economy, and the velocity of money is not changing, but the inflation rate is negative. You can conclude from this that...

Goldbug's money supply must be growing slower than its real GDP.

Which of the following is not a cost of anticipated inflation?

Goods and services get more expensive.

public goods

Goods for which rivalry among consumers is absent and exclusion of nonpaying customers is difficult.

CHAPTER 11 Which of the following is true when the federal government is running a budget deficit?

Government expenditures exceed government revenues.

Which of the following is a necessary condition for price discrimination to be profitable?

Groups of consumers with different demand elasticities must be easily distinguishable.

Which of the following is true?

Growth of output is necessary for the growth of income.

Which of the following was a key belief of Adam Smith?

He believed that individuals pursuing their own interests would direct economic activity in the most advantageous way.

A local restaurant offers an "all you can eat" Sunday brunch for $12. Susan eats four servings but leaves half of a fifth helping uneaten. Why?

Her marginal value of food has fallen to zero.

A local restaurant offers an "all you can eat" Sunday brunch for $12. Susan eats four servings but leaves half of a fifth helping uneaten. Why?

Her marginal value of food has fallen to zero.

Which of the following best states the relationship between machinery and the earnings of labor?

High productivity per worker hour is a necessary ingredient for the attainment of high real earnings, and adoption of labor-saving machinery enhances the ability of labor to attain such high productivity.

If price rises, what happens to quantity supplied of a product?

It increases.

which of the following observations was made famous by Adam Smith in his book The Wealth of Nations?

Households and firms interacting in markets are guided by an "invisible hand" that leads them to desirable market outcomes.

What are the three major categories of resources?

Human resources, physical resources, and natural resources.

The Consumer Price Index differs from GDP Deflator in which of the following ways? I. CPI looks at only a "basket" of goods typically purchased by households, while GDP Deflator considers all goods in GDP. II. CPI fully accounts for improvements in product quality, while GDP Deflator does not. III. CPI holds quantities from a base year constant, while GPD Deflator holds prices from a base year constant.

I and III

Marcus sells his kidney to Juanita for $2,000. Marcus would have sold his kidney for as little as $1,000, and Juanita was willing to pay up to $20,000. We can conclude that... I. Marcus and Juanita are better off as a result of the trade. II. Juanita is better off, but Marcus is worse off. III. Total surplus from the trade is $19,000. IV. Economists would describe this transaction as "unconscionable".

I. and III.

Which of the following best illustrates the fallacy of composition?

If Aisha stood up at a basketball game, she could get a better view of the game; if everyone stood up at a basketball game, everyone could have a better view of the game.

d. a monopoly or oligopoly

If a firm has substantial market power, it must be operating in an industry that would be classified as a. competitive price taker or a monopoly b. competitve price searcher or price taker c. competitve price searcher d. a monopoly or oligopoly e. competitive price taker

Raise price and reduce output

If a firm in a competitive price searcher market finds that its marginal cost exceeds its marginal revenue at the current rate of output, what would be the profit maximizing action?

Average cost exceeds marginal cost

If a firm increases its output and finds that the ATC decreases, Average cost exceeds marginal cost Average fixed cost increases Marginal cost exceeds average total cost

Shortages, black markets will develop, future supply will decrease, quality will decrease, inefficient use of that product (ex. housing space due to rent control) and non price methods of rationing will become important

If a price ceiling is placed below the equilibrium level

A surplus will occur (ex. if min wage rises, unemployment rate would increase among unskilled workers)

If a price floor is above equilibrium,

Increase output and reduce rate of output

If a price searcher is producing at a level of output such that its marginal cost is 5 dollars and its marginal revenue is 3 dollars

demand curve will shift to the right as demand increases, causing the equilibrium price to increase and quantity to increase.

If a subsidy lowers cost to a buyer

Operate during summer, shut down during winter

If an amusement park that is highly profitable durrng the summer months is unable to cover its variable costs during the winter, what should it do

Which of the following about wage discrimination is true?

If employers can hire equally productive minority employees at a lower wage than non-minorities, the profit motive provides a strong incentive to do so.

When is a good considered to be a public good?

If it is both nonrival-in-consumption and nonexcludable.

Which of the following statements about exchange is false?

If one trading partner gains, the other must lose.

2, elastic

If price decreases by 2 and consumption increases by4 %, then what is the elasticity of demand

When does a market transaction cause an externality?

If someone not directly involved in the transaction receives uncompensated benefits or costs from it.

If Taco Bell's food is an inferior good for you, this means that...

If your income falls, you will eat more food from Taco Bell.

In a market economy, which of the following would most likely cause a prolonged grain surplus?

Imposition of a price floor above the equilibrium price of grain.

Anna, a U.S. citizen, works only in Germany. Where is the value she adds to production in Germany included?

In German GDP, but it is not included in U.S. GDP.

Have at least 2 distinguishable groups of consumers

In order for effective price discrimination to occur, a seller must a. have large economies of scale and control over a key natural resource b. face a horizontal demand curve for its product c. have at least 2 distinguishable groups of consumers d. be a pure monopolist

provide buyers at least as much satisfaction per dollar spent as the buyer could elsewhere

In order to be successful in a competitive market economy, an entrepreneur must

Which of the following about international trade is true?

In recent decades, the volume of U.S. international trade has been increasing as a share of the economy.

a. diseconomies of scale

In the long run, why might a firm experience rising per-unit costs? a. diseconomies of scale b.the law of suppy c. the law of diminishing marginal returns d. economies of scale

Collusion

It involves cooperative actions by sellers at the expense of buyers.

Which one of the following is a major difference between market and collective action through government?

In the market sector, there is generally a one-to-one link between payment and consumption; this link is often absent in the government sector.

Several producers in industry A developed an improved technology that reduces the quantity of resources used to produce a given output. Which of the following would be expected?

In the short run, economic profits would be earned by the earliest firms adopting the technology.

Which of the following is an implication of the law of diminishing returns?

In the short run, expansion of output will eventually lead to increases in marginal cost and average total cost.

When demand is relatively inelastic, or supply is relatively elastic, buyers will bear the larger share of the tax burden.

Incidence of a Tax

CHAPTER 9 Other things constant, an increase in resource prices will do which of the following?

Increase the cost of producing goods and services, which will lead to a higher price level.

diseconomies of scale

Increases in the firm's per-unit costs associated with increases in firm size due to inefficiencies and monitoring problems.

During the boom phase of a business cycle, which of the following usually occurs?

Inflation rises, unemployment falls, economic growth rises

Which of the following about inflation is true?

Inflation will tend to increase the nominal values of both prices and wages.

With time, which one of the following strategies would most likely result in an outward shift in the production possibilities curve of an economy?

Instituting a tax policy encouraging investment at the expense of consumption

Which of the following is a characteristic of an oligopolistic industry?

Interdependence of a firm's price and output decisions

The difficulty in analyzing oligopolistic behavior arises from which of the following?

Interdependent nature of oligopolistic decisions.

The market for home mortgages is in equilibrium. As a result of new regulations, it becomes more difficult and costly for banks to lend money to home buyers. Which of the following will occur?

Interest rates will rise and the equilibrium quantity of loans will fall.

Which of the following about inventory changes and GDP is true?

Inventory investment adds to GDP because it represents goods produced during the current period.

The tendency of market prices to direct individuals pursuing their own interests to engage in activities promoting the economic well-being of society

Invisible Hand Principle

Which of the following is true of the production possibilities curve?

It assumes a fixed quantity of resources.

CHAPTER 17 According to the Economic Freedom of the World measure, between 2000 and 2009 what happened to the economic freedom of the United States?

It declined and its rank fell from third to tenth during this period.

How is the value of a good determined?

It depends on many factors, including who uses it and under what circumstances.

Which of the following is true regarding the methodology of public choice analysis?

It develops a logically consistent theory based on how individual actors (such as voters, politicians, and bureaucrats) respond to incentives.

If price rises, what happens to supply of a product?

It does not change.

If price rises, what happens to the demand for a product?

It does not change.

Which of the following is one of the widely-acknowledged problems with the consumer price index (CPI) as a measure of the cost of living?

It fails to account for the introduction of new goods.

Measured as a share of GDP, what happened to the net federal debt between 1990 and 2011?

It fell during most of the 1990s, but rose sharply during 2001-2011.

Since the mid-1980s, what has happened to the debt-to-income ratio of American households?

It has rapidly increased.

What has income per person done during the past 200 years?

It increased far more rapidly in both developed and less developed countries than during the centuries prior to 1800.

because the benefits derived from an activity decline as more of it is done, which of the following is the best course of action to take?

It is efficient to stop well before perfection is achieved.

Which of the following about public goods is true?

It is extremely difficult to limit the benefits of a public good to only the people who pay for it.

Greg, a U.S. citizen, works only in Canada. Where is the value that his labor contributes to put in national income accounting?

It is included in U.S. GNP, but it is not included in U.S. GDP.

Which of the following is true about the marginal value of a commodity to a consumer?

It is measured by the height of the individual consumer's demand curve.

What is the opportunity cost of an alternative?

It is subjective and can only be determined by the person who chooses the alternative.

What is consumer surplus?

It is the difference between total willingness to pay and the total amount actually paid.

What is willingness to pay?

It measures the value that a buyer places on a good.

Which of the following is a necessary condition for price discrimination to be profitable?

It must be easy to distinguish consumer groups with differing responses to higher prices.

Which of the following is true if a firm has a U-shaped long-run average cost curve?

It must have increasing returns to scale at low levels of production and decreasing returns to scale at high levels of production.

which of the following is true about the dynamic process of competition?

It provides consumers with alternative suppliers and thus a mechanism with which they can discipline sellers.

How does the government enforce property rights?

It provides police and courts.

When the Federal Reserve System wants to increase the money supply, what does it typically do?

It purchases U.S. government securities.

Which of the following is true regarding the dynamic process of competition?

It puts the profit motive of sellers to work for buyers.

Which of the following is true regarding the concept of full employment?

It reflects the "shopping" of employees looking for employment and of employers seeking to hire workers.

Which of the following is true regarding a production possibilities curve?

It reveals the maximum amount of any two goods that can be produced from a fixed quantity of resources.

Suppose the Federal Reserve buys a $10,000 Treasury Bill from a bank, and credits $10,000 to the bank's accounts. If the Reserve Requirement is 20%, and banks lend out every dollar that they are legally able to lend, what is the effect on the money supply?

It rises by $50,000.

As a general rule, what impact does technological progress have on a PPC?

It shifts the production possibilities curve outward, away from the origin.

Why is the multiplier principle important?

It shows why small shifts in investment have a powerful influence on national income.

Why is GDP not a perfect measure of welfare?

It treats a dollar spent on candy bars the same as a dollar spent on education

Which of the following is true about the value of money?

It varies inversely with the general price level.

What will happen to a firm in a competitive price-searcher market if it raises price?

It will lose only some of its sales.

If the price of airline tickets falls, what will happen to the demand curve for flight attendants?

It will shift to the left.

Which of the following would be most appropriate if the Federal Reserve wanted to increase the money supply in order to stimulate the economy?

It would buy U.S. securities.

EXAM 4 Which of the following assets can a commercial bank count as reserves?

Its vault cash and deposits with the Fed

Which one of the following persons would be classified as unemployed by the Bureau of Labor Statistics?

Joe, who is on layoff waiting for better weather so he can return to his construction job

Which of the following transactions would be included in this year's GDP?

Johnson rents a five-year-old house from Smith.

What is the key element in preserving a monopoly?

Keeping potential rivals out of the market.

At high tax rates, revenue can be increased by lowering tax rates. At low rates, revenue can be increased by increasing taxes, shaped like a backwards C on a graph

Laffer Curve

otal output of a group is greatest when each good is produced by the person (or country, for example) with the lowest opportunity cost for that item

Law of comparative advantage

There is an inverse (negative) relationship between the price of a good and the quantity of it that consumers are willing to purchase

Law of demand

As the price of a good increases, producers will supply more As the price decreases, they will supply less

Law of supply

What does the term pork-barrel legislation refer to?

Legislation that bundles together a number of projects, each benefiting local interests at the expense of general taxpayers.

Which of the following is most likely to harm economic growth?

Little protection for private property rights

If the Fed injects additional reserves into the banking system, why will banks generally want to expand their loans and investments?

Loans and investments generally earn more interest income for the banks than excess reserves.

All of the firm's resources are variable in the long run. In the long run, firms can expand their output by increasing the sizes of their plants—perhaps by adding on to them or by constructing entirely new facilities.

Long Run

c.Demand curve must be tangent to the average cost curve

Long run equilibrium in a competitive price searcher market requires which of the following? a. Price must be equal to marginal cost b.Demand curve must intersect the average cost curve c.Demand curve must be tangent to the average cost curve d.Quantity produced must be at the point where average cost is at a minimum

Which of the following is necessary for the presence of competition in a market?

Low barriers to entry into the market.

If a contestable market has only one seller, which of the following will keep the seller from producing inefficiently and charging a price that generates long-run economic profits?

Low costs of entry into and exit from the market.

Suppose the firm wants to raise TR and it knows demand is elastic. What should the firm do?

Lower price

As defined by economists, what is capital?

Man-made resources used to produce other goods and services.

Which of the following is the best definition of "physical capital"?

Man-made resources used to produce other goods.

Which of the following best explains the source of consumer surplus for books?

Many consumers would be willing to pay more than the market price for books.

According to data on GDP growth between 1980 and 2009, which of the following statements is true?

Many poor nations grew more rapidly than wealthy nations, while others continued to stagnate.

Which of the following must be true if average total costs are declining?

Marginal cost is less than average total cost.

Which of the following must be true if average total costs are rising?

Marginal costs must be greater than average total costs.

A method of organization in which private parties make their own decisions with the guidance of unregulated market prices

Market organization

Capitalism

Market organization AKA

If Mason's marginal benefit derived from the consumption of another candy bar is greater than the price of the candy bar,

Mason will increase his total satisfaction by purchasing the candy bar.

Which of the following is true if Matt trades two candy bars to Andy in exchange for one baseball card?

Matt must have valued the baseball card more than the two candy bars,Andy must have valued the two candy bars more than the baseball card.

force, tradition (inherit skills or items), authority (church or government), market, and combinations of those

Mechanisms used to deal with scarcity are...

If the inflation rate is stable and predictable at 15% per year, which of the following is correct?

Menu costs and shoeleather costs will result in wasted resources.

provide buyers information at a lower cost and arrange the trades, Example: Auto-dealer for buyer and manufacturer

Middlemen

Which of the following is true of America's millionaires?

Millionaires are far more likely than others to be self-employed entrepreneurs.

Which of the following best explains why economists are generally critical of unregulated monopolists?

Monopolists restrict output, and as a result, they fail to produce units that are valued more than the marginal cost of producing them.

Which of the following usually happens when a single firm has control over the market supply of a resource that is essential to the production of a good?

Monopoly is frequently the result.

When external costs are present in a market,

More of the good will be produced than the amount consistent with economic efficiency.

Which of the following statements is correct when external costs are present in a market?

More of the good will be produced than the amount consistent with economic efficiency.

Which of the following about millionaires is true?

More than 75 percent of American millionaires have college degrees.

Which of the following is true about millionaires?

More than 75 percent of American millionaires have college degrees.

CHAPTER 7 Which one of the following transactions would be included in GDP?

Ms. Bartolini pays $500 to fix the front end of her car damaged in a recent accident.

Which of the following is a unique characteristic of the oligopolistic market structure?

Mutual interdependence among firms in demand, and thus, in price decisions

Why do opportunity costs primarily differ among nations?

Nations have different endowments of land, labor skills, capital, and technology.

If Asian economies suffer a serious economic slump, what will happen to U.S. net exports and Aggregate Demand (AD)?

Net exports will decrease and AD will shift leftward.

If expansionary monetary policy reduces real interest rates in the United States, which of the following is most likely to occur?

Net foreign investment will decline, causing the dollar to depreciate and net exports to increase.

Which of the following would be most likely if firms in a competitive price-searcher market were earning economic profit?

New firms would enter the market, resulting in fewer sales by existing firms.

Which of the following statements about resource markets is correct?

New licensing requirements that substantially lowered the number of plumbers would likely lead to an increase in the wage rate of plumbers.

Use the production possibilities data below for Honduras and Nicaragua to answer the following question(s).Table 2-2 Honduras Oranges Apples 0 16 1 12 2 8 3 4 4 0 Nicaragua Oranges Apples 0 8 1 6 2 4 3 2 4 0 Refer to Table 2-2. Which of the following is correct?

Nicaragua has the comparative advantage in oranges.

c.where consumer groups with a more elastic demand for the product are charged with lower prices

Price discrimination refers to a system of pricing a. that is always more profitable than simple "single-price" pricing b.that forces consumers who require more service to pay higher prices c.where consumer groups with a more elastic demand for the product are charged with lower prices d.based on buyer income rather than buyer demand conditions, so the poor pay more than the rich

%change in quantity demanded / %change in price (take absolute value)

Price elasticity of demand formula

If a firm in a competitive price-searcher market finds that its marginal cost exceeds its marginal revenue at the current rate of output, what would be the profit maximizing action?

Raise the price of the product and reduce its output.

Are outstanding credit card balances counted as part of the money supply?

No; money is an asset, while the credit card balances are a liability. Thus, they are not included in the money supply figures.

Noah values his car at $10,000, and Emily values it at $14,000. If Emily buys it from Noah for $11,000, which of the following is true?

Noah gains $1,000 of value, and Emily gains $3,000 of value.

If borrowers and lenders expect a higher rate of inflation, what happens to interest rates?

Nominal interest rates will tend to rise.

When government imposes price controls in a market, which of the following is a likely result?

Non-price factors become more important in the rationing of the good.

Suppose the market for wheat is in equilibrium. A price ceiling imposed above the equilibrium wheat price will result in...

None of the above

Which of the following would contribute toward this year's GDP?

None of the above contribute toward this year's GDP.

Economically speaking, tariffs are

Obstacles that limit voluntary exchange

Under which one of the following market structures are sellers most likely to consider the reaction of rival sellers when they set the price of their product?

Oligopoly.

Which of the following is the best example of an investment in human capital?

On-the-job training received by an apprentice electrician.

Suppose the official unemployment rate is 10 percent. Which of the following is a definite conclusion to draw?

One of every ten people in the labor force is currently unemployed

If an amusement park that is highly profitable during the summer months is unable to cover its variable costs during the winter months, what would be the profit maximizing strategy to implement?

Operate during the summer but shut down during the winter months.

Which of the following statements is correct about the economic way of thinking?

Opportunity costs will always be incurred when scarce resources are used to produce a good.

Economists use the term ceteris paribus to indicate which of the following?

Other things are assumed to be constant.

which of the following about economic thinking is true?

Over time, the output of goods and services can be increased through human ingenuity and discovery of better ways of doing things.

explicit costs

Payments by a firm to purchase the services of productive resources.

Which of the following best describes the distinguishing characteristics of business cycles?

Periods of growth in real output followed by periods of decline.

Which of the following is a distinguishing characteristic of a user charge?

Persons pay roughly in proportion to the extent that they use the good or service.

The presence of price controls in a market usually indicates which of the following?

Policymakers believed that the price that prevailed in that market in the absence of price controls was unfair to buyers or sellers.

Which of the following is a basic problem with the infant-industry argument?

Political pressure will likely prevent the withdrawal of the tariff when the industry matures.

Which of the following most accurately indicates the political incentive to spend and/or tax?

Politicians are rewarded for providing programs that benefit their constituents and punished for raising taxes.

Which of the following most clearly distinguishes between positive and normative economics?

Positive economics is the study of the facts; normative economics is concerned with what ought to be.

Which of the following correctly states the difference between positive economic statements and normative economic statements?

Positive statements are based on fact while normative statements are based on opinion

Suppose that the Federal Reserve wants to decrease the money supply. Which of the following policies would achieve this goal?

Raise the Discount Rate.

The market for chicken sandwiches is in equilibrium, and then two things happen at the same time. First, a blizzard blows through the Southeast, depositing so much snow that buildings housing chickens collapse, killing many chickens. Second, the price of french fries, which are usually consumed with chicken sandwiches, goes up. What happens in the market for chicken sandwiches?

Price is indeterminate, quantity falls.

Suppose the market for bread is in equilibrium. Two things then happen at the same time: Warmer-than-usual weather results in a larger harvest of wheat (which is used to make bread), and a new diet, known as the Anti-Atkins-Anti-Paleo diet sweeps the country, encouraging everyone to eat more bread. What happens to the equilibrium price and quantity of bread?

Price is indeterminate, quantity rises

Which of the following is true when there is excess supply of a product in a market?

Price must be above the equilibrium price.

The seller must be able to prohibit buyers from easily reselling the product to other potential buyers.

Price needs to fall by 30%

The market for computer printers is in equilibrium. Two things happen at the same time: The price of ink cartridges (sold separately) for the printers goes down, and there is an increase in the cost of the materials used to make printers. What happens to the price and quantity of printers?

Price rises, quantity is indeterminate.

a firm that can choose what price to charge for a product and can increase number of units sold by reducing price

Price searcher

After a hurricane in Florida knocked out the regional water supply for several days, the demand for bottled water increased sharply. In a market economy, how will this increase in demand affect the equilibrium price and quantity of bottled water?

Price will increase, and quantity will increase.

If the demand for a good decreased, what would be the effect on the equilibrium price and quantity?

Price would decrease and quantity would decrease.

If the demand for a good decreased, what would be the effect on the equilibrium price and quantity?

Price would decrease, and quantity would decrease.

If the demand for a good decreased, what would be the effect on the equilibrium price and quantity?

Price would decrease, and quantity would decrease.

If the supply of a good decreased, what would be the effect on the equilibrium price and quantity?

Price would increase, and quantity would decrease.

Suppose the dollar value of GDP increased approximately 2 percent between October 2007 and August 2008, but real GDP fell 1 percent during the period. Which of the following best explains these data?

Prices increased approximately 3 percent during period.

Suppose, in dollar terms, nominal GDP increased approximately 4 percent during a given year, and real GDP decreased 1 percent. Which of the following best explains these events?

Prices increased approximately 5 percent.

Ceteris paribus, what will happen if there is a decrease in the price of a good?

Producer surplus derived from the good will decrease.

Why do producers tend to be better represented in lobbying efforts and other elements of the political process than consumers?

Producers are generally better organized than consumers.

Why will price controls will tend to cause misallocation of resources?

Production (or opportunity) cost no longer corresponds to market price.

a curve that outlines all possible combinations of a total output that could be produced assuming that: A. There is a fixed amount of productive resources B. A given amount of technical knowledge C. Full and efficient use of those resources

Production possibilities curve

Which of the following is true about fiscal policy?

Proper timing of changes in discretionary fiscal policy is both crucially important and difficult to achieve.

What do individuals have a strong incentive to do when price is the rationing criterion?

Provide goods and services to others in exchange for income.

What do individuals have a strong incentive to do when price is the rationing criterion?

Provide services to others in exchange for income.

In a market economy, which of the following is most important if one is going to achieve high earnings?

Providing goods and/or services that others value highly.

Which of the following is a valid reason for government provision rather than market provision of certain economic goods and services?

Public goods tend to be undersupplied through the market since it is difficult for potential suppliers to withhold such goods from nonpaying consumers, while the government can use taxes to overcome this problem.

Which of the following is true if equilibrium is present in a market?

Quantity demanded equals quantity supplied.

Suppose the markets for pizza and beer (usually consumed together) are in equilibrium. A sickness that affects cows leads to a decrease in the supply of milk, which is used to make mozzarella cheese (which is used on pizza). Which of the following is likely to happen?

Quantity of pizza falls, price of pizza rises, price of beer falls, quantity of beer falls.

The market for mangoes is in equilibrium, and then two things happen at the same time. First, the FDA releases a new study showing that eating mangoes will reduce your chances of getting heart disease significantly. Second, a new fertilizer makes it possible to grow mangoes in cooler climates than was previously possible. Which of the following will occur in the market for mangoes?

Quantity rises, price is indeterminate

What will happen if the demand for bicycles increases?

Quantity supplied will increase.

A monopolist earning short-run economic profit determines that at its present level of output, marginal revenue is $23 and marginal cost is $30. Which of the following should the firm do to increase profit?

Raise price and lower output.

Which of the following is a positive economic statement?

Raising the federal minimum wage to $6.50 per hour will cause the rate of unemployment to increase.

Which of the following is the primary source of rapid growth in the real earnings of workers?

Rapid growth in worker productivity.

Which of the following is not correct?

Real GDP overestimates our material well-being because it does not account for inflation.

Which of the following statements about real GDP per person is true?

Real GDP per person provides more meaningful comparisons across time and countries than real GDP.

Which of the following will most likely occur during the expansionary phase of a business cycle?

Real GDP rises, and unemployment falls.

Within the aggregate demand/aggregate supply framework, what does the quantity produced and purchased in the goods and services market represent?

Real output or real GDP.

economies of scale

Reductions in the firm's per-unit costs associated with the use of large plants to produce a large volume of output.

What problem does the government have that makes price regulation less than an ideal solution?

Regulators frequently will not have the information they need to set prices.

Which of the following characterizations about rent control is correct?

Rent control is an example of a price ceiling and the minimum wage is an example of a price floor.

Which of the following will most likely occur under a system of clearly defined and enforced private property rights?

Resource owners will conserve vital resources for the future, particularly if they expect the resource to increase in value.

Within the AD/AS model, how does an economy adjust from an output beyond its long-run capacity as a result of an unanticipated increase in aggregate demand?

Resource prices and real interest rates will rise causing output to fall back to its long-run sustainable rate.

If an economy operates at a short-run equilibrium output that exceeds its long-run capacity, which of the following will be most likely to direct the economy toward full employment?

Resource prices will increase, causing the SRAS curve to shift to the left

Why is the production possibilities curve usually a bow-shaped curve instead of a straight line?

Resources are not perfectly adaptable to the production of all goods

Which of the following is an example of an automatic stabilizer?

Revenues from the corporate income tax increase sharply during a business boom but decline substantially during a recession, even though no new tax legislation has been enacted.

Which of the following are leakages from the circular flow of income?

Savings, taxes, and imports

Criteria for rationing goods and resources must be established due to which of the following?

Scarcity imposed by nature.

tradeoffs which result in making choices

Scarcity leads to

remain unfulfilled

Scarcity requires that some people want to...

Which of the following is the cause of economic choice and competitive behavior?

Scarcity.

Suppose the demand curve for a good is highly elastic and the supply curve is highly inelastic. What will happen if the government taxes this good?

Sellers will bear a larger share of the tax burden.

An increase in the economy's resource base, advancements in technology, working harder means there will be more produced goods

Shifted curve means

The short run is that period of time during which at least one factor of production, usually the size of the firm's plant, cannot be changed. In the short run, the firm can vary its output by using its fixed plant size more (or less) intensively.

Short Run

Which of the following would cause prices to fall and output to rise in the short run?

Short-run aggregate supply shifts right.

1. Ownership and control of basic means of production rest with the state 2. Resource allocation is determined by centralized planning rather than by market forces

Socialism

firms do not produce the output rate that that would minimize their average total costs

Some economists argue that competitive price-searcher markets are inefficient because

Which of the following is true when the conditions in a competitive price-taker market are such that the firms are consistently unable to cover their production costs?

