Combined Chapters 25, 28, 33 and 36

When countries engage in specialization and international trade, every individual person in those countries will gain.

False

Refer to Exhibit 26- 1. If average-cost pricing is imposed on the natural monopoly firm, what price is charged?

P2

Refer to Exhibit 34-2. The U.S. demand and supply for a good are shown. Under a policy of free trade, the world price is PW. At this price, consumers' surplus equals the area of

PW AC.

Consumers receive more consumers' surplus when __________.

tariffs and quotas do not exist.

The antitrust legislation that empowers the Federal Trade Commission to deal with false and deceptive acts or practices (such as false and deceptive advertising) is

the Wheeler-Lea Act.

If there is no comparative advantage in the production of either of the two goods produced by countries 1 and 2, then

there are no gains from specialization and trade between the two countries.

Refer to Exhibit 34-1. Considering the data, which of the following terms of trade would both countries agree to?

1 unit of X for 1.50 units of Y

What is the Herfindahl index of a monopoly?

10,000

Refer to Exhibit 34-4. The opportunity cost of one unit of good B is __________ for country 1 and __________ for country 2.

2A; 1A

Refer to Exhibit 38-2. If the closing price of Dancer's stock on the previous day was $34.25, what value goes in blank (B)?

34.50

Refer to Exhibit 38-1. The yield on bond E is approximately

5.0 percent.

A person buys a bond with a face value of $10,000 for $9,325. Each year until the maturity date the bond buyer receives $750 from the issuer of the bond. The yield on the bond is

8.04 percent.

Which of the following statements is false? a. The public choice theory of regulation holds that regulators are seeking to do, and will do through regulation, what is in the best interest of the society at large. b. An economist thinks that there are both benefits and costs to most (if not all) types of regulation. c. Average-cost pricing usually refers to setting a price for a natural monopoly firm that is equal to its ATC, thus guaranteeing the firm a normal profit. d. One of the unintended effects of profit regulation (in the form of guaranteeing the natural monopoly firm that it will always earn normal profit-nothing more and nothing less) is that the natural monopoly has no incentive to keep its costs down.

A. The public choice theory of regulation holds that regulators are seeking to do, and will do through regulation, what is in the best interest of the society at large.

A factor that does not contribute to income inequality is A. none of the above; that is, all factors contribute to income inequality. b. the amount of work a person chooses to do. c. luck. d. innate abilities and attributes. e. education and training.

A. none of the above; that is, all factors contribute to income inequality.

Refer to Exhibit 34-10. Who has the comparative advantage when it comes to cleaning the house?

Danielle

A quota raises the price of the product on which the quota has been placed, decreases consumers' surplus, increases producers' surplus, and generates tariff revenue for the government.

False

As a result of a quota, both consumers' surplus and producers' surplus fall.

False

In Industry A, the largest four firms together have a 30 percent share of the market and there are a total of eight firms in the market. In Industry B, the largest four firms together have a 30 percent share of the market and there are 100 other firms in the market. If we want to distinguish between the concentration in these two industries, the best measure to use is the

Herfindahl index.

Refer to Exhibit 26-1. Which of the following statements is false?

If the natural monopoly firm produces Q3 units of output and charges P3 per unit, the firm earns zero economic profits.

Refer to Exhibit 34-11. If the world price (PW) is operational in the market, then U.S. imports equal

Q2 - Q1.

A firm defending itself in an antitrust suit would prefer to have the market it operates in defined broadly, rather than narrowly.

True

Luck is more likely to influence incomes in the short run than in the long run.

True

The practice of companies promoting from within is on the decline, possibly because of less regulated, increasingly competitive product markets.

True

Which of the following statements is false? a. The yield on a bond is another term for the coupon rate on a bond. b. If you purchase stock from an individual that currently owns the stock, you are buying it in the secondary market. c. A rating of Aaa from Moody's is the highest bond rating given by that rating agency. d. As the price paid for a bond rises, the yield declines.

a. The yield on a bond is another term for the coupon rate on a bond.

If we define poverty as income below $10,000 per year, we have set a(n) __________ definition of poverty.

absolute

Consumers' surplus is the difference between the price

buyers pay for a good and the maximum price they would have paid for the good.

Dumping refers to a country

selling a good abroad at a price that is below its cost and lower than the price charged in the domestic market.

Smith and Jones are different when it comes to taking risk. Smith will assume much more risk than Jones. It follows that a. Smith has a higher probability than Jones of earning a higher income. b. Jones will earn more income than Smith. c. c and d d. Smith has a higher probability than Jones of earning a lower income. e. Smith will earn more income than Jones.

c. c and d

The effects of tariffs and quotas are: a(n) __________ in consumers' surplus, and a(n) __________ in producers' surplus.

decrease; increase

Refer to Exhibit 38-2. If the closing price of Vixen's stock on the previous day was $65.50, what value goes in blank (D)? a. 64.00 b. 65.75 c. 65.00 d. 65.15 e. There is not enough information given to answer this question.

e. There is not enough information given to answer this question.

Natural monopolies exist because of

economies of scale.

One of the criticisms of average cost regulated pricing of a natural monopoly is that the firm

has no incentive to hold costs down.

One way to reduce the degree of income inequality is to

increase transfer payments going to people with low labor and asset incomes and increase taxes on people with high labor and asset incomes.

Suppose that a tariff is imposed on imported cheese. This will have the effect of __________ the price of cheese, __________ consumers' surplus, and __________ producers' surplus.

increasing; decreasing; increasing

The capture theory of regulation specifies that

industries or firms can sometimes gain control of the agencies that are attempting to regulate them.

The type of regulatory pricing (of a natural monopoly firm) that is consistent with resource-allocative efficiency is __________ cost pricing.

marginal

A country has a (an) __________ in the production of a good it produces at lower opportunity cost than another country. A. none of the above b. infant-industry advantage c.tariff-efficient advantage d.absolute advantage e.specialization disadvantage

none of the above

Refer to Exhibit 26-5. If the natural monopoly firm is guaranteed a normal profit (nothing more and nothing less) then it will produce __________ quantity of output and charge a price of __________ per unit. a. Q1; P3 b. none of the above c. Q2; P3 d. Q3; P2 e. Q1; P2

none of the above

The type of regulatory pricing (of a natural monopoly firm) that is consistent with resource-allocative efficiency is __________ cost pricing. none of the above average marginal fixed sunk

none of the above

The natural monopolist might have an incentive to go out of business under

price regulation.