Some firms will exit from the industry, and market price will rise until the remaining firms can earn the normal rate of return.

Ethan washes and irons his own shirts. Sophia, his boss, sends her clothes to a laundry. Which is the most plausible economic explanation for this difference?

Sophia has a higher opportunity cost of laundering her clothes than Ethan does.

The law of comparative advantage explains which of the following?

Specialization and exchange will make it possible for trading partners to expand their combined output.

CHAPTER 18 Which of the following about trade is true?

Specialization and trade leads to mutual gains for countries.

As both the budget and regulatory powers of government grow, public choice analysis indicates that individuals and groups will find it in their interest to do which of the following?

Spend more time rent seeking.

external costs

Spillover effects that reduce the well-being of nonconsenting parties.

If a firm refuses to hire any minorities due to a personal prejudice, its profits will

b. decrease.

supply curve to the left by the amount of the tax (because the height of the supply curve at a particular quantity shows the minimum price required to cause enough sellers to offer that quantity of cars for sale)

Statutory assignment: When a tax is imposed on the seller, the ______ curve shifts to the ______

an increase in demand will lead to higher prices and suppliers getting the benefits

Subsidy granted to buyers and supply is inelastic so...

there will only be a small increase in price and the benefits will go to the consumers in the form of lower prices.

Subsidy granted to buyers if the Supply curve is elastic & demand is inelastic

Which of the following is true with regard to the use of countercyclical fiscal policy as a stabilization tool?

Successful fiscal policy is difficult to achieve because Congress acts slowly and our ability to predict the future is limited.

Costs that have already been incurred as a result of past decisions. They are sometimes referred to as historical costs.

Sunk costs

b. each existing firm experiences a decrease in demand for its product

Suppose that competitive price searcher firms are earning positive profits. In the transition from this initial situation to a long run equilibrium, a. each existing firm experiences an upward shift in its average total cost curve b. each existing firm experiences a decrease in demand for its product c.the number of firms in the market decreases d. each existing firm experiences a rightward shift of its marginal revenue curve

the efficient price would be higher than $15 while the output would be greater than 614 units

Suppose the actions of the producers of a good generate an external benefit which results in the actual market price of $15 and market output of 614 units, how does this compare with the ideal equilibrium

equation for average total cost

TC / output AFC + AVC

equation for total cost

TFC + TVC

Suppose ε = 0.76 and the firm raises price. What happens to TR?

TR rises

32. An oligopoly is a market with only a few sellers, each offering a similar or identical product.

TRUE

In the case of oligopoly markets, self-interest prevents cooperation and leads to an inferior outcome for the firms that are involved.

TRUE

In the story of the prisoners' dilemma, one prisoner is always better off confessing, no matter what the other prisoner does

TRUE

Resale price maintenance prevents retailers from competing on price.

TRUE

The game that oligopolists play in trying to reach the oligopoly outcome is similar to the game that the two prisoners play in the prisoners' dilemma.

TRUE

The story of the prisoners' dilemma contains a general lesson that applies to any group trying to maintain cooperation among its members.

TRUE

There are some logical economical arguments in favor of resale price maintenance.

TRUE

Why do taxes adversely affect the allocation of resources?

Taxes distort prices and thus distort the decisions of households and firms.

Why is globalization becoming more of a worldwide phenomenon?

Technological advancements are decreasing transportation costs.

Between 1994 and 2004, the monthly charge for cellular phone service decreased from $120 per month to $30 per month. At the same time, the number of subscribers increased from less than 10 million to more than 75 million. Which of the following provides the best explanation for these changes?

Technological improvements that reduced the cost of supplying cellular phone service.

What will most likely happen when a domestic currency appreciates?

That country's net exports will decline and therefore decrease aggregate demand.

substitution effect

That part of an increase (decrease) in amount consumed that is the result of a good being cheaper (more expensive) in relation to other goods because of a reduction (increase) in price.

income effect

That part of an increase (decrease) in amount consumed that is the result of the consumer's real income being expanded (contracted) by a reduction (rise) in the price of a good.

Until recently, George lived in a home that was newly constructed in 2005. In 2005, he paid $200,000 for the brand new house. He sold the house in 2006 for $225,000. Which of the following statements is correct regarding the sale of the houses?

The 2006 sale affected neither 2005 GDP nor 2006 GDP.

is simply fixed cost divided by output. As output increases, AFC declines because the fixed cost will be spread over more and more units

The Average Fixed Cost

Which of the following indicates the primary mechanism by which the money supply expands?

The Fed purchases additional bonds, which increases the reserves available to the banking system.

If Honda (a Japan-based firm) produces a car in Ohio and exports it to Japan, in which country's GDP will the car be counted?

The GDP of the United States because that is where it was built

If Honda (a Japan-based firm) produces a car in Ohio and exports it to Japan, in which country's GDP will the car be counted?

The GDP of the United States because that is where it was built

Suppose the federal government placed a 50 cent per pack excise tax on cigarette manufacturers, and as a result, the price to consumers of a pack of cigarettes went up by 40 cents. Which of the following will most likely happen?

The actual burden of this tax will fall mostly on consumers.

What is marginal revenue product?

The additional revenue from one additional unit of input.

marginal tax rate

The additional tax liability a person faces divided by his or her additional taxable income. It is the percentage of an extra dollar of income earned that must be paid in taxes. It is the marginal tax rate that is relevant in personal decision-making. change in tax liability / change in taxable income

Marginal utility

The additional utility, or satisfaction, derived from consuming an additional unit of a good.

How does an additional individual's consumption of a good that is nonrival-in-consumption, such as a radio broadcast, affect the amount of the good available to other consumers?

The amount available to others is unaffected.

The price elasticity of demand for a commodity is determined primarily by which of the following?

The attractiveness of the substitutes for the good.

If the government levies a $1 excise tax on each unit of a good sold, what will happen to the producer's cost curve?

The average total cost and marginal cost curves will shift upward by the amount of the tax.

law of diminishing marginal utility

The basic economic principle that as the consumption of a product increases, the marginal utility derived from consuming more of it (per unit of time) will eventually decline.

When economists say that an activity meets the criterion for economic efficiency, what do they mean?

The benefits that result from the activity exceed the costs.

Which of the following statements is correct about the actual burden of a tax?

The burden falls most heavily on the side of the market that is more inelastic.

marginal cost

The change in total cost required to produce an additional unit of output.

In economics, the term marginal refers to which of the following?

The change or difference between two alternatives.

What is the marginal cost of a good?

The cost of an additional unit.

total cost

The costs, both explicit and implicit, of all the resources used by the firm. Total cost includes a normal rate of return for the firm's equity capital.

If a country allows trade and, for a certain good, the domestic price without trade is lower than the world price, which of the following conclusions can be made?

The country will be an exporter of the good

If a country allows trade and, for a certain good, the domestic price without trade is higher than the world price, which of the following conclusions can be made?

The country will be an importer of the good

Which of the following tends to make the size of a shift in aggregate demand resulting from a tax change smaller than would otherwise be the case?

The crowding-out effect

What is one key characteristic that is distinctive of an oligopoly market?

The decisions of one seller often influence the price of products, the output, and the profits of rival firms.

Which of the following is true when production of a good generates external benefits?

The demand curve for the good will understate the true social benefits from consumption of the good.

Long-run equilibrium in a competitive price-searcher market requires which of the following?

The demand curve needs to be tangent to the average cost curve.

An increase in the demand for a product will cause which of the following to occur?

The demand for and prices of the resources used to produce the product will increase.

How will an increase in the price of coffee affect the market for cocoa, a substitute good?

The demand for cocoa will increase, leading to an increase in the price of cocoa.

An increase in the price of computer diskettes leads to an increase in total expenditures on the diskettes. Which of the following is true for this price change?

The demand for computer diskettes is inelastic.

Suppose the market for economics teachers is in equilibrium. The Econobot 5000 is invented, sells for $40,000 (less than the cost of a human economics instructor), and teaches economics as well as the best (human) economics instructors. What happens in the market for economics teachers?

The demand for economics instructors falls, wages fall, and the equilibrium quantity falls.

Suppose an increase in the price of hair dryers leads to an increase in total expenditures on the hair dryers. Which of the following is true for this price change?

The demand for hair dryers is inelastic.

As the Fed shifted to a highly expansionary monetary policy during the second half of 2008, why were banks reluctant to extend loans and make investments?

The demand for loans was weak and the business climate was uncertain.

Suppose an increase in the price of microwaves leads to an increase in total expenditures on the microwaves. Which of the following is true for this price change?

The demand for microwaves is inelastic.

Tele-Com, Inc., the nation's largest cable TV company, tested the effect of a price reduction for the Disney Channel. It lowered prices from $10.75 to $7.95 and found that the number of customers more than doubled. What caused the change?

The demand for the Disney Channel is elastic in this price range.

Which of the following about costs is true?

The difference between the ATC and AVC curves will decline as output expands.

economic profit

The difference between the firm's total revenues and its total costs, including both the explicit and implicit cost components. TR - TC

Producer Surplus is...

The difference between what producers are paid, and the marginal cost of production.

d. interdependent nature of oligopolistic decisions

The difficulty in analyzing oligopolistic behavior arises from which of the following a. the market power of consumers d. degree of government regulation c. large number of firms in the industry d. interdependent nature of oligopolistic decisions

The market for exchanging Dollars for Euros is in equilibrium. Nokia (a European company) invents a new smartphone which, amazingly, everyone around the world (including people in the U.S.) wants to buy. Which of the following will occur?

The dollar depreciates relative to the euro.

What is mostly likely to happen if decreased government borrowing drives down real interest rates in the United States?

The dollar will depreciate leading to an increase in net exports.

Suppose external benefits are present in a market, which results in the actual market price of $34 and market output of 126 units. How does this outcome compare to the efficient, ideal equilibrium?

The efficient outcome would be greater than 126 units.

Suppose external benefits are present in a market which results in the actual market price of $14 and market output of 150 units. How does this outcome compare to the efficient, ideal equilibrium?

The efficient outcome would be greater than 150 units.

Suppose external benefits are present in a market which results in the actual market price of $49 and market output of 800 units. How does this outcome compare to the efficient, ideal equilibrium?

The efficient outcome would be higher than 800 units.

Suppose external costs are present in a market which results in the actual market price of $24 and market output of 325 units. How does this outcome compare to the efficient, ideal equilibrium?

The efficient outcome would be less than 325 units.

Suppose the actions of the producers of a good generate an external benefit which results in the actual market price of $15 and market output of 614 units. How does this outcome compare to the efficient, ideal equilibrium?

The efficient price would be higher than $15 while the efficient output would be greater than 614 units.

Suppose the actions of the producers of a good generate an external benefit which results in the actual market price of $32 and market output of 147 units. How does this outcome compare to the efficient equilibrium?

The efficient price would be higher than $32 while the efficient output would be greater than 147 units.

Suppose the actions of the producers of a good impose an external cost which results in the actual market price of $40 and market output of 1,000 units. How does this outcome compare to the efficient equilibrium?

The efficient price would be higher than $40 while the efficient output would be less than 1,000 units.

Suppose external costs are present in a market which results in the actual market price of $70 and market output of 150 units. How does this outcome compare to the efficient, ideal equilibrium?

The efficient price would be higher than $70.

Suppose the actions of the producers of a good impose an external cost which results in the actual market price of $25 and market output of 1,000 units. How does this outcome compare to the efficient, ideal equilibrium?

The efficient price would higher than $25 while the efficient output would be less than 1,000 units.

Which of the following variables is left out of the simple economic model of the firm?

The entrepreneurial decision-making process.

Which of the following is not a characteristic of a competitive price-searcher market?

The entry barriers are high.

If there is a decrease in both the supply and demand for a good, which of the following will definitely occur?

The equilibrium quantity will decrease.

If there is an increase in both the supply and demand for a good, which of the following will definitely occur?

The equilibrium quantity will increase.

Consider the labor market for nurses, which initially is in equilibrium. Suppose the output price for nursing services increases. Holding all else equal, what effect will this have on the labor market for nurses?

The equilibrium wage will increase, and the equilibrium quantity of nurses will increase.

What is the fallacy of composition

The error that if something is true for an individual, then it must also be true for the group.

The primary source of purchasing power used to buy imported goods is

The exports of a nation

What happens to elasticity of demand when a good is more broadly defined?

The fewer substitutes it has so the less elastic is its demand.

At his current level of output, a monopolist has an MR of $10, an MC of $6, and an economic profit of zero. If the market demand curve is downward sloping and his marginal cost curve upward sloping, which of the following is true?

The firm could increase his profit by increasing his output.

The term price searcher applies to all firms that have which of the following characteristics?

The firm faces a downward-sloping demand curve.

Which of the following is true when total revenue minus total economic cost equals zero?

The firm is earning the normal profit rate.

(MA) Which of the following are necessary conditions for effective price discrimination?

The firm must face a downward-sloping demand curve, There must be at least two distinguishable groups of consumer, The seller must be able to prohibit buyers from easily reselling the product to other potential buyers.

Which of the following is characteristic of a firm that is a competitive price searcher?

The firm produces a differentiated product.

Which of the following will occur if consumer tastes are changing more in favor of the consumption of a particular good?

The market demand curve would shift to the right.

Suppose the equilibrium price in a competitive price-taker market is $10 and a firm in the industry charges $9. Which of the following is true?

The firm will make less profit than it could at the $10 price.

Which of the following is true for firms that produce in markets where there are no barriers to entry?

The firms will always make zero economic profits in the long run.

The reporter on one broadcast network says 2011 GDP increased to an all-time high. Commenting on the same figure, a second reporter says GDP in 2011 was less than in 2010. Which of the following explanations is consistent with the statements of both reporters?

The first reporter was referring to nominal GDP, and the second was referring to real GDP.

Which of the following would be true if money were not used as a medium of exchange?

The gains from trade would be severely limited.

toward the more inelastic side of the market

The greater share of the benefit of a subsidy will always be shifted to who?

Which of the following is most likely true when household debt as a share of income is abnormally high?

The growth of consumption is likely to remain sluggish even as the economy begins to recover.

Which of the following is your opportunity cost of attending a football game?

The highest valued alternative forgone because of the time and money required to attend the game.

marginal product

The increase in the total product resulting from a unit increase in the employment of a variable input. Mathematically, it is the ratio of the change in total product to the change in the quantity of the variable input.

The rational-ignorance effect refers to which of the following scenarios?

The lack of incentive voters have to become well-informed about candidates and issues because their vote is unlikely to affect the outcome of an election.

Externalities are fundamentally the result of which of the following?

The lack of well-defined or enforced property rights.

why will a firm eventually experience rising per-unit costs in the short run?

The law of diminishing returns.

deadweight loss

The loss of gains from trade to buyers and sellers that occurs when a tax is imposed. The deadweight loss imposes a burden on both buyers and sellers over and above the actual payment of the tax.

Why are people are willing to pay more for a diamond than for a bottle of water?

The marginal benefit of an extra diamond far exceeds the marginal benefit of an extra bottle of water.

When a government subsidy is granted to the buyers of a product, how can sellers end up capturing some of the benefit?

The market price of the product will rise in response to the subsidy.

When the free-rider problem exists,

The market will devote too few resources to the production of the good.

Which of the following is a likely result when the free-rider problem exists?

The market will devote too few resources to the production of the good.

Marginal benefit

The maximum price a consumer will be willing to pay for an additional unit of a product. It is the dollar value of the consumer's marginal utility from the additional unit, and therefore it falls as consumption increases.

Which of the following is an example of a normative economic statement?

The minimum wage should be increased so that low income workers can afford to keep up with the cost of living.

Which of the following generalizations about the benefit of a subsidy is correct?

The more inelastic the demand for a product, the larger the portion of the benefit will be to buyers.

Why is a market unlikely to provide an efficient quantity of public goods?

The nature of public goods makes it difficult for producers to withhold them from nonpaying consumers.

What is the most probable reason why garbage collectors have higher wages than bookkeepers?

The nonmonetary attractiveness of garbage collection causes fewer people to want to be garbage collectors

What is the most probable reason why garbage collectors have higher wages than bookkeepers?

The nonmonetary attractiveness of garbage collection causes fewer people to want to be garbage collectors.

implicit costs

The opportunity costs associated with a firm's use of resources that it owns. These costs do not involve a direct money payment.

Which of the following is true along the inelastic portion of a demand curve?

The percentage change in price will be more than the percentage change in quantity demanded.

price elasticity of supply

The percentage change in quantity supplied, divided by the percentage change in the price that caused the change in quantity supplied.

income elasticity

The percentage change in the quantity of a product demanded divided by the percentage change in consumer income that caused the change in quantity demanded. It measures the responsiveness of the demand for a good to a consumer's change in income.

price elasticity of demand

The percentage change in the quantity of a product demanded divided by the percentage change in the price that caused the change in quantity. indicates how responsive consumers are to a change in a product's price.

Saccharin and aspartame are both low-calorie substitutes for sugar. If saccharin is found cause cancer, which of the following will most likely be the result?

The price of aspartame will increase.

Suppose the market for onions is in equilibrium. Bad weather damages the onion crop. Which of the following is likely to happen?

The price of onions rises and the quantity falls.

Which of the following is the most likely effect of lower apple juice prices on the price and quantity purchased of orange juice, a substitute product?

The price of orange juice will fall, and the quantity purchased will fall.

TEST 1 If there is both an increase in the supply of a good and a decrease in demand for a good, which of the following will definitely occur?

The price of the good will decrease.

If there is both a decrease in the supply of a good and an increase in demand for a good, which of the following will definitely occur?

The price of the good will increase.

Suppose the firms in the chemical industry are allowed, free of charge, to dump harmful products into rivers. How will the price and output of the chemical products in a competitive market compare with their values under conditions of ideal economic efficiency?

The price would be too low, and the output would be too large

Suppose the firms in the chemical industry are allowed, free of charge, to dump harmful products into rivers. How will the price and output of the chemical products in a competitive market compare with their values under conditions of ideal economic efficiency?

The price would be too low, and the output would be too large.

Which of the following is a reason to study the decisions of price takers

The price-taker model enhances our knowledge of competition as a dynamic process.

Which of the following is a reason to study the decisions of price takers?

The price-taker model enhances our knowledge of competition as a dynamic process.

tends to reduce efficiency within the firm. Monitoring and the structure of incentives can be used to minimize inefficiencies arising from this source.

The principal-agent problem

How would an increase in the price of paper influence the market for college textbooks?

The supply of textbooks would decrease causing the price of textbooks to rise.

When an occupation is licensed,

the licensing will often be used to limit entry and the competitiveness of the market.

In Europe during the 14th century, the Black Plague killed 24 million people (close to 37 percent of the population). How would this affect the production possibilities curves for the countries of Europe at that time?

The production possibilities curves for these countries would have shifted inward.

In which of the following situations is representative democracy most likely to lead to the adoption of an inefficient government program?

The program provides substantial benefits to a small interest group, and the costs are widespread among voters.

Suppose the price of FSU branded t-shirts rises. Ceteris paribus, which of the following will occur?

The quantity of FSU branded t-shirts supplied will rise.

Which of the following is true if there is a shortage of loanable funds?

The quantity of loanable funds demanded is greater than the quantity of loanable funds supplied and the interest rate is below equilibrium.

Which of the following is true if there is a surplus of loanable funds?

The quantity of loanable funds supplied is greater than the quantity of loanable funds demanded and the interest rate is above equilibrium.

opportunity cost of equity capital

The rate of return that must be earned by investors to induce them to supply financial capital to the firm.

Which of the following most clearly limits the ability of the commercial banking industry to expand the money supply?

The reserve requirements mandated by the Fed

What does the price elasticity of demand for gasoline measure?

The responsiveness of customers to changes in the price of gasoline.

Which of the following most closely approximates the conditions of a competitive price-searcher market?

The restaurant industry, which is characterized by firms producing a differentiated product in a market with low entry barriers.

Which of the following is true when collective decision making is utilized to resolve economic questions regarding the allocation of resources?

The role of markets will be replaced by political decision making.

accounting profit

The sales revenues minus the expenses of a firm over a designated time period, usually one year. Accounting profits typically make allowances for changes in the firm's inventories and depreciation of its assets. No allowance is made, however, for the opportunity cost of the equity capital of the firm's owners, or other implicit costs. GREATER than economic costs

total fixed cost

The sum of the costs that do not vary with output. They will be incurred as long as a firm continues in business and the assets have alternative uses.

total variable cost

The sum of those costs that rise as output increases. Examples of variable costs are wages paid to workers and payments for raw materials.

Which of the following would be expected if the tariff on foreign-produced automobiles were increased?

The supply of foreign automobiles to the domestic market would decline, causing auto prices to rise.

Suppose the price of helium rises significantly due to an increase in the demand for party balloons, but the quantity produced increases only a small amount. You could say that...

The supply of helium is inelastic

If the Federal Reserve unexpectedly decides to sell bonds, which of the following will most likely happen in the short run?

The supply of loanable funds will decrease, which will exert upward pressure on the interest rate.

If a construction boom leads to an increase in the price of lumber, how will the higher lumber prices influence the wood furniture market?

The supply of wood furniture will decline, and furniture prices will increase.

Which of the following would decrease the supply of sugar?

The tariff (tax) on imported sugar increases.

Why does the imposition of a tax on a good create a deadweight?

The tax reduces the quantity of exchanges between buyers and sellers.

Suppose CPI in 2015 was 230, and CPI in 1990 was 115. The price of an economics textbook in 1990 was $50. The price of the newest version of that textbook in 2015 was $200. Which of the following is correct?

The textbook price has actually risen faster than inflation.

Why will it difficult for the Fed to use monetary policy to direct the economy back to full employment and price stability from the recession of 2008-2009?

The time lags between changes in monetary policy and when the changes exert an impact on output and prices are long and variable.

total product

The total output of a good that is associated with each alternative utilization rate of a variable input.

average variable cost

The total variable cost divided by the number of units produced.

Matt loses his job and decides to sit on the beach rather than looking for work the next few months. Other things the same, what happens to the unemployment rate and labor-force participation rate?

The unemployment rate increases, and the labor-force participation rate decreases.

What does the expression "There's no such thing as a free lunch" mean?

The use of resources to produce a good has an opportunity cost because of scarcity.

Which of the following about trade is true?

The value of a good generally depends on who uses it and circumstances such as when and where it is used.

Which of the following statements about trade is true?

The value of a good generally depends on who uses it and circumstances such as when and where it is used.

The opportunity cost of an action is

The value of the best opportunity that must be sacrificed in order to take the action.

What is the opportunity cost of an action?

The value of the best opportunity that must be sacrificed in order to take the action.

Which of the following most accurately reflects the opportunity cost to a pharmacist who drives a taxi?

The value of the pharmacist's time in its highest valued use other than driving a cab.

What is implied if a firm is losing money?

The value of the resources used to make the product is being reduced.

Which of the following is not correct?

The vertical distance between the the supply curve and the demand curve represents profit.

Tax incidence

The way the burden of a tax is distributed among economic units (consumers, producers, employees, employers, and so on). The actual tax burden does not always fall on those who are statutorily assigned to pay the tax.

tradeoffs

There are ALWAYS

What is the primary reason why the U.S. Postal Service has a monopoly on the delivery of first-class mail?

There are legal barriers limiting entry.

For a particular good, a 3 percent increase in price causes a 10 percent decrease in quantity demanded. Which of the following statements is most likely applicable to this good?

There are many close substitutes for this good.

Which of the following is a characteristic of a competitive price-taker market?

There are many firms in the market, each producing a small share of total market output.

Which of the following explains why monopoly is uncommon in the real world?

There are reasonable substitutes for most goods.

A major fruit juice manufacturer failed in its attempt to engage in price discrimination between students and all other consumers. What is the most likely explanation for this failure?

There was nothing to prevent the students from reselling the fruit juice to other consumers

A major soda manufacturer failed in its attempt to engage in price discrimination between students and all other consumers. What is the most likely explanation for this failure?

There was nothing to prevent the students from reselling the soda to other consumers.

The normal rate of return on equity capital is also known as

the opportunity cost of capital.

If a government imposed price ceiling legally sets the price of beef below market equilibrium, which of the following will most likely happen?

There will be a shortage of beef.

Suppose the market equilibrium price of corn is $5 per bushel, and the government sets a price ceiling of $4 per bushel. What is the most likely result of this action?

There will be a shortage of corn.

If a government-imposed price floor legally sets the price of milk above market equilibrium, which of the following will most likely happen?

There will be a surplus of milk.

Suppose the market equilibrium price of wheat is $5 per bushel, and the government sets a price floor of $7 per bushel to aid growers. What is the most likely result of this action?

There will be a surplus of wheat.

Consider the supply curve for basketballs. Other things held constant, if the price of basketballs goes up from $7.99 to $14.99, what can we expect from suppliers of basketballs as a result?

There will be an increase in quantity supplied.

Suppose Vietnam's per capita GDP grows at an annual rate of 7% per year, while the U.S.'s per capita GDP grows at an annual rate of 2% per year. How many more years will it take the U.S.'s per capita GDP to double, compared to Vietnam? That is, what is the difference in the time to double per capita GDP?

There would be a 25 year difference between the time it took Vietnam to double their GDP per capita compared to the time it took the U.S to double. (35-10=25)

Economists have argued that rent control is "the best way to destroy a city, other than bombing." Why would economists say this?

They anticipate that rent control will eliminate the incentive to maintain buildings, leading to a deterioration of the city.

Which of the following is true about firms that are price takers?

They are small relative to the total market.

Which of the following is true for the developing countries that moved most rapidly toward economic freedom during 1980-2005 period?

They experienced both more rapid rates of economic growth and larger reductions in poverty rates than countries that were less free.

Which of the following is true regarding the foreign holdings of U.S. dollars?

They indicate that foreigners have confidence in the monetary policy and economy of the United States.

What must profit-seeking entrepreneurs do in order to be successful?

They must produce a product that the consumers value more than the resources required for its production.

Why are accounting costs often unsatisfactory from the economist's point of view?

They often exclude the opportunity costs of the firm's equity capital.

Why do higher unemployment insurance benefits tend to increase unemployment?

They reduce the opportunity cost of job search and, hence, increase the search time.

For a college student who wishes to calculate the true costs of going to college, how should the costs of room and board be included in the calculation?

They should be counted only to the extent that they are more expensive at college than elsewhere.

For a college student who wishes to calculate the true costs of going to college, how should the costs of room and board be included in the calculation?

They should be counted only to the extent that they are more expensive at college than elsewhere.

Which of the following is ture about average fixed costs?

They will always decrease as output expands.

When the Fed decreases the money supply, what will happen to nominal interest rates?

They will rise

Which of the following is true?

To remain in office, a politician must try to enact policies that gain him votes for his reelection and increase the support coming from contributors.

average total cost

Total cost divided by the number of units produced. It is sometimes called per-unit cost. AFC + AVC or TC/quantity

Average fixed cost

Total fixed cost divided by the number of units produced. It always declines as output increases.

Which of the following describes a situation in which demand must be elastic?

Total revenue decreases when the price of dish soap rises.

Which of the following describes a situation in which demand must be elastic?

Total revenue decreases when the price of pens rises.

What happens to total revenue if the demand for a good is elastic?

Total revenue increases as price decreases.

Which of the following describes a situation in which demand must be inelastic?

Total revenue increases by more than 10 percent when the price of jeans rises by 10 percent.

What would opening trade between two nations do?

Trade would leave the production possibilities unchanged and increase their consumption possibilities.

The time, effort, and resources needed to search out, negotiate, and make an exchange

Transaction cost

false

True or false: the effect of a tax on the quantity sold would be smaller if it is levied on comsumers

Imagine that there are only two nations in the world, the United States and Mexico. Ceteris paribus, what will happen if Americans buy more goods made in Mexico?

U.S. demand curve for Mexican pesos will shift rightward.

A decrease in the dollar price of the English pound will make

U.S. exports to England decrease.

Which of the following is a private owner prohibited from doing?

Using the property in a manner that invades or infringes on the property of another.

CHAPTER 6 What is logrolling?

Vote trading among legislators.

When does the benefit of a subsidy go primarily to sellers?

When demand for the product is highly elastic and the supply is relatively inelastic.

Which of the following is a consequence of the invisible hand concept?

When directed by competitive market prices, the actions of self-interested individuals will tend to promote overall economic prosperity.

Three basic decisions must be made by all economies. What are they?

What goods will be produced; how will goods be produced; for whom will goods be produced?

d. It involves cooperative actions by sellers at the expense of buyers

What is Collusion a. same thing as competition b. it can only be achieved in price taker markets c. it requires competitive actions by sellers to win competition from rival firms d. It involves cooperative actions by sellers at the expense of buyers

c. keeping out potential rivals

What is the key element in preserving a monopoly? a. increased advertising expenditure b. guaranteeing availability of substitute product c. keeping out potential rivals d.government subsidy of critical enterprises

c. raise the price paid by buyers and lower equilibrium quantity

What will a tax imposed on the sellers of a good do? a. raise the price paid by buyers and raiser the equilibruim quantity b. raise the net price recieved by sellers and lower equilibrium c. raise the price paid by buyers and lower equilibrium quantity d.raise the net price recieved by sellers and raise equilibrium

only lose some sales

What will happen to a firm in a competitive price searcher market if it raises price? lose sales increase sales must go out of business only lose some sales

b. shift right

What will happen to the demand curves of existing firms when a exits enters a competitive price searcher market? a. shift left b. shift right c. not change d. its unpredictable

They will shift to the left

What will happen to the demand curves of existing firms when a new firm enters a competitive price searcher market?

What are the three basic questions faced by every economy?

What, how, and for whom will goods be produced?

If you paid $100 for a truckload of cabbage on Monday, how much should you be willing to sell it for on Friday, the day before it spoils?

Whatever you can get for it.

What is the relationship between ATC and MC?

When MC is greater than ATC, ATC increases When MC is less than ATC, ATC decreases

charge a price that is equal to average total cost

When a competitive price searcher market is in long run equilibrium, the firms will

non-price factors will become more important in the rationing of the good

When a governemnt imposes price controls in a market, what is the result

b. the market price will rise in response to the subsidy

When a government subsidy is granted to the buyers of a product, how can sellers end up capturing some of the benefit? a. buyers will reduce their demand for the product b. the market price will rise in response to the subsidy c. the market price will fall in response d. the market price will not change in response

When does price discrimination occur?

When a seller charges different prices to different consumers for the same product or service.

the demand curve will shift to the left because the height of the demand curve shows the maximum price a buyer is willing to pay

When a tax is imposed on the buyer, the ______ curve will shift to the _______

Which of the following is one part of the economic way of thinking?

When an option becomes more expensive, people will be less likely to choose it.

When is crony capitalism most likely to be present?

When businesses either implicitly or explicitly provide political decision-makers with contributions and other forms of political support in "exchange" for government favors that will improve their profitability.

Which of the following is a major implication of the invisible hand concept?

When directed by competitive market prices, the actions of self-interested individuals will tend to promote overall economic prosperity.

which of the following is true when a good is nonexcludable?

When it is impossible or very costly to exclude nonpaying customers from receiving the good, When individuals will have an incentive to become free riders, When it will be difficult for a private firm producing the good to generate revenue sufficient to cover the cost of production.

Which of the following about costs is always true?

When marginal costs are less than average total costs, average total costs will be decreasing.

According to the Laffer curve, which of the following is true?

When marginal tax rates are high, a reduction in tax rates may increase tax revenue.

When is the demand for a product likely to be more elastic?

When more good substitutes for the product are available.

Everything else equal, when are wages likely to be higher?

When more skill is required to perform well on the job

Which of the following statements is correct?

When oligopoly firms collude, they are behaving as a cartel

When does a shortage occur?

When price is less than equilibrium price.

When do markets fail to allocate resources efficiently?

When property rights are poorly enforced or not well established.

In which of the following situations is the political process likely to result in the inefficient and wasteful use of resources?

When the benefits are concentrated and the costs widespread.

When do long-run economies of scale exist?

When the long-run average cost curve falls.

When do long-run diseconomies of scale exist over a range of output?

When the long-run average cost curve rises.

reduce output

When the marginal cost of a firm is greater than the market price of its product then the firm should

When will demand be more elastic?

When the number of good substitutes is large.

When is the economy considered to be at full employment?

When the rate of cyclical unemployment is zero.

When will a subsidy on a product generate more actual benefit for consumers (and less for producers)?

When the supply of the product is relatively elastic.

When will demand be more inelastic?

When the time the consumer has to adjust to price changes is short.

Other things equal, when does the demand for a good tend to be more inelastic?

When there are fewer available substitutes.

When will the price of a good will tend to fall?

When there is excess supply of the good.

Entrepreneurial Judgment

When there is no decision rule that can be applied using only information that is freely available, which of the following is most needed?

The market will devote too few resources to the production of the good

Which of the following is a likely result when a free-rider problem exists

a. non-price factors will play a greater role in allocation

Which of the following is a likely result when a shortage occurs due to a price ceiling? a. non-price factors will play a greater role in allocation b.demand for product will increase to eliminate shortage

b.it must be easy to distinguish consumer groups with differing responses to higher prices

Which of the following is a necessary condition for price discrimination to be profitable? a. all consumers must have identical preferences b.it must be easy to distinguish consumer groups with differing responses to higher prices c. seller must face a horizontal demand curve for its product in at least one part of the market d. both b and c

a. groups of consumers with different demand elasticities must be easily distinguishable

Which of the following is a necessary condition for price discrimination to be profitable? a. groups of consumers with different demand elasticities must be easily distinguishable b.all consumers must have an identical demand for the product c. it must be possible for buyers to resell the product at a low cost d. the market demand for the product must be highly elastic

a. the price-taker model enhances our knowledge of competition as a dynamic process

Which of the following is a reason to study the decisions of price takers? a. the price-taker model enhances our knowledge of competition as a dynamic process b. price takers are the most common type of business c. the decision making of both price searchers and price takers is identical d. price taker markets dominate the economy

At small output rates, the AFC will be high and at large output rates it will be high

Why does the short-run average total cost (ATC) curve of a firm tend to be u-shaped

there are legal barriers limiting entry

Why is the U.S. postal service a monopoly?

Which of the following is true regarding private ownership?

With private ownership, owners are held accountable for using their resources in a manner that harms the resources of others.

Which of the following is a correct statement about the labor market?

Workers determine the supply of labor, and firms determine the demand for labor.

Which of the following calculations would give you GDP using the expenditure approach?

Y = Consumption + Investment + Government Spending + Exports - Imports

If a decrease in the price of good Y causes the demand for good Z to decrease, this indicates that

Y and Z are substitutes.

A business produced $10 million of goods in 2007 but sold only $9 million. Is the $1 million increase in inventory counted as part of the 2007 gross domestic product?

Yes, because these inventories are part of the output of the economy in 2007.

Which one of the following decisions most clearly reflects a lack of understanding of the concept of sunk costs?

You study eight hours for a final exam even though there is no way now that you can pass the course.

When people trade, one gains and one loses - Zero Sum, not voluntary

Zero Sum

normal profit rate

Zero economic profit, providing just the competitive rate of return on the capital (and labor) of owners. An above-normal profit will draw more entry into the market, whereas a below-normal profit will lead to an exit of investors and capital.

Several states require cosmetologists to undertake 1,500 hours or more of training in order to obtain a license to provide hair styling or braiding services. This is an example of

a barrier to entry

When a law is passed that requires businesses to obtain permission from government officials in order to enter a market, this is an example of

a barrier to entry

An example of a non-pecuniary job characteristic is

a comfortable work environment.

If the government owes $10.0 trillion and then borrows $700 billion more this year, this leads to

a debt of $10.7 trillion and a deficit of $700 billion.

Which of the following is the best example of a supply shock?

a decline in agricultural output due to a summer drought

An unanticipated increase in the money supply will lead to

a decline in interest rates, an increase in investment, and an increase in aggregate demand.

Suppose a market is initially perfectly competitive with many firms selling an identical product. Over time, however, suppose the merging of firms results in the market being served by only three or four firms selling this same product. As a result, we would expect

a decrease in market output and an increase in the price of the product

Which of the following will most likely occur in the short run if long-run equilibrium is disturbed by an unanticipated decrease in aggregate demand?

a decrease in output and a lower price level

A price floor that sets the price of a good above market equilibrium will cause

a decrease in quantity demanded of the good, an increase in quantity supplied of the good, and a surplus of the good.

A decrease in supply will cause

a decrease in quantity demanded.

A decrease in demand will cause

a decrease in quantity supplied.

For an oil-importing country such as the United States, the immediate effect of a supply shock caused by an increase in the price of imported oil would tend to be

a decrease in real output and an increase in the general level of prices.

According to the Keynesian view, which of the following would most likely stimulate real output if an economy were in a recession?

a decrease in tax rates

If the Federal Reserve sells bonds, the short-run effects will be

a decrease in the money supply and higher real interest rates.

Which of the following would most likely increase the demand for televisions?

a decrease in the price of DVD players, a product that is complementary with televisions

If air travel and train travel are substitutes

a decrease in the price of train travel will decrease the demand for air travel.

If the Fed unexpectedly shifts to a more expansionary monetary policy, which of the following will most likely occur in the short run?

a decrease in the real interest rate

Which of the following will be most likely to cause the production possibilities curve for a country to shift inward?

a decrease in the stock of physical capital

When an oligopoly market reaches a Nash equilibrium,

a firm will have chosen its best strategy, given the strategies chosen by other firms in the market

Which one of the following would count as investment in the national income accounts?

a freight-hauling firm buying a new domestically produced truck

The Law of Demand is...

a general tendency in human behavior.

The term market always refers to

a group of buyers and sellers of a particular good or service

The term market always refers to

a group of buyers and sellers of a particular good or service.

Which of the following is most likely to help the residents of a nation produce more goods and services and achieve higher income levels?

a higher rate of investment

When economists say the demand for a good is highly inelastic, they mean that

a large (percentage) change in the price of a good will result in only a small (percentage) change in the quantity demanded.

Assuming that bus travel is an inferior good, an increase in consumer income, other things being equal, will cause

a leftward shift in the demand curve for bus travel.

An increase in the price of metal raises the cost of manufacturing dishwashers. As a result, the market changes to a new equilibrium because of

a leftward shift in the supply curve for dishwashers.

If you have a checking account at a local bank, your bank account there is

a liability of the bank and an asset to you.

A good with a high income elasticity is generally considered to be

a luxury good.

A black market is

a market that operates outside the legal system, either by selling illegal goods or by selling goods at illegal prices.

If a firm has substantial market power, it must be operating in an industry that would be classified as

a monopoly or oligopoly.

If the income elasticity of a good is positive, we can conclude that the good is

a normal good.

A subsidy is defined as

a payment to either the buyer or seller of a good or service, usually on a per-unit basis, when a good or service is purchased.

The difference between a positive economic statement and a normative statement is that

a positive statement can be proved; a normative statement cannot

A law establishing a maximum legal price for a good or service (rent controls for example) is known as

a price ceiling

A law establishing a minimum legal price for a good or service (the minimum wage for example) is known as

a price floor.

When economists speak of changes in GDP measured in constant dollars, they mean that

a price index has been used to adjust money GDP for the effects of inflation.

When economists speak of changes in GDP measured in constant dollars, they mean that

a price index has been used to adjust money GDP for the effects of inflation.

which of the following about price discrimination is true?

a price-discriminating seller will charge consumers with an elastic demand a lower price than consumers with an inelastic demand

Patents grant their owners

a property right to new products and production processes that they have developed.

CHAPTER 12 Which of the following is most likely to increase the incentive to invest, produce, and employ others?

a reduction in tax rates

in a price-taker market, profits are

a reward for creating value

A hotel in New Hampshire charges $150 per room in the winter ski season and $90 during the summer months. The number of rooms and operating costs are constant year round. These prices indicate

a rightward shift in demand in the winter.

Assuming that bus travel is an inferior good, a decrease in consumer income, other things being equal, will cause

a rightward shift in the demand curve for bus travel.

A technological breakthrough lowers the cost of manufacturing microwave ovens. As a result, the market changes to a new equilibrium because of

a rightward shift in the supply curve for microwave ovens.

Price discrimination occurs when

a seller charges different prices to different consumers for the same product or service.

The economic way of thinking is

a set of basic concepts that helps one understand human choices.

What will happen when a price ceiling is imposed below the equilibrium price of a product?

a shortage of the good will develop

When a price ceiling is imposed below the equilibrium price of a commodity,

a shortage of the good will develop.

In some industries where firms experience declining average total costs over the full range of output that consumers are willing to buy,

a single large firm will develop, and it will have cost advantages that protect it from potential rivals.

When oligopolistic firms collude to maximize their joint profits, in comparison with the situation in competitive markets, their actions generally lead to

a smaller output and higher prices.

The link between high productivity and high earnings is vitally important because

all of the above are true.

Because private owners are held responsible for damages their property causes to the property of others, private owners have

a strong incentive to take steps to reduce the chance that they will harm the property of others.

An opinion based on personal preferences and value judgments is called

a subjective concept

An opinion based on personal preferences and value judgments is called

a subjective concept.

An abnormally large grain crop due to highly favorable weather conditions in the Midwest is an example of

a supply shock that will increase short-run aggregate supply.

Elasticity is...

a unit-free measure of how one variable responds to another.

A competitive car wash currently hires 4 workers, who together can wash 80 cars per day. The market price of car washes is $5 per wash, and the price of workers is $60 per day. The car wash should hire a fifth worker if it would increase total production to at least

a. 92 cars per day.

Which of the following is not a characteristic of a competitive price-searcher market? Select one: a. The entry barriers are high. b. Each firm produces a differentiated product. c. The number of firms in the market is large. d. Each firm faces a downward-sloping demand curve.

a. The entry barriers are high.

Economists refer to consumers' desire for goods now rather than in the future as

a. a positive rate of time preference.

Compared to the outcome when the firms are price takers, competitive price-searcher markets will result in Select one: a. a wider variety of products and higher prices. b. less product variety and lower prices. c. less product variety and higher prices. d. a wider variety of products and lower prices.

a. a wider variety of products and higher prices.

A law that requires hairdressers to undergo many hours of training and acquire a license before they can offer haircuts to the public, is an example of a Select one: a. barrier to entry. b. positive externality. c. public good. d. natural monopoly.

a. barrier to entry.

A competitive price-searcher market is characterized by firms Select one: a. being able to choose their price and by low barriers preventing firms from entering or leaving the market. b. being able to choose their price and by high barriers preventing firms from entering or leaving the market. c. having to accept the market price for their product and by low barriers preventing firms from entering or leaving the market. d. having to accept the market price for their product and by high barriers preventing firms from entering or leaving the market.

a. being able to choose their price and by low barriers preventing firms from entering or leaving the market.

A competitive capital market is important to society because it directs resources toward projects that

a. create wealth.

Which of the following resources will have the most inelastic supply in the short run?

a. dentists

A sudden increase in the demand for newly built homes will

a. increase the demand for construction workers and architects

Evidence suggests that education raises the earnings of the workforce mainly by

a. increasing the marginal productivity of labor

A price-searcher firm will expand output and sales until Select one: a. marginal revenue falls to equal the rising marginal cost. b. marginal revenue falls below marginal cost. c. marginal revenue rises to equal the falling marginal cost. d. marginal cost rises above marginal revenue.

a. marginal revenue falls to equal the rising marginal cost.

Firms should hire additional units of a resource as long as the

a. marginal revenue product of the resource exceeds the cost of employing an additional unit of the resource.

Everything else equal, wages are likely to be higher when

a. more skill is required to perform well on the job.

A practice whereby a seller charges different prices to different consumers of the same product or service is called Select one: a. price discrimination. b. monopolistic pricing. c. oligopolistic pricing. d. stay-out pricing.

a. price discrimination.

According to the principle of marginal productivity, if

a. price of the input equals MRP, the firm is maximizing profit.

A firm in a competitive price-searcher market can raise its price without losing all of its customers. This is a result of Select one: a. product differentiation. b. the small number of firms in the market. c. low entry barriers. d. a perfectly elastic market demand.

a. product differentiation.

Assume a competitive price-searcher firm is earning an economic profit. The marginal revenue from selling an additional unit is $30 and the marginal cost of producing that additional unit is $23. The firm should Select one: a. reduce its price and increase its output level b. reduce both its price and its output level c. change neither its price nor its output level d. increase both its price and its output level e. increase its price and reduce its output level

a. reduce its price and increase its output level

In the short run, how will a profit-maximizing monopolist react if its marginal cost suddenly increases? It will Select one: a. reduce output and raise price. b. maintain the current price if profit is still positive. c. decrease plant size to lower marginal cost. d. lower price to expand revenue possibilities. e. increase plant size to lower marginal cost

a. reduce output and raise price.

Regulating natural monopolies according to the "rate of return" criterion is likely to Select one: a. reduce the incentive of firms to minimize cost. b. discourage the firms from investing resources in an effort to influence the decisions of the regulatory agency. c. increase the number of firms in the industry. d. result in a smaller quantity of output than when the natural monopolist is unregulated.

a. reduce the incentive of firms to minimize cost.

Which of the following conditions is most essential if a firm is going to earn long-run economic profits? Select one: a. restrictions that limit the entry of potential competitors into the industry b. a differentiated product c. a small number of firms, even though competitors are free to enter the industry d. an inelastic market demand for the product

a. restrictions that limit the entry of potential competitors into the industry Correct

Competitive price-searcher markets are common in Select one: a. retail selling. b. farming. c. electric power generation. d. basic manufacturing.

a. retail selling.

Compared to the profit-maximizing outcome, average cost pricing in natural monopoly leads to Select one: a. the elimination of economic profit. b. decreased consumer surplus. c. a higher price. d. less output.

a. the elimination of economic profit.

In markets characterized by oligopoly, Select one: a. the oligopolists earn the highest profit when they cooperate and behave like a monopolist. b. collective profits are always lower with cartel arrangements than they are without cartel arrangements. c. pursuit of self-interest by profit-maximizing firms always maximizes collective profits in the market. d. collusive agreements will always prevail.

a. the oligopolists earn the highest profit when they cooperate and behave like a monopolist.

The demand for a factor of production will be more inelastic

a. when the cost of the factor is small relative to the total cost of the product.

The fact that some people will work hard to earn a lot of money while others will be content with much less income indicates that

a. worker preferences are an important source of earning differentials.

Emma works full time during the day as an economist and faces a 90 percent marginal tax rate. If Emma were to get an offer to work a second job in the evenings doing consulting work for a local business for $10,000 per year, how much of this additional income would she be able to keep as net pay after taxes? a. $1,000 b. $4,000 c. $6,000 d. $10,000

a. $1,000

Identify the correct statement about a long-run average total cost curve. a. A downward-sloping long-run average total cost curve shows that the larger the firm size, the lower the per-unit cost. b. A U-shaped long-run average total cost curve shows that economies of scale exist for all output levels. c. A U-shaped long-run average total cost curve shows that the larger the firm size, the higher the per-unit cost. d. A downward-sloping long-run average total cost curve shows that diseconomies of scale exist for all output levels.

a. A downward-sloping long-run average total cost curve shows that the larger the firm size, the lower the per-unit cost.

Identify the correct statement about a firm. a. As units of variable input are added to a fixed input, total product will increase, first at an increasing rate and then at a declining rate. b. As units of variable input are added to a fixed input, total product will decrease. c. As units of variable input are added to a fixed input, total product will increase. d. As units of variable input are added to a fixed input, total product will increase, first at a decreasing rate and then at an increasing rate.

a. As units of variable input are added to a fixed input, total product will increase, first at an increasing rate and then at a declining rate.

Nations will attract investment and its citizens will engage in productive activities when the institutions and policies of that country do which of the following?

a. Encourage market exchange. b. Reward innovation. c. Protect people and their property. d. All of the above.*

Why do political instability and insecure property rights retard economic growth?

a. Fear that private property will be confiscated substantially reduces the incentive to invest and create wealth. b. When property rights are insecure, foreign investors will be reluctant to invest in the country. c. Savings will tend to flow out of a country if individuals fear their property is insecure. d. All of the above are correct.*

Market prices are

all of the above.

Trade creates value by

all of the above.

Which of the following is true of modern technology?

a. Improvements in technology have propelled the production possibilities and living standards of people in North America, Western Europe, and several other parts of the world. b. In low-income countries, proven technologies can be either emulated or imported at a low cost. c. Often, perverse institutions and policies in low-income countries undermine the gains from improvements in technology. d. All of the above.*

How does an open capital market affect a nation's economic growth?

a. It channels capital into productive projects and away from wasteful projects. b. It rewards investors who find the most productive projects and invest in them. c. It makes the lowest-cost capital available from around the world. d. All of the above.*

Which of the following is true of a firm that has a U-shaped, long-run average cost curve? a. It experiences increasing returns to scale at low levels of production. b. It experiences economies of scale for all relevant output levels. c. It maximizes its output by operating at the point of minimum long-run average cost. d. Its fixed cost rises as output rises.

a. It experiences increasing returns to scale at low levels of production.

Identify the correct statement about a firm's marginal cost curve. a. It is U-shaped. b. It is concave from below. c. It is a downward sloping. d. It is convex from below.

a. It is U-shaped.

Which of the following is true regarding value, transaction costs, and exchange? a. Middlemen can be viewed as agents who create value by reducing transaction costs and, thereby, facilitating gains from exchange. b. Middlemen fail to create value since they do not expand the supply of physical goods. c. A good or service has a given value regardless of who uses it or how it is used. d. Voluntary exchange reduces value by channeling goods into the hands of people who value them least.

a. Middlemen can be viewed as agents who create value by reducing transaction costs and, thereby, facilitating gains from exchange.

If a firm earns zero economic profit, it: a. provides a competitive rate of return on the capital and labor employed by the firm. b. causes competitors and investors to exit a market. c. indicates that the earnings of a firm exceed the opportunity cost of all the resources used by the firm. d. draws more competitors and investors into a market.

a. Provides a competitive rate of return on the capital and labor employed by the firm.

Suppose the actions of the producers of a good impose an external cost which results in the actual market price of $18 and market output of 400 units. How does this outcome compare to the efficient, ideal equilibrium? a. The efficient price would higher than $18 while the efficient output would be less than 400 units. b. The efficient price would be higher than $18 while the efficient output would be greater than 400 units. c. The efficient price would be lower than $18 while the efficient output would be less than 400 units. d. The efficient price would be lower than $18 while the efficient output would be greater than 400 units.

a. The efficient price would higher than $18 while the efficient output would be less than 400 units.

Which of the following is a positive side effect of business start-ups and the business failures that often follow? a. The process makes it possible to try out numerous new ideas, and some of them will substantially improve our lives. b. The process increases total employment, and leads to a lower rate of unemployment. c. The process generates additional revenue for the government, which will then be used to produce goods and services that people value. d. This is a trick question. There are no positive side effects of business failures.

a. The process makes it possible to try out numerous new ideas, and some of them will substantially improve our lives.

Identify the correct statement about marginal cost, average total cost, and average fixed cost. a. When marginal cost is less than average total cost, average total cost decreases. b. When average fixed cost rises, marginal cost must be greater than average total cost. c. When marginal cost is greater than average total cost, average total cost decreases. d. When average fixed cost falls, marginal cost must be less than average fixed cost.

a. When marginal cost is less than average total cost, average total cost decreases.

In order for the law of diminishing returns to be present, we must have a. at least one factor of production to be fixed. b. output decreasing as more laborers are hired. c. the price of labor increasing as more workers are hired. d. simultaneous changes in labor and capital. e. double the output when labor input is doubled.

a. at least one factor of production to be fixed.

If Sean sells Tom a tennis racket for $50, we would expect a. both parties to gain from this transaction. b. Sean to gain from the transaction, while Tom loses. c. Tom to gain from the transaction, while Sean loses. d. the well-being of both parties to be unchanged.

a. both parties to gain from this transaction.

A natural monopoly is defined as an industry in which one firm Select one: a. can produce the entire industry output at a lower average cost than a larger number of firms could. b. can produce the entire industry output at a lower marginal cost than a larger number of firms could. c. is very large relative to other firms that could enter the industry. d. can earn higher profits if it is the only firm in the industry rather than if other firms also enter the industry.

a. can produce the entire industry output at a lower average cost than a larger number of firms could.

Market prices provide information to consumers, helping them coordinate their activities so long as a. competition is present and buyers and sellers are free to choose mutually agreeable prices. b. prices are not allowed to rise too high, causing a shortage. c. prices are legally kept equal in all markets, preventing unfair price increases in markets with shortages and unfair price decreases when a market surplus is present. d. the government carefully screens producers and effectively keeps inefficient producers out of the market.

a. competition is present and buyers and sellers are free to choose mutually agreeable prices.

If the price of tickets to Disney World increases 10 percent, and as a result, attendance falls by 15 percent, the demand for the tickets is a. elastic. b. inelastic. c. of unitary elasticity. d. indeterminate

a. elastic.

Rebel Records announces it is cutting the prices of its bluegrass album titles by 25 percent. If Rebel is seeking to increase revenues, it must believe that the elasticity of demand for bluegrass albums is a. elastic. b. inelastic. c. of unitary elasticity. d. perfectly inelastic.

a. elastic.

Suppose Microsoft announces it is cutting the prices of some of its software titles (mainly games) by 25 percent. Assuming that Microsoft is seeking to increase revenues, it must believe that the elasticity of demand for these products is a. elastic. b. inelastic. c. of unitary elasticity. d. perfectly inelastic.

a. elastic.

In a market economy, profits a. encourage productive projects and losses weed out unproductive ones. b. discourage productive projects and losses encourage unproductive ones. c. reduce the value of resources while losses increase their value. d. indicate that producers gain at the expense of consumers.

a. encourage productive projects and losses weed out unproductive ones.

The average total cost curve of a firm is U-shaped because: a. for low levels of output, average fixed cost will be high and for high levels of output, marginal cost will be high. b. for low levels of output, marginal cost will be high and for high levels of output, average fixed cost will be high. c. for low levels of output, average fixed cost will be low and for high levels of output, average fixed cost will be high. d. for low levels of output, marginal cost will be high and for high levels of output, marginal cost will be low.

a. for low levels of output, average fixed cost will be high and for high levels of output, marginal cost will be high.

Which of the following provides the fuel for growth and achievement of high income levels?

a. gains from trade b. entrepreneurial discovery c. capital formation d. all of the above*

An oligopolistic market Select one: a. has a small number of rival firms, and each is large relative to the size of the market. b. is characterized by firms that merely take the price that is determined by the forces of supply and demand in the market. c. has low entry barriers facing firms that may be interested in entering the market. d. has a large number of firms that are small relative to the size of the market.

a. has a small number of rival firms, and each is large relative to the size of the market.

Which of the following is a key characteristic of economic freedom?

a. institutions and policies supportive of voluntary exchange b. freedom to compete c. protection of people and their property from aggressors d. all of the above*

Which of the following is important if a country is going to achieve and sustain high rates of economic growth?

a. investment in physical and human capital b. improvements in technology c. institutional and policy arrangements consistent with economic efficiency d. All of the above.*

Compared to those in low-income countries, the residents of countries with high per person incomes nearly always

a. live longer. b. have a lower illiteracy rate. c. have a lower infant mortality rate. d. all of the above.*

A profit-maximizing monopolist will continue expanding output as long as a. marginal revenue exceeds marginal cost. b. marginal revenue is positive. c. the cost of producing an additional unit exceeds the marginal revenue derived from the unit. d. economic profit is more than zero.

a. marginal revenue exceeds marginal cost.

A market situation in which only a small number of mutually interdependent, rival sellers exists is known as a(n) Select one: a. oligopoly market. b. monopoly market. c. open price-taker market. d. competitive price-searcher market.

a. oligopoly market.

Because information is costly to acquire, a. people will rationally choose not to become fully informed when making decisions. b. people will generally choose to become as fully informed as possible when making decisions. c. people will generally choose to acquire no information that would be relevant to their decisions. d. none of the above are true

a. people will rationally choose not to become fully informed when making decisions.

In order to achieve a high economic freedom rating, a country must

a. provide secure protection of privately owned property and evenhanded enforcement of contracts. b. refrain from creating barriers that limit domestic and international trade. c. rely more fully on markets rather than governments to allocate goods and resources. d. all of the above.*

If marginal cost exceeds marginal revenue, a profit-maximizing monopolist will a. restrict output to increase the price even higher. b. raise price and expand output to increase profit. c. lower price and expand output to increase profit. d. attempt to maintain this position because it is consistent with profit maximization.

a. restrict output to increase the price even higher.

If a movie theater is going to gain by charging students a dollar less than other customers, a. the demand of students must be more elastic than that of other customers. b. the demand of students must be less elastic than that of other customers. c. students must have higher incomes than other customers. d. other customers must enjoy movies more than students.

a. the demand of students must be more elastic than that of other customers.

CHAPTER 14 Which of the following contributed to the financial crisis of 2008?

a. the housing price boom (2002-2005), followed by a housing price bust (2007-2008) b. a sharp reduction in stock prices in 2008 c. a sharp increase in the price of crude oil from January 2007 to mid-year 2008 d. all of the above*

When a government subsidy is granted to the sellers of a product, buyers can end up capturing some of the benefit because a. the market price of the product will fall in response to the subsidy. b. the market price of the product will rise in response to the subsidy. c. the market price of the product will not change in response to the subsidy. d. producers will reduce the supply of the product.

a. the market price of the product will fall in response to the subsidy.

Suppose that in Australia, the government allows private ownership of chickens but not of cows. If the people of Australia permanently increase their desire to purchase more chicken and beef, in the long run, we would expect a. the population of chickens to rise and the population of cows to fall. b. the population of cows to rise and the population of chickens to fall. c. the populations of both chickens and cows to increase. d. both chickens and cows to become extinct in Australia unless the government places the animals on the endangered species list.

a. the population of chickens to rise and the population of cows to fall.

When economists use the term ceteris paribus, they are indicating that

all other variables except the ones specified are assumed to be constant.

For a certain firm, the 100th unit of output that the firm produces has marginal revenue equal to $10 and a marginal cost of $7. It follows that a. the production of the 100th unit of output increases the firm's profit by $3. b. the production of the 100th unit of output increases the firm's average total cost by $7. c. the firm's profit-maximizing level of output is less than 100 units. d. the production of the 110th unit of output must increase the firm's profit by less than $3.

a. the production of the 100th unit of output increases the firm's profit by $3.

Demand will be more inelastic when a. the time the consumer has to adjust to price changes is short. b. the price of the good is high. c. the number of good substitutes is large. d. the consumption of the good is not very essential.

a. the time the consumer has to adjust to price changes is short

Because each oligopolist cares about its own profit rather than the collective profit of all the oligopolists together, a. they are unable to maintain the same degree of monopoly power achieved by a monopolist. b. each firm's profit always ends up being zero. c. competitive pressures are absent from the market. d. it will be easier to maintain collusive agreements

a. they are unable to maintain the same degree of monopoly power achieved by a monopolist.

When production of a good provides external benefits, there will be a. too few resources devoted to its production. b. too many resources devoted to its production. c. the optimal amount of resources devoted to its production. d. abnormally high profits earned by producers of the good.

a. too few resources devoted to its production.

During the short-run period of the production process, a firm will be

able to vary only some of its factors of production.

If a surplus exists in a market we know that the actual price is

above equilibrium price and quantity supplied is greater than quantity demanded.

If a surplus exists in a market, the actual price is

above equilibrium price and quantity supplied is greater than quantity demanded.

For most firms, the major difference between accounting profit and economic profit is that

accounting profit does not consider the opportunity cost of the firm's equity capital and, therefore, generally overstates economic profit.

When the economy is operating at an output rate below its full-employment level, the

actual level of unemployment will exceed the natural rate of unemployment.

If a decision maker uses marginal analysis, then the relevant costs are the

additional costs of a particular activity or product.

Marginal revenue product is the

additional revenue from one additional unit of input.

CHAPTER 10 When the U.S. dollar appreciates,

aggregate demand shifts leftward.

Which of the following statements about taxes are correct?

all of the above

In the short run, the firm's average fixed costs

always decline as output increases.

A good that takes up a very large percentage of the consumer's budget will tend to have

an elastic demand.

When employment discrimination results from the personal prejudices of employers, economic theory suggests that

an employer who discriminates will experience higher costs.

Goods that consumers regard as luxuries generally have

an income elasticity greater than 1.

Suppose prices for new homes have risen and sales of new homes have also risen. These changes are mostly caused by

an increase in demand for new homes.

If there is an unanticipated increase in aggregate demand, which of the following is most likely to occur?

an increase in employment

In the short run, which of the following is the most likely effect of an unanticipated move to a more expansionary monetary policy?

an increase in employment

If corn is an inferior good,

an increase in income will cause the demand curve for corn to shift to the left.

The difference between normal and inferior goods is that

an increase in income will shift the demand curve for a normal good rightward and the demand curve for an inferior good leftward.

Which of the following would increase a firm's average total costs?

an increase in input prices

antitrust action restructures a previously monopolized industry into a competitive industry. if economies of scale are unimportant in the industry, the expected result of this movement from monopoly to competition is

an increase in output and a reduction in price in the industry

Antitrust action restructures a previously monopolized industry into a competitive industry. If economies of scale are unimportant in the industry, the expected result of this movement from monopoly to competition is

an increase in output and a reduction in price in the industry.

An increase in supply will cause

an increase in quantity demanded.

If we observe an increase in the price of a good and an increase in the amount of the good bought and sold, this could be explained by

an increase in the demand for the good.

Which of the following will most likely result from an unanticipated decrease in aggregate supply due to unfavorable weather conditions in agricultural areas?

an increase in the general level of prices

An increase in the demand for automobiles will increase the demand for labor used to produce the automobiles due to

an increase in the marginal revenue product of labor.

Two goods are considered substitutes only if

an increase in the price of one leads to an increase in the demand for the other

Which of the following is the most likely outcome of minimum wage laws?

an increase in the quantity of labor supplied by workers and a decrease in the quantity of labor demanded by firms

Which of the following will most likely increase long-run aggregate supply?

an increase in the rate of investment

Which of the following would reduce the price of DVD players and increase the quantity sold?

an increase in the supply of DVD players

An increase in the number of students graduating with a major in engineering would result in

an increase in the supply of engineers that would decrease the wage of engineers and increase the number employed.

An unexpected increase in the demand for accountants will lead to

an increase in their earnings and an expansion in the future supply of accountants.

Which of the following factors is least likely to be a barrier limiting the entry of potential competitors into a market?

an inelastic demand for a product

A fact based on observable phenomenon that is not influenced by differences in personal opinion is called

an objective concept

Other things being equal, the effect of an increase in the price of milk would be illustrated by

an upward movement along the demand curve for milk.

Economic models suggest that movie stars have salaries that

are about equal to their marginal revenue products.

Economic studies have generally found that professional sports players have salaries that

are approximately equal to their marginal revenue products.

Cartel agreements are difficult to maintain because individual members

are often unable to police the price and output policies of other members.

Firms that are price takers

are small relative to the total market.

If the income elasticity of demand for a good is negative, this implies that

as incomes rise, the demand for the good will fall.

A profit-maximizing firm will continue to expand output

as long as the revenues from the production and sale of an additional unit exceeds the marginal cost of the unit.

law of diminishing returns

as more and more units of a variable factor are applied to a fixed amount of other resources, output will eventually increase by smaller and smaller amounts.

The number of CDs purchased increased by 5 percent when consumer income increased by 10 percent. Assuming other factors are held constant, how would CDs be classified?

as normal goods

Why is the LR ATC curve U-shaped?

as plant size increases, the ATC of production decreases due to economies of scale

The economic way of thinking stresses that

as the benefits of an option increase, people will be more likely to choose that option.

Diminishing marginal utility means that

as you consume more of a good, other things constant, the additional satisfaction you obtain from each additional unit of the good tends to fall.

If a customer deposits $1,000 cash into her checking account, the bank's

assets and liabilities both rise by $1,000.

Business owners who care only about maximizing profits are

at an advantage when competing against those who practice employment discrimination.

In order for the law of diminishing returns to be present, we must have

at least one factor of production to be fixed.

The short-run average total cost (ATC) curve of a firm will tend to be U-shaped because

at small output rates, average fixed costs (AFC) will be high, while at large output rates, marginal cost (MC) will be high.

When does the marginal cost curve cross the ATC curve?

at the lowest point on the curve.

"Government failure" exists when political decision-makers choose actions that

conflict with efficient allocation of resources.

The price elasticity of demand for a commodity is determined primarily by the

attractiveness of the substitutes for the good.

A proportional tax is defined as a tax for which the

average tax rate remains constant at all levels of income.

A monopolist will earn economic profits as long as price exceeds

average total cost

If a firm increases its output and finds that its average total cost decreases as a result, this implies that

average total cost exceeds marginal cost.

Whenever average total cost exceeds marginal cost,

average total cost is falling.

Economies of scale imply that within some range a firm can increase the size of operation and

average total cost will decrease.

Which of the following is a necessary condition for price discrimination to be profitable? Select one: a. All consumers must have an identical demand for the product. b. Groups of consumers with different demand elasticities must be easily distinguishable. c. It must be possible for buyers to resell the product at a low cost. d. The market demand for the product must be highly elastic.

b. Groups of consumers with different demand elasticities must be easily distinguishable.

Which of the following is true of saving and investment?

b. If investment is going to be undertaken, someone must save.

Which of the following statements best describes the price, output, and profit conditions of competitive price-searcher markets? Select one: a. Price will equal marginal cost at the profit-maximizing level of output; profits will be positive in the long-run. b. Marginal revenue will equal marginal cost at the short run, profit-maximizing level of output; in the long run, economic profit will be zero. c. Marginal revenue will equal average total cost in the short run; long-run economic profits will be zero. d. Price will always equal average variable cost in the short run and either profits or losses may result in the long run.

b. Marginal revenue will equal marginal cost at the short run, profit-maximizing level of output; in the long run, economic profit will be zero.

Suppose that workers immigrate to Minnesota from Canada. Which of the following correctly describes what would happen in the market for labor in Minnesota?

b. The equilibrium wage would decrease, and the quantity of labor would increase. With more workers, the added output from an extra worker is smaller.

A major fruit juice manufacturer failed in its attempt to engage in price discrimination between students and all other consumers. What is the most likely explanation for this failure? Select one: a. The cost of producing the product is relatively high. c. Market demand for fruit juice is inelastic. d. The two groups of consumers have different demand elasticities for fruit juice.

b. There was nothing to prevent the students from reselling the fruit juice to other consumers.

An example of a non-pecuniary job characteristic is

b. a comfortable work environment.

Which of the following is most likely to cause the productivity of labor to increase?

b. a higher rate of investment in human and nonhuman capital

Cartel agreements are difficult to maintain because individual members Select one: a. can gain by secretly raising their price above the price that is best for the cartel. b. are often unable to police the price and output policies of other members. c. can enforce price arrangements vigorously in court. d. can gain by raising their price above the price that is best for the cartel.

b. are often unable to police the price and output policies of other members.

Which of the following best explains why productive workers can command high wages?

b. competition among employers for productive workers

If economic profits were present in a competitive price-searcher industry, Select one: a. firms would operate in the short run, but they would be forced out of business in the long run as competition eliminated the economic profit. b. competition from new entrants would occur until the economic profits had been eliminated. c. production inefficiency would develop, causing costs to increase until the profits had been eliminated. d. the firms would eventually find these profits offset by long-run economic losses.

b. competition from new entrants would occur until the economic profits had been eliminated.

An increase in the real interest rate will increase the

b. cost of current consumption goods relative to future consumption.

The fact that barriers to entry are low in competitive price-searcher markets means that if current firms are making economic losses, Select one: a. these losses will remain in the long run because no firms can exit the market. b. current firms will exit the market, causing the demand curves that face the remaining firms to increase. c. new firms will enter the market, causing no change in the demand curves that face the existing firms in the market. d. new firms will enter the market, causing the demand curves that face the existing firms to decrease.

b. current firms will exit the market, causing the demand curves that face the remaining firms to increase.

For a monopolist that does not price discriminate, economic profit is maximized in the short run at a price of $140. Marginal revenue at that output level is Select one: a. less than marginal cost. b. less than $140. c. greater than $140. d. equal to $140. e. greater than average revenue

b. less than $140.

The real rate of interest is the

b. money rate of interest minus the inflationary premium.

If customers are racist but employers are not, then employment discrimination will be

b. more profitable than nondiscrimination

Automated production methods are only attractive when they

b. reduce per-unit costs.

Which of the following conditions is most essential if a firm is going to earn long-run economic profits? Select one: a. a small number of firms, even though competitors are free to enter the industry b. restrictions that limit the entry of potential competitors into the industry c. a differentiated product d. an inelastic market demand for the product

b. restrictions that limit the entry of potential competitors into the industry

Additional investments in machines that enhance the ability to produce goods and services imply that

b. someone will have to reduce current consumption

Suppose the price of aluminum rises, and as a result, a manufacturing company purchases tin to use in place of the now higher-priced aluminum. This is referred to as

b. substitution in production.

The interest rate is determined by the

b. supply and demand for loanable funds.

One key characteristic that is distinctive of an oligopoly market is that Select one: a. there are many sellers in the market and each is small relative to the total market. b. the decisions of one seller often influence the price of products, the output, and the profits of rival firms. c. there is only one firm that produces a product for which there are no good substitutes. d. the demand curve facing each firm is downward sloping, with a marginal revenue curve that lies below the firm's demand curve.

b. the decisions of one seller often influence the price of products, the output, and the profits of rival firms

A competitive price-searcher firm is currently producing 10 units of output. At this level of output the firm is charging a price equal to $10, has marginal revenue equal to $6, has marginal cost equal to $6, and has average total cost equal to $12. From this information we can conclude that Select one: a. firms are likely to enter this market in the long run. b. the firm is currently maximizing its profit. c. the firm would earn more profit by expanding output d. the profits of the firm are positive

b. the firm is currently maximizing its profit.

The value marginal product of a resource is

b. the marginal product of the resource multiplied by the price of the product it helps to produce.

Higher real interest rates indicate that people who are saving now will be able to purchase more in the future. This statement is

b. true.

An increase in the demand for a resource

b. will increase the price of the resource and, thereby, increase the incentive of potential suppliers to provide the resource in the future

The fact that some people will work hard to earn a lot of money while others will be content with much less income indicates that

b. worker preferences are an important source of earning differentials.

A family has decided to go away for the summer. The monthly mortgage payment on the family's house is $1,000. Water, electricity, natural gas, and maintenance bills, to be paid by the family, will be $700 per month if the house is occupied and zero otherwise. If the family wishes to minimize losses from being away, it should rent the house for as much as the market will bear, as long as the monthly rent is above which of the following? (Assume wear and tear to be the same whether or not the house is occupied.) a. $300 b. $700 c. $1,000 d. $1,700

b. $700

A natural monopoly exists when Select one: a. a single firm has control over a natural resource, such as timber. b. ATC in an industry will be at a minimum if output is produced by a single firm. c. a firm has an exclusive patent or license to produce a product granted by the government. d. entering the industry is barred by governmental authorities.

b. ATC in an industry will be at a minimum if output is produced by a single firm.

How would a decrease in consumer income affect the market for lawn mowers? a.Demand would decrease, leading to an increase in price and a reduction in quantity sold. b. Demand would decrease, leading to a reduction in price and a reduction in quantity sold. c. Demand would increase, leading to an increase in price and an increase in quantity sold. d. Demand would increase, leading to a reduction in price and an increase in quantity sold.

b. Demand would decrease, leading to a reduction in price and a reduction in quantity sold.

Suppose demand increases and supply increases. Which of the following will happen? a. Equilibrium price will rise, fall, or stay the same while equilibrium quantity will decrease. b. Equilibrium price will rise, fall, or stay the same while equilibrium quantity will increase. c. Equilibrium quantity will rise, fall, or stay the same and equilibrium price will increase. d. Equilibrium quantity will rise, fall, or stay the same while equilibrium price will decrease. e. The change in equilibrium price and quantity cannot be determined.

b. Equilibrium price will rise, fall, or stay the same while equilibrium quantity will increase.

Legolas can produce 10 swords or 20 hammers in one hour while Gimli can produce 15 swords or 5 hammers in one hour. Which of the following statements is correct? a. Gimli has a comparative advantage over Legolas in the production of hammers. b. Gimli has a comparative advantage over Legolas in the production of swords. c. Legolas has a comparative advantage over Gimli in the production of swords. d. Gimli and Legolas cannot gain from specialization and exchange.

b. Gimli has a comparative advantage over Legolas in the production of swords.

Several producers in industry A developed an improved technology that reduces the quantity of resources used to produce a given output. Which of the following would be expected? a. The per-unit costs of production of the firms adopting the technology would increase. b. In the short run, economic profits would be earned by the earliest firms adopting the technology. c. Product price would immediately fall to the minimum average total cost of the firms quickly adopting the technology, thus retarding the rate at which firms enter the industry. d. Producers who adopt the technology will have short-run economic losses.

b. In the short run, economic profits would be earned by the earliest firms adopting the technology.

Which of the following is true of a firm when it decides to produce no output? a. Its total cost exceeds its total fixed cost. b. It has no variable costs. c. It has no fixed costs. d. Its total fixed cost exceeds its total cost.

b. It has no variable costs.

Suppose the actions of the producers of a good generate an external benefit which results in the actual market price of $30 and market output of 220 units. How does this outcome compare to the efficient, ideal equilibrium? a. The efficient price would higher than $30 while the efficient output would be less than 220 units. b. The efficient price would be higher than $30 while the efficient output would be greater than 220 units. c. The efficient price would be lower than $30 while the efficient output would be less than 220 units. d. The efficient price would be lower than $30 while the efficient output would be greater than 220 units.

b. The efficient price would be higher than $30 while the efficient output would be greater than 220 units.

Which of the following must be true if a price-searcher firm is operating at the profit-maximizing output rate? a. The marginal cost of producing the last unit is greater than the marginal revenue derived from its sale. b. The marginal cost of producing the last unit is no greater than the marginal revenue derived from its sale. c. The total cost of producing all units is no greater than the total revenue derived from the sale of the units. d. The total cost of producing all units is less than the total revenue derived from the sale of the units.

b. The marginal cost of producing the last unit is no greater than the marginal revenue derived from its sale.

Identify the correct statement about an average product curve and a marginal product curve. a. The average product curve slopes downward when the marginal product curve lies above the average product curve. b. The marginal product curve intersects the average product curve at its maximum. c. Both marginal and average product curves initially decline and then rise. d. The average product curve rises as long as it lies above the marginal product curve.

b. The marginal product curve intersects the average product curve at its maximum.

Land used to grow alfalfa could also be used to grow hay. Which of the following is true when the farmer plants hay and the market price of alfalfa rises? a. The opportunity cost of producing hay decreases. b. The opportunity cost of producing hay increases. c. There will be no change in the opportunity cost of producing hay. d. The opportunity cost of producing alfalfa increases.

b. The opportunity cost of producing hay increases.

Which of the following statements best describes the scientific method? a. The use of modern electronic testing equipment to understand the world. b. The unbiased development and testing of theories about how the world works. c. The use of controlled laboratory experiments to understand the way the world works. d. Finding evidence to support preconceived theories about how the world works.

b. The unbiased development and testing of theories about how the world works.

Identify the correct statement about a products' brand name. a. The advertisements featuring a brand name tend to reduce the value of a product to consumers. b. The value of a brand name is a hostage to quality control. c. Brand name generally gives little information about a product to consumers. d. Brand name provides the most value to consumers for goods that are repeat-purchase items.

b. The value of a brand name is a hostage to quality control.

A market situation in which the average total costs of production continually decline with increased output until the entire market is supplied is called Select one: a. a legal monopoly. b. a natural monopoly. c. diminishing returns to scale. d. diminishing returns to a variable factor.

b. a natural monopoly.

A hotel in New Hampshire charges $150 per room in the winter ski season and $90 during the summer months. The number of rooms and operating costs are constant year round. These prices indicate a. a rightward shift in the demand in the summer. b. a rightward shift in demand in the winter. c. a leftward shift in the supply curve in the summer. d. a leftward shift in demand in the winter.

b. a rightward shift in demand in the winter.

A monopoly is best defined as Select one: a. a single seller of a product that has characteristics very similar to the products produced in other industries. b. a single seller of a well-defined product for which there are no good substitutes operating in a market with high barriers to entry. c. a market in which a small number of rival sellers produce the entire market output. d. any firm operating in a contestable market.

b. a single seller of a well-defined product for which there are no good substitutes operating in a market with high barriers to entry.

When oligopolistic firms collude to maximize their joint profits, in comparison with the situation in competitive markets, their actions generally lead to a. a larger output and lower prices. b. a smaller output and higher prices. c. a smaller output and lower prices. d. the same output and higher prices

b. a smaller output and higher prices.

A market that operates outside the legal system, either by selling illegal goods or by selling goods at illegal prices is referred to in economics as a

black market

"There is no such thing as a free lunch." This statement best reflects the fact that a. consumers are unwilling to pay for a good unless it provides them with value. b. an opportunity cost is always present when scarce resources are used to produce a good. c. it generally requires enormous effort to search out the best place to eat lunch. d. the value of a good to consumers will decrease as they have more of it.

b. an opportunity cost is always present when scarce resources are used to produce a good.

A regulatory agency that imposes a price ceiling in order to limit monopoly profits to a "fair rate of return" is forcing the monopolist to sell at a price equal to Select one: a. average fixed cost. b. average total cost. c. marginal cost. d. average variable cost.

b. average total cost.

At his current level of output, a monopolist has an MR of $10, an MC of $6, and an economic profit of zero. If the market demand curve is downward sloping and his marginal cost curve upward sloping, the monopolist a. is producing his profit-maximizing level of output. b. could increase his profit by increasing his output. c. could increase his profit by increasing his price. d. should exit the market if he has positive fixed cost.

b. could increase his profit by increasing his output.

The government sometimes provides public goods because a. private markets are incapable of producing public goods. b. free-riders make it difficult for private markets to supply the efficient quantity. c. markets are always better off with some government oversight. d. external benefits will accrue to private producers.

b. free-riders make it difficult for private markets to supply the efficient quantity.

If a firm enlarges its factory size and realizes higher average costs of production then a. it has experienced economies of scale. b. it has experienced diseconomies of scale. c. it has experienced constant returns to scale. d. the long-run average cost curve slopes downward. e. the long-run average cost curve shifts upward.

b. it has experienced diseconomies of scale.

The key element in preserving a monopoly is a. government subsidy of critical enterprises. b. keeping potential rivals out of the market. c. guaranteeing availability of substitute products. d. increased advertising expenditure.

b. keeping potential rivals out of the market.

If zinc suppliers are successful in forming an international zinc cartel, they will a. lower output and raise prices, which discourages the entry of new firms into the industry. b. lower output, raise prices, and have a need to prevent the entry of new firms into the industry. c. raise output and raise prices, which discourages the entry of new firms into the industry. d. raise output, raise prices, and have a need to prevent the entry of new firms into the industry.

b. lower output, raise prices, and have a need to prevent the entry of new firms into the industry.

If the normal rate of return on financial capital is 15 percent, investors will not continue to supply equity capital unless they can earn this normal return. Thus, it is a(n): a. marginal cost of equity capital. b. opportunity cost of equity capital. c. sunk cost of equity capital. d. total cost of equity capital.

b. opportunity cost of equity capital.

Losses are important to a competitive price-searcher market (industry) because they send a message to the market participants that a. more resources should be devoted to a particular industry. b. resources can rise in value if diverted away from that particular industry. c. resources are allocated exactly as they should be. d. the firms should charge lower prices.

b. resources can rise in value if diverted away from that particular industry.

Suppose the demand curve for a good is highly elastic and the supply curve is highly inelastic. If the government taxes this good, a. buyers and sellers will each share 50 percent of the burden, regardless of the elasticities of the demand and supply curves. b. sellers will bear a larger share of the tax burden. c. the distribution of the burden will depend upon whether the buyers or the sellers are required to send the tax to the government. d. buyers will bear a larger share of the tax burden

b. sellers will bear a larger share of the tax burden.

Other things constant, an increase in consumer income will a. shift the demand curve for automobiles to the left. b. shift the demand curve for automobiles to the right. c. cause a movement along the demand curve for automobiles, but it will not shift the demand curve. d. lead to a reduction in the supply of automobiles.

b. shift the demand curve for automobiles to the right.

When a firm exits a competitive price-searcher market, the individual demand curves faced by all remaining firms in that market will a. shift in a direction that is unpredictable without further information. b. shift to the right. c. shift to the left. d. remain unchanged. It is the supply curve that will shift.

b. shift to the right.

The law of diminishing marginal returns explains the general shape of the firm's a. long-run cost curves. b. short-run cost curves. c. both short-run and long-run cost curves. d. The law of diminishing returns has nothing to do with cost curves.

b. short-run cost curves.

An oligopolistic firm that is deciding the price to charge, the output to produce, or the quality of product to offer, must consider Select one: a. the regulatory price limits that are always present with oligopoly. b. the potential reactions of rivals in the market. c. the fact that per-unit costs will usually increase as the scale of production increases. d. that entry barriers into oligopolistic markets are low.

b. the potential reactions of rivals in the market.

The law of demand states that: a. the marginal utility derived from a product is directly proportional to its price. b. the quantity demanded of a product is inversely proportional to its price, all other things remaining constant. c. the marginal utility derived from a product is inversely proportional to its price. d. the quantity demanded of a product is directly proportional to its price, all other things remaining constant.

b. the quantity demanded of a product is inversely proportional to its price, all other things remaining constant.

The second law of demand states that: a. buyers will purchase more of a good when the opportunity cost of the good is high, and vice versa. b. the response of buyers will be greater after they have had time to adjust fully to a price change. c. buyers will respond predictably to a price change, purchasing more when price is low and vice versa, if other things remain the same. d. the marginal utility derived from a good will increase as additional units of the good are consumed.

b. the response of buyers will be greater after they have had time to adjust fully to a price change.

Tax incidence indicates: a. the amount of tax borne by consumers. b. the way the burden of a tax is distributed among economic units. c. the frequency at which different economic units pay taxes. d. the level of an economic activity that is taxed.

b. the way the burden of a tax is distributed among economic units.

A law that requires hairdressers to undergo many hours of training and acquire a license before they can offer haircuts to the public, is an example of a

barrier to entry

A law that requires hairdressers to undergo many hours of training and acquire a license before they can offer haircuts to the public is an example of a

barrier to entry.

for effective price discrimination to occur, a seller must

be able to prevent consumers from reselling the product to other consumers

If changes in monetary policy are going to help stabilize the economy, they must

be properly timed.

If the initial tax rate is low, why would an increase in the tax rate likely raise tax revenue?

because it is closer to optimal tax rate

If the initial tax rate is high, why would an increase in the tax rate possibly decrease tax revenue?

because past optimal tax rate, workers start to believe that their additional efforts result in lower additional income, so they work less, income falls, and tax collection decreases

Markets fail when externalities are present

because some of the costs and benefits of producing a good are not reflected in the market price.

Why does the consumer pay most of the tax when demand is inelastic relative to supply?

because they are less responsive to a change in price ex. taxes on gas- not easy for buyers to shift to other forms of fuel

Why does the producer pay most of the tax when supply is inelastic relative to demand?

because they are less responsive to change in price / more consumers options ex. luxury boat tax: raise price of buying yachts in USA, but rich people responded by buying yachts from other countries

Why would a firm be content to stay in business if it's earning zero economic profit?

because they are receiving the normal profit rate (not losing money)

Why should sunk costs be ignored when making decisions about future actions?

because today's choices st be based on the costs & benefits expected under current & future market conditions

A competitive price-searcher market is characterized by firms

being able to choose their price and by low barriers preventing firms from entering or leaving the market.

If Harry Bartolini's Ford dealership sells Rosa Brown a new automobile for $30,000, economic analysis indicates that

both parties to the transaction will gain.

As people have more time to adjust to a price change,

both supply and demand become more elastic.

If there is a decrease in demand for lettuce, we would expect

both the price and quantity sold to decrease.

If Ethan thinks the last dollar spent on bowling yields more satisfaction than the last dollar spent on hamburgers, and Ethan is a utility-maximizing consumer, he should

bowl more and spend less on hamburgers.

According to the invisible hand principle, competitive markets generally

bring the self-interest of individuals into harmony with the efficient allocation of resources, even though centralized planning of economic activities is absent.

If demand price elasticity measures 2, this implies that consumers would

buy 2 percent more of the product in response to a 1 percent drop in price.

If the Fed wanted to expand the money supply as part of an antirecession strategy, it could

buy U.S. securities on the open market.

If the Federal Reserve wanted to expand the money supply in order to increase output, it should

buy government bonds, which will increase the money supply; this will cause interest rates to fall and aggregate demand to rise.

Refer to Figure 4-17. Suppose a price floor of $7.00 is imposed. As a result,

buyers' total expenditure on the good decreases by $20.00.

If the Federal Reserve is engaging in open market operations designed to expand the money supply, it is probably

buying government securities from the public.

The Efficient Markets Hypothesis implies that you should not try to buy and sell individual stocks based on stories in the news or personal research because...

by the time you collect new information and act on it, stock prices have already adjusted and you cannot profit from the information.

(I) Oligopolistic firms have an incentive to collude to increase profits. (II) Oligopolistic firms have an incentive to cheat on collusive agreements to increase profits. Select one: a. I is false; II is true. b. I is true; II is false. c. Both I and II are true. d. Both I and II are false.

c. Both I and II are true.

(I) Differences in worker productivity are one major reason why individual earnings differ. (II) Even if all workers were identical, differences in the desirability of jobs would still cause earnings differentials.

c. Both I and II are true. Correct

Which of the following is true when long-run equilibrium conditions are present in price-taker and competitive price-searcher markets? Select one: a. P = ATC in both price-taker and competitive price-searcher markets b. MR = MC in both price-taker and competitive price-searcher markets c. Both a and b, but not c are true. d. P = MC in both price-taker and competitive price-searcher markets

c. Both a and b, but not c are true.

Which of the following is true when long-run equilibrium conditions are present in price-taker and competitive price-searcher markets? Select one: a. P = ATC in both price-taker and competitive price-searcher markets b. P = MC in both price-taker and competitive price-searcher markets c. Both a and b, but not c are true. d. MR = MC in both price-taker and competitive price-searcher markets

c. Both a and b, but not c are true.

(I) Discounting procedures apply to decisions to invest in physical capital but are not relevant to human capital investment decisions. (II) Nonmonetary considerations are usually more important in human capital investment decisions than in nonhuman capital investment decisions.

c. I is false; II is true.

Economic profit is

total revenues minus total costs (explicit plus implicit costs).

Which of the following statements best describes the price, output, and profit conditions of competitive price-searcher markets? Select one: a. Price will always equal average variable cost in the short run and either profits or losses may result in the long run. b. Marginal revenue will equal average total cost in the short run; long-run economic profits will be zero. c. Marginal revenue will equal marginal cost at the short run, profit-maximizing level of output; in the long run, economic profit will be zero. d. Price will equal marginal cost at the profit-maximizing level of output; profits will be positive in the long-run.

c. Marginal revenue will equal marginal cost at the short run, profit-maximizing level of output; in the long run, economic profit will be zero.

Which of the following is a major difference between a competitive price searcher and a price taker? Select one: a. Price takers are exposed to competition because of low barriers to entry, whereas competitive price searchers are somewhat immune from competition due to relatively high barriers to entry. b. Price takers can never earn economic profits, whereas competitive price searchers can earn economic profits in the short run. c. Price takers produce identical goods, whereas competitive price searchers produce goods that are differentiated from the goods produced by their competitors. d. Price takers need to compete through advertising because they cannot choose their own price, whereas competitive price searchers compete primarily through their pricing policies.

c. Price takers produce identical goods, whereas competitive price searchers produce goods that are differentiated from the goods produced by their competitors.

A major fruit juice manufacturer failed in its attempt to engage in price discrimination between students and all other consumers. What is the most likely explanation for this failure? Select one: a. The cost of producing the product is relatively high. b. Market demand for fruit juice is inelastic. c. There was nothing to prevent the students from reselling the fruit juice to other consumers. d. The two groups of consumers have different demand elasticities for fruit juice.

c. There was nothing to prevent the students from reselling the fruit juice to other consumers.

A decrease in the demand for a final product will cause

c. a decrease in demand for the resources used to produce the good

If an advance in computer technology reduces the need for businesses to hire accountants, students majoring in accounting should expect

c. a lower rate of return on their human capital investment

Which of the following would cause the demand for computer programmers to increase?

c. an increase in the productivity of computer programmers

In general, an organization of sellers designed to coordinate supply decisions so that the joint profits of the members is maximized is called a(n) ____. If they are successful, the total market output and price will most closely approximate the output and price in a(n) ____ market. (Fill in the blanks.) Select one: a. cartel; open price-taker b. cooperative; open price-taker c. cartel; monopoly d. OPEC; competitive price-searcher

c. cartel; monopoly

As a group, oligopolists would always earn the highest profit if they would Select one: a. produce more than the competitive quantity of output. b. produce the competitive quantity of output. c. charge the same price that a monopolist would charge if the market were a monopoly. d. operate according to their own individual self-interests.

c. charge the same price that a monopolist would charge if the market were a monopoly.

If the price of cotton increases

c. consumers will increase their purchases of clothing made of other materials.

The demand for a resource depends largely on the

c. demand for the products that it produces.

The major determinant of an individual's income is

c. how productive she is combined with demand for what she produces.

The additional amount a person is willing to pay to obtain a good or resource now rather than later is called the

c. interest rate.

Assume that Burger King employees work in an air-conditioned environment while McDonalds employees do not. Other things equal, you would expect wages to be ____ in Burger King because ____.

c. lower; Burger King has more favorable working conditions

If skilled labor is three times the cost of unskilled labor, a profit-maximizing firm will vary the quantity of each type of labor until the

c. marginal product of unskilled labor is one-third that of skilled labor.

The real rate of interest is the

c. money rate of interest minus the inflationary premium.

A convenience store is considering renting a surveillance camera from a security company that would prevent $100 in shoplifting per year. The yearly rental rate for the camera is $150. To maximize profits, the firm should

c. not rent the camera because the rental rate exceeds the value of shoplifting prevented.

An investment in human capital will be financially profitable if the present discounted value of the future earnings generated by the investment exceeds the

c. present discounted value of both the direct and indirect costs of the investment.

A student entering college wants to assess the value of investing in human capital. To determine whether the investment will be profitable, she should compare the

c. present discounted value of her additional future earnings as the result of the college education with the present discounted value of her direct and indirect costs of college

A student entering college wants to assess the value of investing in human capital. To determine whether the investment will be profitable, she should compare the

c. present discounted value of her additional future earnings as the result of the college education with the present discounted value of her direct and indirect costs of college.

A price searcher confronts a downward sloping demand curve because Select one: a. the firm gains nothing if it lowers its price. b. there is no close competitor in the market. c. products in the market are differentiated. d. the market is essentially monopolized.

c. products in the market are differentiated.

A positive rate of time preference implies that a person would value

c. receiving $100 today more than receiving $100 one year from now.

Economists generally criticize high barriers to market entry because Select one: a. unregulated monopolists and oligopolists can often gain by increasing output and raising price. b. legal barriers to entry will encourage firms to "invest" resources in developing highly desired products that consumers are willing to pay more for. c. the ability of consumers to discipline producers is weakened. d. entry barriers are popular with consumers but not businesses.

c. the ability of consumers to discipline producers is weakened.

Interest is

c. the price paid for early availability of funds

If there is a shortage of nurses, it is expected that

c. wages for nurses will go up as hospitals try to fill these positions.

Suppose the prices of a cap and a t-shirt are $15 and $12, respectively. John derives a marginal utility of 30 from buying a second cap. At the utility-maximizing point, the marginal utility derived by John from buying a second t-shirt is: a. 22. b. 30. c. 24. d. 25.

c. 24

Which of the following can be considered inferior goods? a. Vitamin supplements that has an income elasticity of 1.8 b. Dental services that has an income elasticity of 0.75 c. Food that has an income elasticity of −0.25 d. Fuel that has an income elasticity of 0.60

c. Food that has an income elasticity of -0.25 (inferior goods have negative income elasticity)

Which of the following is true of a market where property rights are poorly enforced? a. The market supply curve represents the external costs of production. b. Hoarding of essential commodities is likely to be indirectly encouraged. c. The actions of an individual or group is likely to spill over onto others. d. Free-riding tendency of individuals is likely to be restricted.

c. The actions of an individual or group is likely to spill over onto others.

How does an additional individual's consumption of a good that is nonrival-in-consumption, such as a radio broadcast, affect the amount of the good available to other consumers? a. The amount available to others will decline. b. The amount available to others will increase. c. The amount available to others is unaffected. d. The amount available to others is eliminated

c. The amount available to others is unaffected.

Which of the following is most likely to be an implicit cost to a firm? a. The salary the owner of the firm pays to herself for services provided b. The rental payments for the firm's office building c. The interest foregone on the dividend payments to shareholders d. The firm's interest payments to creditors

c. The interest foregone on the dividend payments to shareholders.

Identify the correct statement about the marginal product, total product, and average product curves. a. The average product curve continually slopes downward. b. The average product curve rises as long as it lies above the marginal product curve. c. The total product curve slopes downward when marginal product becomes negative. d. The marginal product curve reaches its minimum at the point where diminishing returns set in.

c. The total product curve slopes downward when marginal product becomes negative.

Which of the following fundamental principles does not underlie the choices of consumers? a. One good can be substituted for another. b. Consumers make decisions without perfect information. c. Unlimited income necessitates choice. d. Consumers make decisions purposefully.

c. Unlimited income necessitates choice.

If a competitive price-taker firm is currently producing a level of output at which marginal cost exceeds marginal revenue, then a. average revenue exceeds marginal cost. b. the firm is earning a positive profit. c. a one-unit decrease in output would increase the firm's profit. d. All of the above are correct.

c. a one-unit decrease in output would increase the firm's profit.

An improvement in a country's legal system that enhanced the ability of citizens to protect their property rights and enforce contracts would result in which of the following changes to the country's production possibilities curve? a. a movement from a point on the curve to a point outside the curve b. a movement from one point to another point along the curve c. an outward shift of the curve d. a movement from a point on the curve to a point inside the curve

c. an outward shift of the curve

As a group, oligopolists would always earn the highest profit if they would a. produce the competitive quantity of output. b. produce more than the competitive quantity of output. c. charge the same price that a monopolist would charge if the market were a monopoly. d. operate according to their own individual self-interests.

c. charge the same price that a monopolist would charge if the market were a monopoly

Corn and soybeans are alternatives that could be grown by most farmers. If government subsidies for ethanol lead to higher corn prices, this will a. increase the supply of corn. b. increase the supply of soybeans. c. decrease the supply of soybeans. d. decrease the supply of corn.

c. decrease the supply of soybeans.

The competitive market process tends to promote economic prosperity because it a. keeps the prices of goods higher than their production costs. b. creates inefficiencies, which causes people to economize. c. directs self-interested action toward the production of goods that are highly valued relative to their cost. d. sends signals to the government about which goods to produce.

c. directs self-interested action toward the production of goods that are highly valued relative to their cost.

The traditional view of competitive price-searcher markets holds that this type of market structure is inefficient because a. there are too few firms to reach an efficient level of competition. b. barriers to entry are high. c. excessive advertising is encouraged. d. consumers are not allowed a sufficient amount of choice in which to express their individual preferences.

c. excessive advertising is encouraged.

"After every fall election, the weather starts to turn cold, therefore elections cause cold weather." This statement a. confuses positive and normative analysis. b. commits the fallacy of composition. c. fails to recognize that association is not causation. d. confuses macroeconomics with microeconomics.

c. fails to recognize that association is not causation.

New York City limits the number of taxi cabs that can legally operate in the city. The most likely result of this practice is that

cab fares will be higher.

Economic profit is

total revenues minus total costs.

After a natural disaster, such as a hurricane, the increased demand for certain items (like lumber, electric generators, and chainsaws) causes their prices to rise. These higher prices a. discourage the flow of these items into the area. b. encourage consumers to purchase the items even if they do not plan to use them. c. help to direct the items toward their highest valued uses. d. do all of the above.

c. help to direct the items toward their highest valued uses.

Suppose Jack has $500 and he can either buy a PlayStation or go on a vacation with this money. If, after much thought, he decides to go on the vacation, then Jack's choice reflects the fact that: a. total utility diminishes as more of a good is consumed. b. consumers cannot make decisions without perfect information. c. one good can be substituted for another. d. consumers do not take into account the opportunity costs of goods.

c. one good can be substituted for another.

If an amusement park that is highly profitable during the summer months is unable to cover its variable costs during the winter months, it should a. raise its prices during the winter months. b. lower its prices during the summer months. c. operate during the summer but shut down during the winter months. d. operate during all months of the year as long as its profits during the summer exceed its losses during the winter.

c. operate during the summer but shut down during the winter months.

The income elasticity of demand for a good is the: a. percentage change in consumer income divided by the percentage change in the quantity demanded of the good. b. percentage change in the quantity demanded of a good divided by the percentage change in its price. c. percentage change in the quantity demanded of the good divided by the percentage change in consumer income. d. percentage change in the price of the good divided by the percentage change in the quantity demanded of the good.

c. percentage change in the quantity demanded of the good divided by the percentage change in consumer income.

Ceteris paribus, a decrease in the price of a good will cause the a. quantity demanded of the good to decrease. b. quantity supplied of the good to increase. c. producer surplus derived from the good to decrease. d. supply of the good to decrease.

c. producer surplus derived from the good to decrease.

Average product of labor is the: a. difference between total product and the units of labor required to produce that output level. b. product of total product and the units of labor required to produce that output level. c. ratio of total product to the units of labor required to produce that output level. d. sum of total product and the units of labor required to produce that output level.

c. ratio of total product to the units of labor required to produce that output level.

If marginal cost exceeds marginal revenue, a profit-maximizing firm should a. expand output until marginal cost equals marginal revenue. b. expand output until marginal revenue equals price. c. reduce output until marginal cost equals marginal revenue. d. reduce output until price equals average total cost.

c. reduce output until marginal cost equals marginal revenue

If the quantity demanded increases by 20 percent in response to a 10 percent decrease in price, demand is classified as a. unstable. b. relatively inelastic c. relatively elastic. d. of unitary elasticity

c. relatively elastic.

Consider two goods--one that generates external costs and another that generates external benefits. The actual market outcome would a. result in output that is lower than the efficient output for both goods. b. result in output that is higher than the efficient output for both goods. c. result in output that is lower than the efficient output for the good with an external benefit and output that is higher than the efficient output for the good with an external cost. d. result in output that is higher than the efficient output for the good with an external benefit and output that is lower than the efficient output for the good with an external cost.

c. result in output that is lower than the efficient output for the good with an external benefit and output that is higher than the efficient output for the good with an external cost.

A monopolist will maximize profits by Select one: a. setting the price at the level that will maximize per-unit profit. b. producing the output where marginal revenue equals total cost and charging a price along the demand curve. c. selling at the price on the demand curve at the output rate where marginal revenue equals marginal cost. d. producing at the output rate where price equals marginal cost.

c. selling at the price on the demand curve at the output rate where marginal revenue equals marginal cost.

If the government wants to generate large revenues from placing a tax on the consumption of a particular good, it should choose a good for which a. the demand is price elastic b. the demand is unitary elastic c. the demand is price inelastic d. there are many good substitutes available for the good

c. the demand is price inelastic

If a profit-maximizing restaurant is going to increase its revenues by charging senior citizens (persons age 65 and over) lower prices than other customers, a. the demand of senior citizens for the services of the restaurant must be inelastic. b. senior citizens must have lower incomes than other potential customers c. the demand of senior citizens for the services of the restaurant must be elastic. d. senior citizens must have higher incomes than other potential customers. e. other customers must enjoy food more than senior citizens.

c. the demand of senior citizens for the services of the restaurant must be elastic.

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. the quantity demanded of physicals increases and the quantity supplied of physicals decreases. d. the number of physicals performed will increase.

c. the quantity demanded of physicals increases and the quantity supplied of physicals decreases.

The expression "There's no such thing as a free lunch" means a. in an exchange, if one person gains, someone else must lose. b. each person must pay for exactly what he or she receives. c. the use of resources to meet one need means that those resources can no longer be used to meet another need. d. in an exchange, if one person gains, someone else must lose and equal amount.

c. the use of resources to meet one need means that those resources can no longer be used to meet another need.

What shape is the inelastic demand curve?

vertical

A natural monopoly is defined as an industry in which one firm

can produce the entire industry output at a lower average cost than a larger number of firms could.

In economics, man-made resources such as tools, equipment, and structures that are used to produce other goods and services are referred to as

capital.

A form of economic organization that relies primarily on private ownership of productive assets, freedom of exchange, and market prices to allocate goods and resources is often called

capitalism

A form of economic organization that relies primarily on private ownership of productive assets, freedom of exchange, and market prices to allocate goods and resources is often called

capitalism.

An organization of sellers designed to coordinate their supply decisions to maximize joint profits is called a

cartel

An organization of sellers designed to coordinate their supply decisions to maximize joint profits is called a

cartel.

The multiplier effect refers to the fact that a change in spending (aggregate demand) will

cause nominal output to rise by some multiple of the initial increase in spending.

all other things constant

ceteris paribus

When demand is inelastic, which part of the equation is larger, the change in quantity demanded or the change in price?

change in price

When demand is elastic, which is greater, the change in quantity demanded or the change in price?

change in quantity demanded

When demand is elastic, which part of the equation is larger, the change in quantity demanded or the change in price?

change in quantity demanded

The marginal revenue product of a resource is best described as the

change in total revenue resulting from employing an additional unit of the resource.

Within the framework of the Keynesian model,

changes in output rather than changes in prices direct the economy to equilibrium.

When a competitive price-searcher market is in long-run equilibrium, the firms will

charge a price that is equal to average total cost.

If an airline company has several empty seats on a flight and the full price of an air ticket is $500 and the marginal cost per passenger is $100, then it will be profitable for the airline to

charge a stand-by passenger more than $100.

As a group, oligopolists would always earn the highest profit if they would

charge the same price that a monopolist would charge if the market were a monopoly.

When the Fed lowers the discount rate, it makes it

cheaper for banks to obtain additional reserves by borrowing from the Fed.

Economic theory suggests that college graduates receive higher wages than those with only a high school education because

college graduates are more productive.

Residents of Leon County have developed a strong liking for barbeque pork sandwiches. Residents of Bay County buy the same amount of barbeque pork sandwiches but believe beef sandwiches are just about as good. From this, we can infer that

compared to residents of Leon County, residents of Bay County will have a larger price elasticity of demand for barbeque pork sandwiches.

Window cleaners that work the top floors of high-rise office buildings are, on average, paid approximately 30 percent more an hour than those that clean windows on the bottom floor. This is an example of

compensating wage differentials.

Which of the following best explains why productive workers can command high wages?

competition among employers for productive workers.

Externalities cause the market mechanism to allocate goods and resources inefficiently because

competitive markets fail to give producers and consumers correct price signals.

Two products that are usually consumed jointly would be referred to as

compliments

Democracy tends to best promote freedom when there is

constitutional protection of private property rights.

Graphically, the area that represents the difference between the maximum price consumers were willing to pay for a good and the market price is called

consumer surplus

The difference between the amount consumers would be willing to pay and the amount they actually pay for a good is called

consumer surplus

Graphically, the area that represents the difference between the maximum price consumers were willing to pay for a good and the market price is called

consumer surplus.

The difference between the amount consumers would be willing to pay and the amount they actually pay for a good is called

consumer surplus.

A good is classified as inferior if

consumers buy less when income rises.

When profits occur in a competitive market, this indicates that

consumers value the goods more than the resources used to produce them.

Fiscal stimulus is most likely to direct resources into productive projects when spending decisions are left in the hands of

consumers.

even when there are only a few firms in a market, the market can still be competitive as long as barriers to entry are low. markets of this type are called

contestable markets

In 2010 the federal government reduced the Social Security tax withholding rate from 12.4 percent (6.2 percent on both the employer and employee) to 8.4 percent (4.2 percent on both the employer and employee) on the wages of all workers. If the supply of labor is relatively inelastic when compared to the elasticity of the demand for labor, the burden of this tax will

continue to fall primarily on employees.

Fixed costs are best defined as

costs that do not vary with output.

For a typical product, a decrease in consumer income will cause the market demand for the product to

decrease, which is a shift to the left of the demand curve.

From the standpoint of society as a whole, rent seeking is

counterproductive because it takes resources away from the creation of wealth in the private sector.

the fact that barriers to entry are low in competitive price-searcher markets means that if current firms are making economic losses,

current firms will exit the market, causing the demand curves that face the remaining firms to increase

Predatory pricing occurs when a firm

cuts its prices temporarily in order to drive out any competition

A decrease in aggregate demand and the subsequent cutbacks in production lead to

cyclical unemployment.

CHAPTER 8 The natural rate of unemployment occurs if there is no

cyclical unemployment.

(I) Countries with high rates of investment also tend to have high rates of growth. (II) A country with a high rate of investment but a poorly functioning capital market will tend to have a lower rate of growth than a country with a comparable rate of investment but a capital market that functions well.

d. Both I and II are true

If a profit-maximizing firm hires an additional unit of labor, what must be true about labor's wage and marginal revenue product?

d. Its wage is always less than or equal to its marginal revenue product

Why do airlines often charge students and vacationers a lower price than business travelers? Select one: a. It is cheaper to provide airline service to students and vacationers than to business travelers. b. The demand of business travelers is generally more elastic than the demand of students and vacationers. c. Airlines prefer to deal with students and vacationers rather than business travelers. d. The demand of students and vacationers is generally more elastic than the demand of business travelers.

d. The demand of students and vacationers is generally more elastic than the demand of business travelers.

How will the price and output of an unregulated monopolist compare with the ideal levels that might be reached if the market was competitive? Select one: a. The output of the monopolist will be larger and the price lower. b. The output of the monopolist will be larger and the price higher. c. The output of the monopolist will be smaller and the price lower. d. The output of the monopolist will be smaller and the price higher.

d. The output of the monopolist will be smaller and the price higher.

Which of the following statements is correct?

d. The present value of a fixed dollar payment to be received in the future will decline as the length of the time before the payment will be received increases

Which of the following is the best example of "creative destruction"? Select one: a. The imprudent use of a credit card by a family that already has a high level of debt. b. The failure of a business because of higher cost resulting from government regulation. c. The failure of a business because of poor management. d. The virtual elimination of the film camera by the digital camera.

d. The virtual elimination of the film camera by the digital camera

If large numbers of young Americans thought the life of a cowhand was great (despite the hardships), we would expect

d. a decrease in the wages of cowhands because supply would be enlarged.

Economists refer to consumers' desire for goods now rather than in the future as

d. a positive rate of time preference

In some industries where firms experience declining average total costs over the full range of output that consumers are willing to buy, Select one: a. a single large firm will develop, and it will buy out any smaller rival firms to avoid the small firms' production at a lower per-unit cost. b. a smaller firm will always have lower per-unit costs. c. many firms will tend to emerge from the competitive process. d. a single large firm will develop, and it will have cost advantages that protect it from potential rivals.

d. a single large firm will develop, and it will have cost advantages that protect it from potential rivals.

Antitrust action restructures a previously monopolized industry into a competitive industry. If economies of scale are unimportant in the industry, the expected result of this movement from monopoly to competition is Select one: a. a reduction in both price and output in the industry. b. an increase in both price and output in the industry. c. a reduction in output and an increase in price in the industry. d. an increase in output and a reduction in price in the industry.

d. an increase in output and a reduction in price in the industry.

A monopolist will earn economic profits as long as his price exceeds Select one: a. marginal revenue. b. average fixed cost. c. average variable cost. d. average total cost.

d. average total cost.

Because of the rise of global competition and free trade, Select one: a. U.S. industrial concentration poses more of a threat to consumers. b. U.S. markets are becoming less competitive. c. U.S. manufacturers are seeking fewer trade barriers. d. antitrust policy may be less necessary than previously thought.

d. antitrust policy may be less necessary than previously thought.

A firm that uses price discrimination to enhance its net revenues will Select one: a. charge a higher price to consumers with a more elastic demand for the firm's product. b. expand output as long as price exceeds average total costs. c. expand output as long as average total costs are declining. d. charge a lower price to consumers with a more elastic demand for the firm's product.

d. charge a lower price to consumers with a more elastic demand for the firm's product.

A profit-maximizing farmer will apply additional units of fertilizer until the marginal revenue product (MRP) of fertilizer is half the MRP of skilled labor when a unit of fertilizer

d. costs half as much as a unit of skilled labor.

A decrease in the demand for a product will cause output of that product to

d. decrease and both the demand for and prices of the resources used to produce the product to fall.

Because the demand for a resource is highly dependent upon the demand for the final goods that the resource helps produce, the demand for a resource is called a(n)

d. derived demand.

A monopoly is most likely to emerge in a market when Select one: a. the price elasticity of demand for the product is high. b. the producers in the market have U-shaped average total cost curves. c. the cost of entry and exit into the market is low. d. economies of scale are large relative to market demand.

d. economies of scale are large relative to market demand.

During an extended inflationary period, the money rate of interest will usually be

d. greater than the real rate of interest.

An oligopolistic market Select one: a. is characterized by firms that merely take the price that is determined by the forces of supply and demand in the market. b. has a large number of firms that are small relative to the size of the market. c. has low entry barriers facing firms that may be interested in entering the market. d. has a small number of rival firms, and each is large relative to the size of the market.

d. has a small number of rival firms, and each is large relative to the size of the market.

A company that mines coal on federally owned land is about to be told by the federal government that, beginning in five years, it must abandon the mine it expected to operate for another twenty years. This will mean a reduction in accounting profits beginning in five years. If the announcement of this ruling was made tomorrow, the price of the firm's stock would fall

d. immediately by the full amount of the discounted value of the decrease in future profit.

A contestable market is a market Select one: a. characterized by high profitability and government regulation. b. characterized by a large number of firms; in essence, the term means the same thing as pure competition. c. that is highly contested by two, and only two, rival firms. d. in which the costs of entry and exit are low.

d. in which the costs of entry and exit are low

Economists refer to expenditures on training, education, and skill development designed to increase the productivity of an individual as

d. investments in human capital.

The pure interest yield

d. is the real price one must pay for earlier availability.

Which of the following is the best definition of "physical capital"?

d. man-made resources used to produce other goods

A price-searcher firm will expand output and sales until Select one: a. marginal revenue rises to equal the falling marginal cost. b. marginal revenue falls below marginal cost. c. marginal cost rises above marginal revenue. d. marginal revenue falls to equal the rising marginal cost.

d. marginal revenue falls to equal the rising marginal cost.

If Michael has a positive rate of time preference, he will

d. prefer to have goods now rather than two years from now.

In long-run equilibrium, output is expanded to the minimum long-run average total cost by Select one: a. neither price takers nor competitive price searchers. b. competitive price searchers but not by price takers. c. both competitive price searchers and price takers. d. price takers but not by competitive price searchers.

d. price takers but not by competitive price searchers.

As the price of a resource decreases,

d. producers are more willing and able to hire that resource.

If we want to produce more capital goods during the present time period, we must

d. reduce current consumption.

If marginal cost exceeds marginal revenue, a profit-maximizing firm should Select one: a. expand output until marginal cost equals marginal revenue. b. reduce output until price equals average total cost. c. expand output until marginal revenue equals price. d. reduce output until marginal cost equals marginal revenue.

d. reduce output until marginal cost equals marginal revenue.

When the price of a resource goes up and firms seek other suitable resources, this is called the

d. substitution in production effect.

Which of the following is the most accurate definition of a worker's "marginal revenue product"?

d. the change in the firm's total revenue as the result of hiring an additional worker

A firm that is a "pure monopoly" is Select one: a. the producer of a product subsidized by the government. b. a seller of a highly advertised and differentiated product in a market with low barriers to entry in the long run. c. the only buyer of a unique raw material. d. the only seller of a good for which there are no good substitutes in a market with high barriers to entry.

d. the only seller of a good for which there are no good substitutes in a market with high barriers to entry.

For effective price discrimination to occur, a seller must a. be a pure monopolist. b. have large economies of scale and control over a key natural resource. c. face a horizontal demand curve for its product. d. be able to prevent consumers from reselling the product to other consumers.

d. be able to prevent consumers from reselling the product to other consumers.

A competitive market economy with low barriers to entry faces an entrepreneur with Select one: a. an environment that shields each currently successful producer from changing market conditions. b. a static business environment. c. little opportunity for wealth creation. d. the opportunity to bring new and different products and services to the market.

d. the opportunity to bring new and different products and services to the market.

Most of the income of Americans comes from

d. the ownership of human capital.

Compensation where the top performer receives much higher rewards than other competitors, even if the others perform at only slightly lower levels, is called

d. tournament pay.

If a college education did not increase worker productivity,

d. wages would tend to be the same for workers with and without a college education.

If coal and oil are substitute inputs in the production of electricity, an increase in the price of oil

d. will increase the demand for coal

Which of the following is a right granted to an individual to market a company's goods or services or use their brand name? a. A patent b. An import quota c. A tariff d. A franchise

d. A franchise

Which of the following is true of information? a. It is scarce. b. It is expensive for repeat-purchase items. c. The market does not provide consumers with a strong incentive to acquire information. d. Acquiring more of it is always rational.

d. Acquiring more of it is always rational. or a. It is scarce

Suppose demand decreases and supply increases. Which of the following will happen? a. Equilibrium price will rise, fall, or stay the same while equilibrium quantity will decrease. b Equilibrium price will rise, fall, or stay the same while equilibrium quantity will increase. c. Equilibrium quantity will rise, fall, or stay the same and equilibrium price will increase. d. Equilibrium quantity will rise, fall, or stay the same while equilibrium price will decrease. e. The change in equilibrium price and quantity cannot be determined.

d. Equilibrium quantity will rise, fall, or stay the same while equilibrium price will decrease.

Which one of the following statements is correct?

d. Government programs can be implemented with good intentions but can lead to undesirable outcomes because of unintended consequences.

Which of the following describes the importance of the legal structure in a market system? a. It helps in eliminating the market forces. b. It regulates the prices of goods sold in the market. c. It keeps a check on the quality of the goods sold. d. It helps in the enforcement of contracts between buyers and sellers.

d. It helps in the enforcement of contracts between buyers and sellers.

Which of the following must be true if average total costs are rising? a. Average fixed costs must be rising. b. Total fixed costs must be rising. c. Average variable costs must be falling. d. Marginal costs must be greater than average total costs.

d. Marginal costs must be greater than average total costs

How would a decrease in the cost of production affect the market for video games? a. Supply would decrease, leading to an increase in price and a reduction in quantity sold. b. Supply would decrease, leading to a reduction in price and a reduction in quantity sold. c. Supply would increase, leading to an increase in price and an increase in quantity sold. d. Supply would increase, leading to a reduction in price and an increase in quantity sold.

d. Supply would increase, leading to a reduction in price and an increase in quantity sold.

Which of the following is true of a plant whose rate of output is small relative to its capacity? a. It is subject to overutilization. b. Its marginal cost of production is low. c. Its average total cost of production is Iow. d. Its average fixed cost is high.

d. The average fixed cost is high.

Which of the following is most likely to be true when the output produced by a firm increases in the short run? a. The marginal cost of the firm does not change. b. The total variable cost of the firm decreases. c. The total fixed cost of the firm increases. d. The average fixed cost of the firm decreases.

d. The average fixed cost of the firm decreases. (AFC always decreases with increased output!)

Which of the following is most likely to be true when marginal cost is less than average total cost? a. The average total cost curve must be increasing. b. The average total cost curve must be at its maximum. c. The average total cost curve must be at its minimum. d. The average total cost curve must be decreasing.

d. The average total cost curve must be decreasing.

Suppose Bufton Corporation invests $1 million in buying new machinery and employs 100 low-skilled workers who receive a minimum wage of $7 per hour. Suppose 5 percent is the annual interest rate prevailing in the economy and all the employees work for 40 hours a week. Identify the correct statement about the corporation. a. The explicit cost of the corporation is $50,000 per week. b. The implicit cost of the corporation is $2,500 per year. c. The implicit cost of the corporation is $15,000 per year. d. The explicit cost of the corporation is $28,000 per week.

d. The explicit cost of the corporation is $28,000 per week.

Which of the following would most likely increase the demand for televisions? a. a decrease in the price of televisions b. a decline in consumer income c. a decrease in the price of home stereo systems, a substitute for televisions d. a decrease in the price of DVD players, a product that is complementary with televisions

d. a decrease in the price of DVD players, a product that is complementary with televisions

Trade creates value by a. moving goods from people who value the goods less to people who value the goods more. b. permitting trading partners to expand output through specialization in areas where they each have a comparative advantage. c. permitting trading partners to expand output through the adoption of mass production methods. d. all of the above

d. all of the above

If a firm increases its output and finds that its average total cost decreases as a result, this implies that a. marginal cost exceeds average total cost. b. the cost of producing an additional unit of output is more than the average total cost. c. average fixed cost is increasing. d. average total cost exceeds marginal cost.

d. average total cost exceeds marginal cost.

Suppose apples and oranges yield the same amount of benefit for a consumer. The price of one pound of apples is $2, while the price of a pound of oranges is $3. If the consumer chooses apples over oranges, the choice of the consumer is based on the principle that: a. marginal utility diminishes as more of a good is consumed. b. consumers cannot make decisions without perfect information. c. the higher-priced good yields a lower marginal utility. d. consumers weigh the costs of alternative choices before making a decision.

d. consumers weigh the costs of alternative choices before making a decision.

An industry is said to be a natural monopoly when Select one: a. legal barriers limit entry into the market. b. diseconomies of scale are present in the market. c. the market demand for the product supplied by a firm is inelastic. d. long-run ATC continues to decline as firm size increases. e. larger firms have higher per-unit costs than their smaller rivals.

d. long-run ATC continues to decline as firm size increases

Excess burden of taxation reflects: a. gains to both buyers and sellers. b. tax revenue received from buyers. c. tax revenue derived from sellers. d. losses to both buyers and sellers.

d. losses to both buyers and sellers.

A demand curve for flowers would show the a. number of flowers the floral shop is willing to sell at various prices. b. number of people who need flowers. c. quantity of people who want to buy these flowers. d. number of flowers that will be purchased at various prices.

d. number of flowers that will be purchased at various prices

Which of the following would most likely increase the price of automobiles? a. a decrease in the price of steel used to produce automobiles b. an increase in the price of gasoline c. a decrease in consumer income d. the United Auto Workers union obtaining a substantial wage increase for auto workers

d. the United Auto Workers union obtaining a substantial wage increase for auto workers

The additional tax liability a person faces divided by his or her additional taxable income is known as: a. the average tax rate. b. the progressive tax rate. c. the proportional tax rate. d. the marginal tax rate.

d. the marginal tax rate

Tax revenue equals: a. the sum total of the different tax rates. b. the tax base divided by the tax rate. c. the difference between the tax base and the tax rate. d. the tax base multiplied by the tax rate.

d. the tax base multiplied by the tax rate.

Other things the same, the wages in an occupation are likely to be higher the more

dangerous the job.

A hurricane has just torn across Florida, doing a lot of damage in Tallahassee and knocking out power. As a result, the demand for generators rises, driving up the price. People selling generators at these high prices are accused of "price gouging" and exploiting a natural disaster for profit. The legislature in Tallahassee votes to impose a $200 price ceiling on generators. Assuming that this is a binding price ceiling, the result will be...

deadweight loss and a shortage of generators.

As new firms enter a competitive price-searcher market, profits of existing firms

decline and product diversity in the market increases

cecilia's cafe is in a competitive price-searcher market. cecilia's is currently producing where average total cost is at its minimum, and cecilia's is earning a positive economic profit. in the long run we would expect cecilia's putput to

decrease and average total cost to be higher

Violet's Café is in a competitive price-searcher market. Violet's is currently producing where average total cost is at its minimum, and Violet's is earning a positive economic profit. In the long run we would expect Violet's output to

decrease and average total cost to be higher.

If policy makers believe that an inflationary boom is about to begin, the Keynesian view indicates that they should

decrease government spending and/or raise taxes.

If Mr. Smith thinks the last dollar spent on shirts yields more satisfaction than the last dollar spent on cola, and Smith is a utility-maximizing consumer, he should

decrease his spending on cola.

A price floor that sets the price of a good above market equilibrium will cause

decrease in quantity demanded of the good, decrease in the quantity supplied of the good, a surplus of the good

The exit of existing firms from a competitive market will

decrease market supply and increase market prices.

Automated production methods are only attractive when they

decrease per-unit costs of production.

If the Fed wanted to expand the money supply as part of an antirecession strategy, it could

decrease the interest rate paid on excess reserves encouraging banks to extend more loans.

Corn and soybeans are alternatives that could be grown by most farmers. If government subsidies for ethanol lead to higher corn prices, this will

decrease the supply of soybeans.

If government taxes a firm which pollutes this will

decrease the supply of the good produced.

When demand for a product decreases, what happens to the demand for the resources that make that product?

decreases

If the Fed unexpectedly decreases the money supply, real GDP

decreases because the resulting increase in the interest rate leads to a decrease in investment.

Even countries that depend primarily on market forces to resolve the basic economic questions will usually rely on the collective decision-making process to

define and enforce private-property rights and designate the acceptable forms of competitive economic behavior.

What do economists mean when they say the demand for a product has increased?

demand curve has shifted to the right.

When economists say the demand for a product has increased, they mean the

demand curve has shifted to the right.

Last year, 1,000 cases of bottled water were sold at $5; this year, 1,200 cases were sold at $7. These data could most easily be explained by the

demand curve shifting to the right, with no change in supply.

An increase in the demand for a product will cause the

demand for and prices of the resources used to produce the product to increase.

The benefit of a subsidy will go primarily to sellers when the

demand for the product is highly elastic and the supply is relatively inelastic.

The burden of a tax will fall primarily on sellers when the

demand for the product is highly elastic and the supply is relatively inelastic.

The burden of a tax will fall primarily on buyers when the

demand for the product is highly inelastic and the supply is relatively elastic.

The demand for a factor of production depends largely on the

demand for the products that it helps to produce.

If there is employment discrimination against minorities, this will cause the

demand for their services to decline, and their wages to fall.

Assume that the demand for paper products increases. Then, we expect that the

demand for trees will also increase.

When the elasticity coefficient is greater than 1,

demand is elastic

If a 10 percent rise in price leads to a reduction in quantity demanded of more than 10 percent,

demand is elastic.

When the elasticity coefficient is less than 1,

demand is inelastic

Suppose that a tax is placed on a particular good. If the buyers end up bearing most of the tax burden, this indicates that the

demand is more inelastic than the supply.

Suppose that a tax is placed on textbooks. If the buyers end up bearing most of the tax burden, this indicates that the:

demand is more inelastic than the supply.

When the elasticity coefficient is equal to 1,

demand is unitarily elastic (horizontal)

The value of a good

depends on many factors, including who uses it and under what circumstances.

Since the demand for a resource depends on the demand for goods that the resource helps produce, the demand for each resource is a

derived demand

When property rights are clearly defined and enforced, private owners will

develop and direct their property toward uses that others value highly because the market will generally reward them for doing so.

The fact that wage differentials continue to exist across different groups of workers leads economists to believe that

differences in human capital and job characteristics must be important in explaining the differences in wages. Correct

When earnings differentials are adjusted for such factors as age, education, and marital status, the

differential between the earnings of white males and those of minority males decreases.

The prisoners' dilemma provides insights into the

difficulty of maintaining cooperation

The competitive market process tends to promote economic prosperity because it

directs self-interested action toward the production of goods that are highly valued relative to their cost.

Expansionary fiscal policy during a recession is most effective when it

directs the economy to full employment and resources into productive projects.

Supply-side economics stresses that high marginal tax rates

discourage people from working harder and using their resources productively.

Changes in government spending and/or taxes as the result of legislation, is called

discretionary fiscal policy.

In the long run, a firm might experience rising average total costs due to

diseconomies of scale.

When policymakers impose price controls, they

distort the signals that normally guide the allocation of resources.

The percentage change in the price of a good is calculated by:

dividing the absolute change in the price of the good by the average price of the good and then multiplying it by 100.

If you deposit $100 of cash into a checking account at a bank, this action by itself

does not change the money supply.

Compared to the no-trade situation, when a country imports a good, which of the following will occur?

domestic consumers gain, domestic producers lose, and the gains outweigh the losses.

The cost curves shift ________ when production becomes less expensive which causes the supply curve to shift _________.

down, right

When new firms have an incentive to enter a competitive price-taker market, their entry will

drive down profits of existing firms in the market.

Why does the MC curve increase?

due to decreasing marginal returns

A decrease in the marginal product of labor would be represented by

e. decrease in labor demand.

Which of the following describes a situation in which demand must be elastic? a. The price of dish soap rises by $0.10, and quantity of dish soap demanded falls by 50 units. b. The price of dish soap rises by $0.10, and total revenue rises. c. A 20 percent increase in the price of dish soap leads to a 20 percent decrease in the quantity of dish soap demanded. d. Total revenue does not change when the price of dish soap rises. e. Total revenue decreases when the price of dish soap rises.

e. Total revenue decreases when the price of dish soap rises.

If consumer tastes are changing more in favor of the consumption of a particular good the a. market demand curve will shift to the left. b. consumer will move up a given demand curve, decreasing the quantity demanded. c. consumer would move down a given demand curve, decreasing the quantity demanded. d. consumer would move down a given demand curve, increasing the quantity demanded. e. market demand curve would shift to the right.

e. market demand curve would shift to the right.

An agreement between two duopolists to function as a monopolist usually breaks down because

each duopolist wants a larger share of the market in order to capture more profit

Suppose that competitive price-searcher firms are earning positive profits. In the transition from this initial situation to a long-run equilibrium,

each existing firm experiences a decrease in demand for its product.

When total revenue minus total economic cost is greater than zero, the firm is

earning higher than normal profits.

When total revenue minus total economic cost is equal to zero, the firm is

earning the normal profit rate.

The difference between a firm's total revenues and total costs when all explicit and implicit costs are included is the firm's

economic profit.

Which of the following is most likely to be true of economic and accounting profits?

economic profits are less than accounting profits.

economic analysis suggest that in a competitive market economy, when an entrepreneur has made a large profit,

economic progress for society as a whole has normally been enhanced

Economic analysis suggest that in a competitive market economy, when an entrepreneur has made a large profit,

economic progress for society as a whole has normally been enhanced.

When an entrepreneur has made a large profit in a competitive market, which of the following is true?

economic progress for society as a whole has normally been enhanced.

Reductions in the firm's per-unit costs associated with the use of large plants to produce a large volume of output.

economies of scale

Which of the following is most likely to contribute to the presence of monopoly in an industry?

economies of scale

A monopoly is most likely to emerge in a market when

economies of scale are large relative to market demand

A downward-sloping portion of a long-run average total cost curve is the result of

economies of scale.

If a firm doubles all of its inputs and its output triples, it is said to be experiencing

economies of scale.

What causes the downward-sloping portion of a long-run average total cost curve?

economies of scale.

Provide an example of a positive externality

education - being able to educate other people

A point on the production possibilities curve represents a combination of goods that is

efficient

A point on the production possibilities curve represents a combination of goods that is

efficient.

If nominal GDP rises from one year to the next, then

either output, or the general level of prices, or both must be rising.

Rebel Records announces it is cutting the prices of its bluegrass album titles by 25 percent. If Rebel is seeking to increase revenues, it must believe that the elasticity of demand for bluegrass albums is

elastic

Suppose Microsoft announces it is cutting the prices of some of its software titles (mainly games) by 25 percent. Assuming that Microsoft is seeking to increase revenues, it must believe that the elasticity of demand for these products is

elastic

If a Pizza Hut restaurant near campus reduces its pizza prices by 15 percent, and as a result, its total revenue from pizza sales increases, this indicates that the price elasticity of demand was

elastic.

If a Subway restaurant near campus reduces its sandwich prices by 15 percent, and as a result, its total revenue from sandwich sales increases, this indicates that the price elasticity of demand was

elastic.

If the price of tickets to Disney World increases 10 percent, and as a result, attendance falls by 15 percent, the demand for the tickets is

elastic.

Rebel Records announces it is cutting the prices of its bluegrass album titles by 25 percent. If Rebel is seeking to increase revenues, it must believe that the elasticity of demand for bluegrass albums is

elastic.

The political incentive structure tends to

encourage budget deficits during both recessions and expansions.

In a market economy, profits

encourage productive projects and losses weed out unproductive ones

"Market power" is an expression used to indicate that a firm has

enough market share to be somewhat insulated from competition.

the marginal revenue of a price taker is

equal to price

The marginal revenue product of a resource

equals the extra output produced by an additional unit of the resource multiplied by the marginal revenue per unit of that output.

In the short run, a price searcher wishing to maximize profits or minimize losses should produce the output that

equates marginal cost with marginal revenue.

When the quantity demanded and quantity supplied in a market are equal, the market is said to be in

equilibrium

When the quantity demanded and quantity supplied in a market are equal, the market is said to be in

equilibrium.

When an economist says "nothing is free", the economist means that...

every time you decide to do one thing, you give up the opportunity to do something else.

An income tax is proportional if

everyone pays the same percentage of their income in the form of income taxes.

The traditional view of competitive price-searcher markets holds that this type of market structure is inefficient because

excessive advertising is encouraged.

Compared to a permanent reduction in tax rates, a temporary tax cut will generally

exert a smaller impact on output and employment because the temporary cut will not exert much impact on long-term income or the incentive to earn.

When new firms enter a competitive price-taker market,

existing firms may see their costs rise as more firms compete for limited resources.

If Trevon voluntarily quits one job, possesses marketable skills, and expects to find a new job in a few weeks, then Trevon is considered

frictionally unemployed.

The spillover effects of actions that affect the well-being of nonconsenting third parties are called

externalities

The term price searcher applies to all firms that

face a downward-sloping demand curve.

Suppose your current ATC is $800. Your marginal cost for one more unit of output is $650. Your new ATC will (rise / fall).

fall

The market for exchanging dollars for Swiss francs for U.S. dollars is in equilibrium. The supply of francs rises, and the demand for francs falls. As a result, the exchange rate of dollars for francs will...

fall

When demand is elastic and price rises, total revenue will ________.

fall

When demand is inelastic and price falls, total revenue will ________.

fall

Given the strict quantity theory of money, if the quantity of money were decreased by 50 percent, prices would

fall by 50 percent.

The actual burden of a tax

falls most heavily on the side of the market that is more inelastic.

Long-run economies of scale exist when the long-run average cost curve

falls.

If a college enforces a new policy where anyone caught cheating is immediately expelled, the basic postulate of economics suggests that

fewer students will attempt to cheat.

Some economists argue that competitive price-searcher markets are ineffective because

firms do not produce the output rate that would minimize their average total costs

Some economists argue that competitive price-searcher markets are inefficient because

firms do not produce the output rate that would minimize their average total costs.

Why do some economists argue that competitive price-searcher markets are inefficient?

firms do not produce the output rate that would minimize their average total costs.

It is difficult to predict the behavior of oligopolistic firms because

firms in oligopolistic industries react to each other's behavior in many ways

Competitive price-taker markets are characterized by

firms that all produce the same product.

Costs that a firm remaining in business will still incur even if it halts current production are called

fixed costs

Costs that a firm remaining in business will still incur even if it halts current production are called

fixed costs.

If the government wants to raise tax revenue and shift most of the tax burden to the sellers it would impose a tax on a good with a:

flat (elastic) demand curve and a steep (inelastic) supply curve.

If people buy less flowers at every price when their incomes fall, then

flowers are a normal good.

People who receive the benefit of a good without contributing to its costs of production are called

free riders

The government sometimes provides public goods because

free-riders make it difficult for private markets to supply the efficient quantity.

Sharon was being treated unfairly by her boss, so she stormed off the job and two days later found another position. For two days, Sharon experienced

frictional unemployment.

When firms are faced with making strategic choices in order to maximize profit, economists typically use

game theory to model their behavior

Monetary and price instability will

generate uncertainty, and encourage investors and businesses to move their activities to countries with a more stable monetary environment.

Public choice analysis suggests that the primary motivating factor for politicians will be finding the policies that are most likely to

get them reelected.

The more elastic the supply of a product, the more likely that the actual benefit of a subsidy granted of the product will:

go to buyers.

The more inelastic the demand for a product, the more likely that the actual benefit of a subsidy granted on the product will:

go to buyers.

During a recession, the actual rate of unemployment will be

greater than the natural rate of unemployment.

When a market has a negative externality, is the actual market quantity greater than or less than the efficient quantity? Why?

greater than, because firms what to maximize profits

a price-discriminating firm charges the lowest price to the group that

has the most elastic demand

A price-discriminating firm charges the lowest price to the group that

has the most elastic demand.

If a nation is going to achieve and sustain a high rate of economic growth, it must

have a mechanism capable of attracting savings and channeling them into wealth-creating projects.

In a competitive price-taker market, the actions of any single buyer or seller will

have a negligible impact on the market price.

In order for effective price discrimination to occur, a seller must

have at least two distinguishable groups of consumers.

Discouraged workers are workers who...

have given up looking for work because they believe there are no good jobs for them.

The theory of comparative advantage suggests that nations should produce a good if they

have the lowest opportunity cost.

Which of the following goods or services is most likely to have elastic demand?

ice cream

Suppose a professor gives up her teaching job to devote her time to writing textbooks. If salaries of professors rise,

her economic profit from textbooks will fall.

Monopolists may be able to earn profit, even in the long run, as the result of

high barriers to entry.

Printerstan decides to pay for a budget shortfall by printing money. The most likely outcome of this is...

higher inflation

According to the crowding-out effect, expansionary fiscal policy will lead to

higher interest rates, an appreciated dollar, and reduced net exports.

When an expansionary monetary policy leads to an acceleration in the rate of inflation, it will also result in

higher nominal interest rates.

Which of the following will most likely be an unanticipated economic change?

higher oil prices resulting from a revolution in an oil-exporting country

In the aggregate demand-aggregate supply model, the short-run effects of an unanticipated decrease in the money supply will be

higher real interest rates and a reduction in aggregate demand.

During 1960-1980, those with the highest incomes confronted federal marginal tax rates between 70 and 90 percent. Since 1986, the highest federal income tax rate has been less than 40 percent. Since 1986, the share of the personal income tax collected from the top one-half of one percent of earners has been

higher than during the 1960s and 1970s.

Compared to those with less economic freedom, countries with more economic freedom generally have ____ per capita GDP levels and ____ growth rates.

higher; more rapid

The opportunity cost of building a park in your hometown would be the

highest valued bundle of other goods and services that must be forgone because of the park construction.

The marginal productivity principle says that a profit-maximizing firm should

hire labor until another worker costs more to hire than he can earn for the firm.

Assume that skilled labor costs twice as much as unskilled labor, a profit-maximizing firm will

hire until the marginal product of unskilled labor is one-half that of skilled labor.

sunk costs

historical costs (irreversable costs already incurred)

What shape is the elastic demand curve?

horizontal

EXAM 2 A positive nominal interest rate indicates

how fast the number of dollars in your savings account is rising over time.

example of a sunk cost

how much you paid for something you are trying to sell

In general, game theory is the study of

how people behave in strategic situations

The major determinant of your income is

how productive you are combined with demand for what you produce.

The three major categories of resources are

human resources, physical resources, and natural resources.

Think of a business you're familiar with. What inputs or resources would be fixed in the short run for that firm?

if Apple hired 200 additional workers or ordered more raw materials

The production possibilities curve illustrates the basic principle that

if all the resources of an economy are being used efficiently, more of one good can be produced only if less of another good is produced.

new firms will enter the market and the current firms will experience a decrease in demand for their products

if firms in a competitive price searcher market are currently experiencing economic profits, then over time

The fallacy of composition is the incorrect view that

if something is true for an individual, then it must also be true for the group.

Which of the following is the opportunity cost associated with the use of resources owned by a firm?

implicit costs

those associated with the use of resources owned by the firm.

implicit costs

The opportunity costs associated with the use of resources owned by a firm are usually

implicit costs.

A contestable market is a market

in which the costs of entry and exit are low.

That part of an increase (decrease) in amount consumed that is the result of the consumer's real income being expanded (contracted) by a reduction (rise) in the price of a good.

income effect

Which of the following will limit the money creation process to an amount less than the potential amount?

increase in currency holdings by the public

Why does the producer receive most of the benefit from a subsidy when supply is inelastic relative to demand?

increase in demand will lead to higher prices with less higher output

Why does the consumer receive most of the benefit from a subsidy when demand is inelastic relative to supply?

increase in demand will only lead to a small increase in price & a larger output subsidy granted to buyers, demand curve shifts upwards

A profit-maximizing monopolist that produces in the short run will

increase output as long as the marginal revenue exceeds the marginal cost of producing that unit

if a firm competing in a price-taker market seeks to maximize profit, the firm should

increase output whenever price exceeds marginal cost

If a price searcher is producing at a level of output such that its marginal cost is $16 and its marginal revenue is $9, what should the firm do to increase profits?

increase price and reduce its rate of output.

In Miami, tickets for professional and college football games are substitutes. An increase in the ticket price for professional football, other things being equal, will

increase the demand for college football tickets.

An increase in the number of students attending college would tend to

increase the demand for college professors,increase the number of college professors employed,increase wages of college professors.

Other things constant, an increase in the demand for motorcycles will:

increase the demand for motorcycle workers and increase their wages.

If the Fed wanted to shift to a restrictive monetary policy and reduce the money supply, it could

increase the interest rate paid on excess reserves encouraging banks to hold excess reserves rather than extend more loans.

A tax on the buyers of coffee will

increase the price of coffee paid by buyers, decrease the net price of coffee received by sellers, and decrease the equilibrium quantity of coffee.

A tax on the buyers of sugar will

increase the price of sugar paid by buyers, decrease the net price of sugar received by sellers, and decrease the equilibrium quantity of sugar.

A decrease in the price of a good would

increase the quantity demanded for the good.

A new law requiring plumbers to pass strict certification tests that reduce the number of plumbers would

increase the wage rate of plumbers.

The strategy underlying price discrimination is to

increase total revenue by charging higher prices to those with the most inelastic demand for the product and lower prices to those with the most elastic demand.

A recent study on enrollment at a liberal arts college concluded that demand elasticity is 0.91. The administration is considering a tuition increase to help balance the budget. The revenue-maximizing decision is to:

increase tuition, which would generate more revenue.

If the number of consumers in a market increases, the market demand curve will

increase, which is a shift to the right of the demand curve.

Open-market purchases by the Fed make the money supply

increase, which tends to decrease the value of money.

If the demand for a consumer good increases, the demand for resources required to make the good will

increase.

The supply curve of truck drivers is upward sloping and demand curve is downward sloping. A reduction in the price of hauling freight by truck relative to the price of hauling freight by rail will ____ the equilibrium wage of truck drivers and ____ the number of drivers employed.

increase; increase

When demand for a product increases, what happens to the demand for the resources that make that product?

increases

If the demand for a good is elastic, then total revenue

increases as price decreases.

The government is pursuing an expansionary fiscal policy if it

increases government spending and/or reduces taxes.

Tom loses his job and immediately begins looking for another. Other things the same, the unemployment rate

increases, and the labor-force participation rate is unaffected.

The expansionary phase of the business cycle is characterized by

increasing real output and declining unemployment.

when a firm in a competitive market is earning profits, this indicates that the firm is

increasing the value of resources

One way to invest in human capital is by

increasing your education.

monopolists may create an entry barrier when confronted with a new entrant into the industry by

incurring advertising costs, reducing product price, raising resource prices

According to the law of comparative advantage,

individuals and nations gain when they specialize in producing those items for which they are the low opportunity cost producers and exchange for other desired goods they can't produce as cheaply.

The law of comparative advantage applies to exchange between

individuals, regions and nations

In Figure 2-1, point A is

inefficient

If a Pizza Hut restaurant near campus increases its prices by 10 percent, and as a result, its sales revenue increases by 3 percent, the price elasticity of demand for the services offered by the restaurant must be

inelastic

benefits of a subsidy will ALWAYS shift towards the more (elastic/inelastic) side of the market regardless of if granted to sellers or buyers

inelastic

The demand for salt is

inelastic because there are few substitutes for salt and it represents a small percentage of a consumer's budget.

If the board of regents of a major state university system plans to raise tuition in order to increase revenues, the regents must believe student demand is

inelastic.

Suppose a city that operates local electric and natural gas companies wants to raise revenues by increasing its rates for electricity and natural gas. The price rise will increase city revenues if the elasticity of demand for electricity and natural gas is:

inelastic.

In the long run, the primary effect of rapid monetary growth is

inflation.

Keynesian economists believed that the prolonged unemployment of the 1930s was the result of

insufficient aggregate demand and the failure of market forces to direct the economy back to full employment.

The difficulty in analyzing oligopolistic behavior arises from the

interdependent nature of oligopolistic decisions.

With respect to the average cost curves, the marginal cost curve

intersects both average total cost and average variable cost at their minimum points.

The law of demand refers to the

inverse relationship between the price of a good and the willingness of consumers to buy it.

Which of the following would be most likely to cause the per capita income of less- developed countries to rise?

investment expenditures that enhance the human capital of labor force participants

If a $50 subsidy is legally (statutorily) granted to the sellers of weed eaters and as a result the price of weed eaters to consumers falls by $30, the actual benefit of the subsidy

is $30 to buyers and $20 to sellers.

If a $5,000 tax is placed legally (statutorily) on the sellers of new automobiles and as a result the price of automobiles to consumers rises by $4,000, then the actual burden of the tax:

is $4,000 on automobile buyers and $1,000 on sellers.

If a $80 subsidy is statutorily granted to the sellers of bicycles and as a result the price of bicycles to consumers falls by $50, the actual benefit of the subsidy

is $50 to buyers and $30 to sellers.

The law of comparative advantage implies that a nation, individual, or region should trade for those economic goods for which it

is a high opportunity cost producer.

The law of comparative advantage implies that a nation, individual, or region should produce those economic goods for which it

is a low opportunity cost producer.

Economic theory

is all of the above.

A good is considered to be a public good if it

is both nonrival-in-consumption and nonexcludable.

When an economist states that a firm is earning zero economic profit, this statement implies that the firm

is doing as well as it could in any other line of business.

When an economist says a firm is earning zero economic profit, this implies that the firm

is earning as high a rate of return now as could be earned in other industries.

When members of an oligopolistic industry agree to collude, raising their product price substantially above average cost, the passage of months and years

is likely to erode the agreement, as ways to cheat are developed by some participants and new entry is encouraged by the high price.

When members of an oligopolistic industry agree to collude, raising their product price substantially above average cost, the passage of time (months and years)

is likely to erode the agreement, as ways to cheat are developed by some participants and new entry is encouraged by the high price.

when a tax is imposed on a good, the actual incidence of the tax generally

is shared between the buyer and seller.

A production possibilities curve graphically represents the maximum quantities of two products produced when all resources in the economy are efficiently utilized. An economy that operates inside this production possibilities curve

is using its resources inefficiently.

If a firm enlarges its factory size and realizes higher average costs of production then

it has experienced diseconomies of scale.

a competitive price-taker firm would be willing to remain in the industry in the long run at zero economic profit because

it is covering all costs, including the opportunity cost of capital and labor

A good is considered nonexcludable if

it is impossible or very costly to exclude nonpaying customers from receiving the good.

If a firm has a U-shaped long-run average cost curve,

it must have increasing returns to scale at low levels of production and decreasing returns to scale at high levels of production.

Specialization in production is beneficial because

it permits people to expand production and achieve rates of output that would otherwise be unattainable.

What does the dynamic process of competition do?

it puts the profit motive of sellers to work for buyers.

the key element in preserving a monopoly is

keeping potential rivals out of the market

Firms in a high-wage nation such as the U.S. can compete effectively with imports from low-wage nations if

labor productivity is higher in the U.S.

Which of the following provides the best explanation for diseconomies of scale?

large management structures may be bureaucratic and inefficient.

The postulate that as more and more units of a variable resource are combined with a fixed amount of other resources, using additional units of the variable resource will eventually increase output only at a decreasing rate. Once diminishing returns are reached, it will take successively larger amounts of the variable factor to expand output by one unit.

law of diminishing returns

Why does the MC curve initially decrease?

law of diminishing returns, due to increasing marginal returns

when economies of scale are important, imposing competition by splitting a monopolistic firm into many rival units will

lead to an increase in the per-unit cost of production in the industry

The U.S. Postal Service has a monopoly on the delivery of first-class mail due to

legal barriers limiting entry

Why aren't the short-run and long-run defined in terms of days, months or years?

length varies across different firms

From the standpoint of economic efficiency, markets tend to provide

less of a public good than would be efficient.

When external benefits are present in a market,

less of the good will be produced than the amount consistent with economic efficiency.

As a company adds the first four workers to its production process in the short run, its output rises from 0 to 12 to 25 to 35 to 43. Addition of the fifth worker will most likely lead to an output rate

less than 51.

When a market has a positive externality, is the actual market price greater than or less than the efficient price? Why?

less than, because benefit not registered by market demand curve

When a market has a positive externality, is the actual market quantity greater than or less than the efficient quantity? Why?

less than, because ideal output will not be supplied because sellers are unable to capture the value of the external benefits

When a market has a negative externality, is the actual market price greater than or less than the efficient price? why?

less than, because the external costs are not taken into consideration, just the cost actually paid by the firms

The economizing problem is essentially one of deciding how to make the best use of

limited resources to satisfy virtually unlimited wants.

Which of the following best fits the definition of a monopoly?

local cable company

If a firm in a competitive price-searcher market raises its price, it will

lose only some of its sales.

The deadweight loss (or excess burden) resulting from levying a tax on an economic activity is the

loss of potential gains from trade from activities forgone because of the tax.

The incentive for managers of a government-operated firm (for example, a state university or the U.S. Post Office) to operate efficiently will be

low because there are no residual claimants to monitor and institute cost-reducing measures.

Countries that impose high tariffs, exchange rate controls, and other barriers that restrict international trade have, on average

low rates of economic growth

If zinc suppliers are successful in forming an international zinc cartel, they will

lower output, raise prices, and have a need to prevent the entry of new firms into the industry.

Which of the following would most likely increase the supply of beef?

lower prices of grains used to feed cattle

In the aggregate demand-aggregate supply model, the short-run effects of an unanticipated increase in the money supply will be

lower real interest rates and an increase in aggregate demand.

If an unanticipated decrease in aggregate demand results in an output below the economy's long-run capacity, long-run equilibrium will eventually be restored by

lower resource prices and lower real interest rates.

if a firm in a competitive price-searcher market finds that its marginal revenue exceeds its marginal cost at the current production level, it should

lower the price of the product and expand its output

A good with a high income elasticity is generally considered to be

luxury good

When economists say an individual has made a rational choice, they mean the individual has

made the choice by weighing their own subjective costs and benefits.

If there is a "long and variable time lag" between when a change in monetary policy is instituted and when it impacts aggregate demand and output, this will

make it more difficult for the Fed to properly time changes in monetary policy.

Despite being a college graduate, Ethan cannot name any of his representatives in Congress and he has no idea which issues are being debated and voted on this week in Congress. According to public choice analysis, Ethan is

making a rational personal choice because knowing these things gives him little personal benefit.

if long-run equilibrium is present in a competitive market, the typical firm in the market will be

making zero economic profit

Which of the following is the best definition of "physical capital"?

man-made resources used to produce other goods

Millionaires tend to be older than the general population because

many achieve millionaire status by saving from a relatively modest income, and this will take a lengthy period of time.

A competitive price-searcher market is best described as

many firms with some control over price, and some product differentiation

A competitive price-searcher market is best described as

many firms with some control over price, and some product differentiation.

A good is considered nonrival-in-consumption if

many individuals can share in the consumption of the same unit of the good

In a competitive price-taker market,

many other sellers are offering a product that is essentially identical.

As output rises, marginal product eventually diminishes and

marginal cost increases.

a price-taker firm will tend to expand its its output so long as its

marginal cost is less than the market price

The increase in total output that results from a unit increase in the employment of a variable input is equal to the input's

marginal product.

A profit-maximizing price searcher will expand output to the point where

marginal revenue equals marginal cost.

a profit-maximizing monopolist will continue expanding output as long as

marginal revenue exceeds marginal cost

A profit-maximizing monopolist will continue expanding output as long as

marginal revenue exceeds marginal cost.

Firms should hire additional units of a resource as long as the

marginal revenue product of the resource exceeds the cost of employing an additional unit of the resource.

The change in the total revenue of a firm that results from employing one additional unit of a factor of production is defined as the

marginal revenue product of the resource.

When there is reason to think that the existing structure of incentives will cause individuals in the market to act in ways that are inconsistent with ideal economic efficiency, economists say that

market failure is present.

Who owns the Fed?

member banks

"Competitive price-taker markets" and "purely competitive markets" are

merely alternative names for the same concept.

identify a common price floor

minimum wage

Which of the following is a characteristic of a contestable market?

minimum-cost production methods

CHAPTER 16 Which of the following will discourage investment?

monetary instability

example of explicit cost

money wages, interest, rental payments

Which of the following is a term that is sometimes used to describe markets with low entry barriers and firms that are price searchers?

monopolistic competition

When a single firm has control over the market supply of a resource that is essential to the production of a good,

monopoly is frequently the result

When a single firm has control over the market supply of a resource that is essential to the production of a good,

monopoly is frequently the result.

If consumption of education creates an external benefit, then in order to increase efficiency relative to the outcome determined by private decisions,

more education must be produced.

What does elastic supply look like?

more horizontal

If the government cuts the tax rate, workers get to keep

more of each additional dollar they earn, so work effort increases, and aggregate supply shifts right.

When external costs are present in a market,

more of the good will be produced than the amount consistent with economic efficiency.

Critics of the Keynesian view argue that increases in government spending financed by borrowing will hamper the recovery from a recession and slow longterm growth because

more political spending will lead to more wasteful rent-seeking activities and less production of goods and services that people value. b. government spending is directed by political forces, rather than efficient cost-revenue comparisons. c. more spending and debt will lead to higher future taxes to cover the cost of government and the interest on the debt. d. All of the above are true.*

Other things constant, countries that invest more will grow

more rapidly

An improvement in technology that allows workers to process twice as many insurance forms in an hour than before will cause

more workers to be employed because their marginal revenue product has increased.

if mutual interdependence among firms is present, each profit-maximizing firm in the market

must consider the reactions of its rivals when it determines its price policy

A firm in a price-taker market

must take the price that is determined in the market.

If bus travel is an inferior good, then its income elasticity of demand will be

negative

If air travel is an inferior good, then its income elasticity of demand will be

negative.

If firms in a competitive price-searcher market are currently experiencing economic profits, which of the following will most likely happen over time?

new firms will enter the market, and the current firms will experience a decrease in demand for their products.

Creative destruction refers to the process where

new products and methods of production are continuously replacing old ones

In economics, the term "scarcity" refers to the fact that

no society can produce enough to satisfy fully the desires of people for goods and services.

Working conditions, prestige, variety, location, employee freedom, and employee responsibilities are all examples of

non-pecuniary job characteristics

Working conditions, prestige, variety, location, employee freedom, and employee responsibilities are all examples of

non-pecuniary job characteristics.

When government imposes price controls in a market,

non-price factors become more important in the rationing of the good.

what kinds of costs are fixed in the long run?

none

If the consumption of a good by one individual does not change the amount of the good available to others, the good is considered to be

nonrival-in-consumption.

If the consumption of a good by one individual does not change the amount of the good available to others, the good is considered to be

nonrivital-in-consumption.

If the income elasticity of a good is positive, we can conclude that the good is

normal good

Suppose the number of picture frames purchased increased by 5 percent when consumer income increased by 10 percent. Assuming other factors are held constant, picture frames would be classified as

normal goods.

A demand curve for flowers would show the

number of flowers that will be purchased at various prices.

As the price of a resource decreases,

producers are more willing and able to hire that resource.

According to the law of supply,

producers are willing to supply larger amounts of a good as its price increases.

The story of the prisoners' dilemma shows why

oligopolies can fail to cooperate, even when cooperation is in their best interest

Under which one of the following market structures are sellers most likely to consider the reaction of rival sellers when they set the price of their product?

oligopoly

Which of the following is a term that is sometimes used to describe markets with low entry barriers and firms that are price searchers?

oligopoly

A market situation where a small number of sellers compose the entire industry is called

oligopoly.

Which of the following is the best example of an investment in human capital?

on-the-job training received by an apprentice electrician, a summer internship at a law firm for someone going to law school

Marginal cost is defined as the increase in total cost resulting from an increase in

one unit of output

Which of the following is the primary tool the Fed uses to control the supply of money?

open market operations

Which of the following is not a government policy that would increase a country's unemployment rate?

openness to imports of foreign goods and services

If an amusement park that is highly profitable during the summer months is unable to cover its variable costs during the winter months, it should

operate during the summer but shut down during the winter months.

When the actual rate of unemployment is less than the natural rate of unemployment, the economy

operates at an output greater than its long-run potential.

the value of the next best alternative

opportunity cost

The total economic cost of producing a good or service is called the

opportunity cost of production.

The highest valued alternative that must be given up in order to choose an option is called

opportunity cost.

example of implicit cost

opportunity costs

The costs of a firm indicate the desire of consumers for

other goods that might have been produced with the same resources.

competitive price-taker firms respond to changing market conditions by varying their

output

The real wages of workers will tend to be high when

output per worker is high.

Relative to a competitive situation, if a market lacks competition, economic theory suggests that

output will be lower and price higher.

When prices in the goods and services market are below the level anticipated,

output will temporarily fall short of the economy's long-run potential.

Other things constant, the price elasticity of demand for a product will tend to be smaller (more inelastic) if

people spend an insignificant share of their income on the product.

Because information is costly to acquire,

people will rationally choose not to become fully informed when making decisions.

Other things the same, when the interest rate rises

people would want to lend more, making the quantity of loanable funds supplied increase.

Formula for income elasticity:

percent change in quantity demanded / percentage change in income

Write the formula for the price elasticity of demand:

percent change in quantity demanded/percent chance in price %ΔQ/ %ΔP

If the demand for a good is very price elastic, the imposition of a tax on that good

places the largest portion of the burden on the sellers of that product

The presence of price controls in a market usually is an indication that

policymakers believed that the price that prevailed in that market in the absence of price controls was unfair to buyers or sellers.

provide an example of a negative externality

pollution

If pollutants emitted by firms in the steel industry increase, but there is no increase in the costs borne by these firms, you could conclude that

pollution is an externality in this market, since producers and purchasers of steel do not bear the full costs of the pollution.

our neighbors in the apartment below you like burning incense. You find that the particular incense they burn seems to help you calm down and concentrate. Since they've moved in, your grades have improved as a result. This is an example of a...

positive externality.

The difference between positive economic statements and normative economic statements is that

positive statements are based on fact while normative statements are based on opinion

Keynes rejected the view that lower wages would direct a recessionary economy back to full employment because

powerful trade unions and large corporations made wages highly inflexible.

Antitrust laws in general are used to

prevent oligopolists from acting in ways that make markets less competitive

When demand is price inelastic,

price and total revenue move in the same direction.

When demand is inelastic and price rises, total revenue will ________.

rise

A practice whereby a seller charges different prices to different consumers of the same product or service is called

price discrimination

A law establishing a minimum legal price for a good or service (the minimum wage for example) is known as

price floor

The market for letter envelopes is in equilibrium, but then two things happen at the same time. First, the invention of email and other electronic communication causes people to write fewer paper letters. Second, new regulations on paper production makes production of envelopes more costly. What happens to the price and quantity of paper envelopes?

price is indeterminate, quantity falls

In the short run, a profit-maximizing firm in a price-taker market will definitely stop production if

price is less than average variable cost.

When there is excess supply of a product in a market,

price must be above the equilibrium price.

What does it mean when economists say the quantity supplied of a product has decreased?

price of the product has fallen, and consequently, suppliers are producing less of it.

What does it mean when economists say the quantity demanded of a product has decreased?

price of the product has risen, and consequently, consumers are buying less of it.

The main difference between a firm that is a price searcher and a firm that is a price taker is that a

price searcher will still be able to sell some of its product if it increases its price.

Firms that can choose what price they will charge for their product and can increase the number of units sold by reducing price are called

price searchers

Firms that can choose what price they will charge for their product and can increase the number of units sold by reducing price are called

price searchers.

Figure 3-10 illustrates the conditions of demand and supply in the market for compact discs. Indicate the equilibrium price and quantity.

price, $15; quantity, 3,000

In Figure 3-9, if D and S represent the demand and supply for gasoline, what is the equilibrium price and quantity?

price, $2; quantity, 30

Monopolistic competition is a term referring to markets characterized by

price-searcher firms in markets with low barriers to entry.

The market for printed economic textbooks is in equilibrium. As incomes rise, students buy fewer printed textbooks, and buy more e-books instead. You can conclude (ceteris paribus) that...

printed textbooks are inferior goods.

The government sometimes provides public goods because

private markets would not produce the efficient quantity of the goods.

in a competitive market, profit can be considered a reward to businesses that

produce a good that consumers value more highly than its component resources

If profit-seeking entrepreneurs are going to be successful, they must

produce a product that the consumers value more than the resources required for its production.

Graphically, the area that represents the difference between the market price and the minimum price required to induce suppliers to produce a good is called

producer surplus

Ceteris paribus, a decrease in the price of a good will cause the

producer surplus derived from the good to decrease.

Graphically, the area that represents the difference between the market price and the minimum price required to induce suppliers to produce a good is called

producer surplus.

According to the law of supply, which of the following is true?

producers are willing to supply larger amounts of a good as its price increases.

If new regulations make it illegal to sell older model electrical appliances, then

producers of new models that meet the regulations will see demand for their output rise.

Suppose an economy produces only two goods, computers and TVs. If the economy operates at a point on its production possibilities curve, it can produce more computers only if

produces fewer tvs

A monopolist will maximize profits by

producing the output where marginal revenue equals marginal cost.

If the demand for a product increases as the result of a decline in income, it can be concluded that the

product is an inferior good.

Price controls will tend to cause misallocation of resources because

production (or opportunity) cost no longer corresponds to market price.

Economic theory suggests that the standard of living of American workers would fall if the

productivity of American workers declined.

the intersection of a firm's marginal revenue and marginal cost curves determines the level of output at which

profit is maximized

Entrepreneurs are

profit-seeking decision makers who decide which business projects to undertake.

As new firms enter a competitive price-searcher market, it can be expected that

profits of existing firms will decrease

If resource prices are fixed and the product selling price rises, then

profits will increase.

a tax in which the average tax rate rises with income. In other words, people with higher income pay a larger percentage of their income in taxes.

progressive tax

When the tax to fund a government project is allocated among voters in proportion to the benefits they receive from the project

projects that are productive (efficient) will tend to be favored by an overwhelming majority of voters.

Markets fail to allocate resources efficiently when

property rights are poorly enforced or not well established.

a tax in which the average tax rate remains the same across income levels. Under a proportional tax, everyone pays the same percentage of their income in taxes.

proportional tax

In order to be successful in a competitive market economy, an entrepreneur must

provide buyers at least as much satisfaction per dollar spent as the buyer could get elsewhere.

In order to be successful in a competitive market economy, what must an entrepreneur do?

provide buyers at least as much satisfaction per dollar spent as the buyer could get elsewhere.

When competition is present and property rights secure, people will be encouraged to

provide others with things that they value in exchange for income.

Prices in resource markets

provide users with information concerning the relative scarcity of resources.

the dynamic process of competition

provides consumers with alternative suppliers and thus a mechanism with which they can discipline sellers

In a market economy, which of the following is most important if one is going to achieve high earnings?

provision of goods and/or services that others value highly

A good for which it is impossible or at least very costly to exclude nonpaying customers from receiving the good and for which many individuals can share in the consumption of the same unit of the good is called a

public good

A good that is both nonexcludable and nonrival-in-consumption is called a

public good

Which of the following is not included in aggregate demand?

purchases of stock and bonds

If equilibrium is present in a market,

quantity demanded equals quantity supplied.

If a firm in a competitive price-searcher market finds that its marginal cost exceeds its marginal revenue at the current rate of output, it should

raise the price of the product and reduce its output

The market pricing system corrects a shortage by...

raising the product price and increasing producer profits.

Identify two goods that are inferior:

ramen noodles, easy mac

Economists refer to the lack of incentive that voters have to search for and obtain information to help make better political choices as the

rational-ignorance effect.

An individual who possesses a specialized skill that is difficult to execute will

receive a high wage only when this skill is in great demand relative to its supply.

In economics, a free rider is the term used for a person who

receives the benefit of a good without contributing to its costs of production.

Assume a competitive price-searcher firm is earning an economic profit. The marginal revenue from selling an additional unit is $30 and the marginal cost of producing that additional unit is $23. The firm should

reduce its price and increase its output level.

when the marginal cost of a price-taker firm is more than the market price of its product, the firm should

reduce output

In the short run, how will a profit-maximizing monopolist react if its marginal cost suddenly increases? It will

reduce output and raise price.

If marginal cost exceeds marginal revenue, a profit-maximizing firm should

reduce output until marginal cost equals marginal revenue.

Obstacles that restrict trade, either domestic or international, will

reduce output, income, and the general living standard of the populace.

In an oligopolistic market, if rival sellers act independently, each will have a strong incentive to

reduce price in order to increase sales and gain a larger share of the total market.

An unanticipated shift to a more expansionary monetary policy by the Fed will

reduce real interest rates and, thereby, stimulate investment, current consumption, and aggregate demand.

The crowding-out effect implies that restrictive fiscal policy will

reduce real interest rates.

Recent legislation provides parents with a substantial reduction in their personal income tax liability for each child that they have. The economic way of thinking indicates that legislation of this type will

reduce the after-tax cost of raising children and, therefore, increase the birth rate.

If the marginal physical product of more labor is twice as high as the marginal physical product of more machinery, a profit-maximizing firm will

reduce the labor used and increase the machinery used only if labor costs more than twice as much as machinery.

High transaction costs will tend to

reduce the number of mutually beneficial exchanges that occur.

An unexpected increase in the supply of money will

reduce the real rate of interest and, thereby, trigger an increase in current spending by households and businesses.

If uncertainty causes commercial banks to increase their holdings of excess reserves, other things constant, this will

reduce the size of the deposit expansion multiplier.

An unanticipated decline in the demand for legal services will

reduce the wages of lawyers and the rate of return on a legal education..

Internet sites such as eBay make it easier for sellers and buyers to find one another and, by doing so,

reduce transactions costs.

International trade does all the following except

reduce world output

a tax in which the average tax rate falls as income rises.

regressive tax

If a large percentage increase in the price of a good results in a small percentage reduction in the quantity demanded of the good, demand is said to be

relatively inelastic

If a large percentage increase in the price of a good results in a small percentage reduction in the quantity demanded of the good, demand is said to be

relatively inelastic.

When the price elasticity of demand is equal to 1, total expenditures will

remain unchanged

Identify a common price ceiling

rent controls

The practice of selling a product to retailers and requiring the retailers to charge a specific price for the product is called

resale price maintenance

The market where firms purchase factors of production is referred to as the

resource market

The market where firms purchase factors of production is referred to as the

resource market.

Losses are important to a competitive price-searcher market (industry) because they send a message to the market participants that

resources can rise in value if diverted away from that particular industry.

As the price paid to a resource increases,

resources will shift from other resource markets to this one.

if marginal cost exceeds marginal revenue, a profit-maximizing monopolist will

restrict output to increase the price even higher

The Sherman Antitrust Act

restricted the ability of competitors to engage in cooperative agreements

In a competitive market, if the production process involves an external benefit, the market will

result in a market price that is lower than the efficient one.

Consider two goods - one that generates external benefits and another that generates external costs. The actual market outcome would

result in a price that is lower than the efficient price for both goods.

Consider two goods--one that generates external costs and another that generates external benefits. The actual market outcome would

result in output that is lower than the efficient output for the good with an external benefit and output that is higher than the efficient output for the good with an external cost.

Competitive price-searcher markets are common in which of the following industries?

retail selling

competitive price-searcher markets are common in

retail selling

Suppose your current ATC is $800. Your marginal cost for one more unit of output is $900. Your new ATC will (rise / fall).

rise

When demand is elastic and price falls, total revenue will ________.

rise

As firms exit a competitive price-searcher market, profits of remaining firms

rise and product diversity in the market decreases

If demand is inelastic, an increase in the price of a good will cause total expenditures on the good to

rise.

In recent years, the ratio of earnings of the typical U.S. college graduate to the earnings of the typical high school graduate without additional education has

risen as the demand for skilled labor has increased relative to the demand for unskilled labor.

An inferior good is a good whose quantity demanded

rises when the consumer's income falls.

Long-run diseconomies of scale exist over the range of output for which the long-run average total cost curve

rises.

when profits exist in a competitive price-searcher market,

rival firms will be attracted into the market

What are the basic ingredients in any economic decision?

scarcity and choice

Criteria for rationing goods and resources must be established due to which of the following?

scarcity imposed by nature

The unintended consequences of an economic change that are not immediately identifiable but are felt only with time are known in economics as

secondary effects

The unintended consequences of an economic change that are not immediately identifiable but are felt only with time are known in economics as

secondary effects.

A firm that is a price taker can

sell all of its output at the market price.

According to the law of supply, as the price of a good increases,

sellers will produce more of the good.

When the Fed purchases additional securities and shifts to a more expansionary monetary policy,

several months will typically pass before the shift in policy exerts much impact on output and employment.

breaking a monopoly firm into several rival firms will be unlikely to improve economic efficiency when economies of scale are important because

several smaller firms will have higher per-unit costs than a single larger firm

Abigail wishes to spend more time this week studying for her classes. Using the idea of a production possibilities curve, and assuming Abigail is currently spending all of her time efficiently, Abigail can spend more time studying this week only if

she spends less time doing other things.

Other things constant, an increase in consumer income will

shift the demand curve for automobiles to the right.

If the citizens of a country were to work harder and take less leisure time, it would

shift the production possibilities curve outward.

Over time, an increase in a nation's stock of physical capital will

shift the production possibilities curve outward.

What will happen to the demand curves of existing firms when a new firm enters a competitive price-searcher market?

shift to the left

When a firm exits a competitive price-searcher market, the individual demand curves faced by all remaining firms in that market will

shift to the right

When a firm exits a competitive price-searcher market, the individual demand curves faced by all remaining firms in that market will

shift to the right.

For most people, "feature phones" (also called "dumbphones") are an inferior good. Suppose that, as a result of the government shutdown, millions of people experience a reduction of their income. Demand for feature phones...

shifts to the right.

An improvement in technology would shift which of the following curve(s)?

short-run and long-run aggregate supply

The law of diminishing marginal returns explains the general shape of the firm's

short-run cost curves.

When entry barriers into a market are low, firms will tend to earn zero economic profit in the long run because

short-run profit attracts additional suppliers and drives down the market price.

Refer to Figure 4-17. If the government imposes a price ceiling in this market at a price of $5.00, the result would be a

shortage of 20 units.

If a restaurant in a summer tourist area is highly profitable during the summer months but unable to cover even its variable costs during the winter months, the restaurant should

shut down during the winter, but continue operating during the summer as long as the summer profits exceed the losses (fixed costs) during the winter shutdown period.

Physical and human capital investments are

similar in that both involve forgoing current income (and consumption) in an effort to achieve higher future income (and consumption).

A system of economic organization in which the ownership and control of productive capital assets rests with the state and in which resources are allocated through central planning and political decision making is called

socialism

A system of economic organization in which the ownership and control of productive capital assets rests with the state and in which resources are allocated through central planning and political decision-making is called

socialism.

Which of the following goods is likely to have inelastic supply?

solar power generated from an array in south Florida

If inventory investment during a year was negative $6 billion, producers must have

sold $6 billion more goods and services during the year than they produced.

In a price-taker market, economic losses indicate that

some firms have miscalculated, producing goods that are less valuable than the resources used to make them.

"market power" is an expression used to indicate that a firm has

some freedom from the rigors of intense competition

when an entrepreneur introduces a new improved product that is highly valued relative to cost

some of the existing products will become obsolete and businesses producing those products will fail

When an entrepreneur introduces a new improved product that is highly valued relative to cost

some of the existing products will become obsolete and businesses producing those products will fail.

The short run is the time period during which

some of the firm's input decisions are constrained by previous commitments.

In the context of aggregate supply, the short run is defined as the period during which

some prices are set by contracts and cannot be adjusted.

In an uncertain world, private investors

sometimes make decisions that lead to economic losses

A 20 percent increase in the price of flour reduces flour consumption by about 10 percent. Such a price increase causes households to

spend more on flour.

A 20 percent increase in the price of sugar reduces sugar consumption by about 10 percent. Such a price increase causes households to:

spend more on sugar.

The Clayton Act

strengthened the Sherman Act

Full employment is the situation in which the economy operates at an unemployment rate equal to the sum of

structural and frictional unemployment.

Louise is unemployed due to a decrease in the demand for workers with a knowledge of a certain word processing language. This is an example of

structural unemployment.

When individuals are unemployed because they lack the qualifications to fill available jobs, this is called

structural unemployment.

A payment to either the buyer or seller of a good or service, usually on a per-unit basis

subsidy

When the price of a resource goes up and firms seek other suitable resources, this is called the

substitution in production effect.

The long run is a period of

sufficient length to allow a firm to alter its plant size and capacity and all other factors of production.

Total cost

sum of fixed and variable costs. at 0 output, firm has no variable costs

Economists refer to historical costs (irreversible costs already incurred) as

sunk costs

When economists say the price elasticity of supply is inelastic, they mean that

suppliers are willing to produce only a small amount more of their good.

Suppose that a tax is placed on a particular good. If the sellers end up bearing most of the tax burden, this indicates that the

supply is more inelastic than demand.

Low-skill workers earn a lower wage than more experienced, higher skilled workers because the

supply of low-skill workers is large relative to the demand for workers in this skill category.

A minimum wage of $14 per hour is being considered. If imposed, the minimum wage will result in a __________ of _________ workers. (fill in the blanks)

surplus, 4 million

A regressive tax

takes a higher percentage of the income of those with lower incomes than for those with higher incomes.

The way the burden of a tax is distributed among economic units (consumers, producers, employees, employers, and so on). The actual tax burden does not always fall on those who are statutorily assigned to pay the tax.

tax incidence

Average tax rate (ATR)

tax liability / taxable income It is the percentage of income paid in taxes.

average tax rate formula

tax liability/taxable income

The Laffer curve illustrates the relationship between

tax rates and tax revenues

Predatory pricing involves a firm

temporarily cutting the price of its product to drive a competitor out of the market

One of the effects of patents is to

temporarily provide the patent owner with monopoly power.

Restrictions that limit sugar imports, subsidies for the construction of sports stadiums, and federal spending on programs like the construction of an indoor rain forest in Iowa all provide examples of government programs

that reflect the political attractiveness of special-interest issues.

The key explanation for the prevalence of waterway pollution is

that waterways are often an open access, commonly owned resource.

If the dollar depreciates relative to the Peso, it can be said that

the Peso appreciates relative to the dollar.

After the collapse of the Soviet Union, some housing complexes, which had been operated by the government, were handed over to the families that lived in them. This sounds like it would benefit these families, but there was a problem: The families were considered to all jointly own the entire building. This means that no family could sell their unit without permission from all the other owners. The other owners wouldn't consent to letting a family sell without asking for something in return, which made sales unprofitable. As a result, people were stuck with their apartments, and the apartments were stuck with their people--the apartments couldn't be sold, torn down, or changed. There were simply too many people with the right to say "no". This is a market failure known as...

the Tragedy of the Anticommons

Which government entity is charged with investigating and enforcing antitrust laws?

the U.S. Justice Department

The actual rate of unemployment will be greater than the natural rate of unemployment when

the actual output is less than the economy's potential output.

The actual burden of a tax is determined primarily by

the elasticities of demand and supply.

Which of the following primarily determines the actual benefit of a government subsidy?

the elasticities of demand and supply.

In the Keynesian view, equilibrium takes place when

the level of total spending in the economy is equal to current output.

Economics is primarily the study of

the allocation of scarce resources in an effort to satisfy wants that are virtually unlimited.

Marginal cost is best defined as

the amount added to total cost when one more unit of output is produced.

If government officials break a natural monopoly up into several smaller firms, then

the average costs of production will increase.

The relationship between average and marginal variables can be stated as follows: if the marginal is greater than the average,

the average is increasing.

What does it mean when an action is defined as economically efficient?

the benefits that result from the activity exceed the costs.

Mathematically, the marginal propensity to consume is

the change in consumption divided by the change in income.

The marginal tax rate is defined as

the change in tax liability divided by the change in taxable income.

Which of the following is the most accurate definition of a worker's "marginal revenue product"?

the change in the firm's total revenue as the result of hiring an additional worker

Economics is primarily the study of

the choices we must make among alternatives because of scarcity.

All cartels are inherently reliant on

the cooperation of their members

The marginal cost of a good is

the cost of an additional unit

long-run equilibrium in a competitive price-searcher market requires that

the demand curve be tangent to the average cost curve

If the price of apples increases, total expenditures on apples will decline if

the demand for apples is elastic.

If the price of gloves increases, total expenditures on gloves will decline if

the demand for gloves is elastic.

If chips and salsa are complements, an increase in the price of chips will cause

the demand for salsa to fall.

If the government wants to generate large revenues from placing a tax on the consumption of a particular good, it should choose a good for which

the demand is price inelastic

If the government wants to generate large revenues from placing a tax on the consumption of a particular good, it should choose a good for which

the demand is price inelastic.

If a profit-maximizing restaurant is going to increase its revenues by charging senior citizens (persons age 65 and over) lower prices than other customers,

the demand of senior citizens for the services of the restaurant must be elastic.

If a tattoo parlor is going to increase profits by charging students 10% less than other customers,

the demand of students must be more elastic than that of other customers

If a movie theater is going to gain by charging students a dollar less than other customers,

the demand of students must be more elastic than that of other customers.

Airlines generally charge travelers willing to stay over Saturday night lower fares because

the demand of these travelers is elastic, and therefore, the lower fares generate more revenue

Who would most likely be helped by an increase in the tariff on foreign-produced automobiles?

the domestic producers of automobiles

The actual benefit of a government subsidy is determined primarily by

the elasticities of demand and supply.

The short run is a time period such that

the existing firms in the market do not have sufficient time to increase the size of their existing plant or build a new factory.

"If James had twice as much money, he could consume twice as much. If everyone had twice as much money, they could consume twice as much." This quote illustrates

the fallacy of composition.

"If Tom had twice as much money, he could consume twice as much. If everyone had twice as much money, they could consume twice as much." This quote illustrates

the fallacy of composition.

What does an economist imply when he says a firm is earning zero economic profit?

the firm is earning as high a rate of return now as could be earned in other industries.

When a firm generates external benefits, a more efficient outcome would result if

the firm produced a larger output level.

If the GDP deflator in 2011 was 130 compared to a value of 100 during the 2005 base year, this would indicate that

the general level of prices during 2011 was 30 percent higher than during 2005.

What basket of goods is used to construct the CPI?

the goods and services that are typically bought by consumers as determined by government surveys

EXAM 3 Raising taxes as an element of discretionary fiscal policy is intended to reduce aggregate demand, but it can also reduce aggregate supply if

the higher taxes cause workers to work less.

The opportunity cost of an action is

the highest valued alternative forgone as the result of choosing an option.

"He [the producer] intends only his gain, and he is in this, as in many other cases, led by an invisible hand to promote an end which was no part of his intention." What is the "invisible hand" referred to in this statement?

the incentive structure accompanying market prices

What are the two conflicting tendencies that a firm has in an oligopolistic industry?

the incentive to cooperate to maximize joint profits and the incentive to cheat on the agreement in order to increase the firm's share of the profit.

The GDP figures fail to count labor services and other household production. Once this omission is taken into account,

the income differences between the high and low income countries are still huge.

According to the Keynesian view, if purchasers buy more goods and services than businesses expect,

the inventories of firms would decline, and the firms would expand output in order to restore their inventories to desired levels

If you are offered a choice of two investments, with one offering an interest rate of 6% per year, and the other an interest rate of 2% per year, it is probably the case that...

the investment offering a higher interest rate is riskier.

The larger the marginal propensity to consume,

the larger the multiplier.

The notion that specialization in goods that one can produce at a low opportunity cost will make it possible for trading partners to produce a larger joint output is called

the law of comparative advantage

The economic principle that states that individuals or nations can gain by specializing in the production of goods that they produce cheaply and exchanging for other desired goods that they could only produce at a higher cost is

the law of comparative advantage.

When the loanable funds and foreign exchange markets are in equilibrium,

the leakages from the circular flow will equal the injections into it.

According to the law of comparative advantage, both individuals and nations will be able to produce a larger combined output if each productive activity is undertaken by

the low opportunity cost producer.

People are willing to pay more for a diamond than for a bottle of water because

the marginal benefit of an extra diamond far exceeds the marginal benefit of an extra bottle of water.

A rational decision maker takes an action if and only if

the marginal benefit of the action exceeds the marginal cost of the action.

The minimum points of the average variable cost and average total cost curves occur where

the marginal cost curve intersects those curves.

The minimum points of the average variable cost and average total cost curves occur where:

the marginal cost curve intersects those curves.

An airline can increase its profit by offering standby customers an unsold seat at a substantial discount just before takeoff because

the marginal cost of additional passengers is very small.

The principle of diminishing marginal utility says that

the marginal utility of additional units consumed will decline.

When the consumption of a good generates an external benefit,

the market demand curve will understate the total benefits derived from consumption of the good, and as a result, too little of it will be produced and consumed.

the price-taker firm should discontinue production immediately if

the market price is less than the firm's average variable costs

Which of the following arguments in support of trade restrictions limiting U.S. dependence on foreign suppliers of petroleum and aircraft is most valid when applied to the United States?

the national defense argument

A market is unlikely to provide an efficient quantity of public goods because

the nature of public goods makes it difficult for producers to withhold them from nonpaying consumers.

Why is a competitive market economy is unlikely to provide an efficient quantity of some public goods?

the nature of public goods makes it difficult for producers to withhold them from nonpaying consumers.

The rate of return that owners of capital must receive in order to induce them to continue supplying the capital is often referred to as

the normal or market rate of return.

Suppose that competitive price-searcher firms are experiencing losses. In the transition from this initial situation to a long-run equilibrium,

the number of firms in the market decreases.

Demand will be more elastic when

the number of good substitutes is large.

in markets characterized by oligopoly,

the oligopolists earn the highest profit when they cooperate and behave like a monopolist.

a firm that is a "pure monopoly" is

the only seller of a good for which there are no good substitutes in a market with high barriers to entry

A firm that is a "pure monopoly" is

the only seller of a good for which there are no good substitutes in a market with high barriers to entry.

For most students attending state universities, the largest cost component of going to college is

the opportunity cost in terms of forgone current income from the time spent attending college.

The implicit rate of return that must be paid to induce investors to continue to supply the funds necessary to maintain a firm's capital assets is called

the opportunity cost of capital.

a competitive market economy with low barriers to entry affords an entrepreneur with

the opportunity to bring new and different products and services to the market

Along the inelastic portion of a demand curve,

the percentage change in price will be more than the percentage change in quantity demanded.

Suppose that in Australia, the government allows private ownership of chickens but not of cows. If the people of Australia permanently increase their desire to purchase more chicken and beef, in the long run, we would expect

the population of chickens to rise and the population of cows to fall.

Suppose that in Ireland, the government allows private ownership of chickens but not of horses. If the people of Australia permanently increase their desire to purchase more chicken and beef, in the long run, we would expect:

the population of chickens to rise and the population of horses to fall.

Saccharin and aspartame are both low-calorie substitutes for sugar. If saccharin is found to cause cancer,

the price of aspartame will increase.

In a market economy, what determines whether an entrepreneur will continue in business or terminate the production of a new product?

the profit or loss of the business

Other things constant, as the price of a resource increases,

the quantity of the resource demanded falls.

When the price elasticity of demand is large, then

the responsiveness of quantity demanded to a change in price is large.

Which of the following will increase interest rates in the short run?

the sale of bonds by the Federal Reserve in the open market

Which of the following explains why elected representatives will find borrowing to be an attractive method of financing current government programs?

the shortsightedness effect

Adam Smith's invisible hand principle stresses

the tendency of the competitive market process to direct self-interested individuals into activities that enhance the economic welfare of society.

According to the Economic Freedom of the World measure, the United States was

the third freest economy in the world, behind only Hong Kong and Singapore during 1980-2000.

Back in the days before it was easy to lock down computers so that users couldn't screw them up, computers in computer labs tended to quickly be infected with viruses,spyware, and unnecessary programs. The failure of users to take care of these computers is an example of...

the tragedy of the commons.

The primary source of earnings of commercial banks is income derived from

the use of deposits to extend loans and undertake investments.

The expression "There's no such thing as a free lunch" means

the use of resources to meet one need means that those resources can no longer be used to meet another need.

The opportunity cost of going to college is

the value of the best opportunity a student gives up to attend college.

The opportunity cost of an action is

the value of the best opportunity that must be sacrificed in order to take the action.

CHAPTER 2 Which of the following activities describes the opportunity cost of attending an economics class?

the value of the highest valued alternative that must be forgone because of attending the class

Which of the following activities describes the opportunity cost of watching a play in a theater?

the value of the highest valued alternative that must be forgone because of the time and money required to watch the play

Two workers are employed in the same job by the same firm; however, they are paid different wage rates. This could be explained by differences in

their marginal products due to differences in ability

If Kim can wash 10 cars or wax 2 cars during a day, and Susan can wash 8 cars or wax 2 cars during a day, then according to the law of comparative advantage,

their total output can be expanded if Susan specializes in waxing and Kim in washing.

Other things equal, the demand for a good tends to be more inelastic when

there are fewer available substitutes.

When price is greater than marginal cost for a firm in a competitive market,

there are opportunities to increase profit by increasing production.

Cartels are difficult to maintain because

there is always tension between cooperation and self-interest in a cartel

cartels are difficult to maintain because

there is always tension between cooperation and self-interest in a cartel

Government action will often result in the counterproductive use of resources because

there is often a conflict between winning political elections and adoption of only productive programs.

a major fruit juice manufacturer failed in its attempt to engage in price discrimination between students and all other consumers. what is the most likely explanation for this failure?

there was nothing to prevent the students from reselling the fruit juice to other consumers

If net exports are positive, then

there will be net capital outflow, so foreign assets bought by Americans are greater than American assets bought by foreigners.

The owners of a firm are earning economic profit if

they are earning a return on their capital that is higher than what can generally be earned in other markets.

Checking account deposits are counted as part of the M1 money supply because

they are widely used as a means of making payment.

Firms will only adopt more automated methods of production when

they lower production costs.

Which of the following is most likely to happen because monopolists are protected by high barriers to entry?

they may be able to earn long-run economic profits.

To say that people make marginal decisions means that

they weigh the additional costs and additional benefits of various activities before they make a decision

What is the 'rule" you should apply when thinking on the margin?

think about both marginal benefits & costs and recognize that there are alternative ways of pursuing objectives

An income tax is defined as regressive if

those with higher incomes pay a lower percentage of their incomes in taxes than those with low incomes.

in a market that is contestable, but has only a few sellers, the

threat of new entrants will prevent prices from rising above the competitive level

In economics, transaction costs refer to the

time, effort, and other resources needed to search out and negotiate an exchange.

Why would an effective price ceiling be set below equilibrium price?

to make nonprice elements more important in rationing a good

Why would an effective price floor be set below above equilibrium price?

to make nonprice elements more important, raise prices

When production of a good provides external benefits, there will be

too few resources devoted to its production.

Consider two goods--one that generates external benefits and another that generates external costs. A competitive market economy would tend to produce

too little of both goods.

Consider two goods--one that generates external benefits and another that generates external costs. A competitive market economy would tend to produce

too little of the good that generates external benefits and too much of the good that generates external costs.

As a general rule, if pollution costs are external, firms will produce

too much of a polluting good.

If production of a good creates pollution costs that impose an externality, firms will produce

too much of the good.

The sum of the explicit and implicit costs incurred in the production process is called

total cost.

Each of the firm's fixed costs, and their sum (remain unchanged when output rises or falls in the short run). They can be avoided only if the firm goes out of business.

total fixed cost (TFC)

total cost equation

total fixed cost + total variable cost

average product

total product/units of labor used to produce output level increases as long as marginal output is greater than average

Marginal utility is the change in

total utility when an extra unit of output is consumed.

A compensation structure that generates much higher pay rates for the top performers, while those whose productivity is only a little lower receive substantially less compensation, is called

tournament pay

Compensation where the top performer receives much higher rewards than other competitors, even if the others perform at only slightly lower levels, is called

tournament pay

A compensation structure that generates much higher pay rates for the top performers, while those whose productivity is only a little lower receive substantially less compensation, is called

tournament pay.

Compensation where the top performer receives much higher rewards than other competitors, even if the others perform at only slightly lower levels, is called

tournament pay.

CHAPTER 13 Compared to a barter economy, using money increases efficiency by reducing

transaction costs.

The practice of requiring someone to buy two or more items together, rather than separately, is called

tying

A point outside the production possibilities curve represents a combination of goods that is

unattainable

If the underground economy is sizable, then GDP will

understate the economy's performance.

In order to prosper, entrepreneurs must

undertake projects that create wealth and increase the value of resources.

The cost curves shift ________ when production becomes more expensive which causes the supply curve to shift _________.

up, left

At the most basic level, the distinguishing characteristic of government that makes it different from private firms is its ability to

use coercive force against adults to modify their behavior or force them to pay for a good or service.

Competition as a dynamic process implies that individual firms in a market

use price competition as well as other forms of competition to gain the dollar votes of consumers.

A decrease in resource prices will increase the incentive of

users to purchase the resource.

Which of the following is a private owner prohibited from doing?

using the property in a manner that invades or infringes on the property of another

Competition as a dynamic process implies that the individual firms in an industry

utilize a variety of techniques, such as product, style, and price, to win the dollar votes of consumers.

For a firm that wants to remain in business, which of the following costs could be avoided if it halted current production?

variable costs

If a firm produces nothing, which of the following costs will be zero?

variable costs

What does inelastic supply look like?

vertical

If political officials want to minimize the excess burden accompanying a tax, they should set the tax at a rate

well below the rate that will maximize the revenue derived from the tax.

Which of the following is true according to the Laffer curve? a. an increase in tax rates will always cause tax revenues to increase. b. when marginal tax rates are high, an increase in tax rates is likely to cause tax revenues to increase. c. when marginal taxes are low, an increase in tax rates will probably cause tax revenues to decline. d. when marginal tax rates are high, a reduction in tax rates may increase tax revenue.

when marginal tax rates are high, a reduction in tax rates may increase tax revenue.

Other things the same, when are the wages in an occupation likely to be higher?

when the job is dangerous

Price discrimination refers to a system of pricing

where consumer groups with a more elastic demand for the product are charged lower prices.

The statutory incidence (or burden) of a tax refers to

who the tax is legally or statutorily imposed on.

The price elasticity of supply

will always be positive.

Average fixed costs

will always decrease as output expands.

Economic analysis suggests that gains from specialization and exchange

will be realized if individuals are allowed to pursue goals that are in their own self-interest.

Within the framework of the AD/AS model, in the long run, output

will converge toward the economy's long-run capacity.

Suppose that the federal government levies a $0.50 tax on gasoline and that the demand for gasoline is highly inelastic while the supply is highly elastic. Under these circumstances, the burden of the tax

will fall primarily on consumers.

Suppose that the federal government levies a 50 cent excise tax on gasoline and that the demand for gasoline is highly inelastic while the supply is highly elastic. Under these circumstances, the burden of the tax

will fall primarily on consumers.

Suppose that the federal government grants a 50 cent per gallon subsidy to buyers of gasoline and that the demand for gasoline is highly inelastic while the supply is highly elastic. Under these circumstances, the benefit of the subsidy

will go primarily to consumers.

An increase in the demand for a resource

will increase the price of the resource and, thereby, increase the incentive of potential suppliers to provide the resource in the future.

The vertical long-run aggregate supply curve reflects the fact that in the long run, an increase in the price level

will not alter the economy's maximum sustainable rate of output.

The fact that some people will work hard to earn a lot of money while others will be content with much less income indicates that

worker preferences are an important source of earning differentials.

The labor supply curve reflects how

workers' decisions about the labor-leisure tradeoff respond to a change in the wage.

A production possibilities curve indicates that when resources are being used efficiently,

you can only produce more of one good only if you produce less of another good.

Suppose you've already studied for 4 hours for an exam and you're thinking about whether to study one more hour. If you do, the expected benefit is a higher exam score. The expected cost is an hour of something else you could do (e.g. sleep, finish homework for another subject, or socialize). How should you make the decision whether or not to keep studying?

you should keep studying until the marginal cost exceeds the marginal benefits

A local restaurant offers an "all you can eat" barbeque special. You pay $9.00, and then you can eat as many servings as you desire at no additional cost. It would follow that you will stop eating when

your marginal utility (or value) derived from eating another serving is zero.