Econ 202 Carden

Suppose Russia exports sunflower seeds to Ireland and imports coffee from Brazil. This situation suggests

Russia has a comparative advantage over Ireland in producing sunflower seeds, and Brazil has a comparative advantage over Russia in producing coffee

A city street is

a common resource when it is congested, but it is a public good when it is not congested.

Technology spillover occurs when

a firm's research yields technical knowledge that is used by society as a whole.

A quota is

a limit on the quantity of imports.

For a country that is considering the adoption of either a tariff or an import quota on a particular good, an important difference is that

a tariff raises revenue for that country's government, while an import quota does not.

Which of the following is correct?

a. The word economy comes from the Greek word for "rational thinker." b. Economists study the management of scarce resources. c. Because economists believe that people pursue their best interests, they are not interested in how people interact. d. All of the above are correct. Answer: B

Which of the following products would be considered scarce?

a. bread b. baseballs autographed by Babe Ruth c. motorcycles d. All of the above are correct. Answer: D

Which of the following is a decision that economists study?

a. how much people work b. what people buy c. how much money people save d. All of the above are correct. Answer: D

A society allocates its scarce resources to various jobs. These scarce resources include

a. land. b. people. c. machines. d. All of the above are correct. Answer: D

Suppose that a firm's long-run average total costs of producing small commuter jet airplanes increases as it produces between 2,000 and 4,000 airplanes. For this range of output, the firm is experiencing

diseconomies of scale.

If government regulation sets the maximum price for a natural monopoly equal to its marginal cost, then the natural monopolist will

earn economic losses.

Suppose that a firm's long-run average total costs of producing televisions decreases as it produces between 10,000 and 20,000 televisions. For this range of output, the firm is experiencing

economies of scale

If a firm in a perfectly competitive market triples the quantity of output sold, then total revenue will

exactly triple.

A firm's opportunity costs of production are equal to its

explicit costs + implicit costs.

An important factor in the decline of the U.S. textile industry over the past 100 or so years is

foreign competitors that can produce quality textile goods at low cost.

By definition, imports are

goods produced abroad and sold domestically.

By definition, exports are

goods produced domestically and sold abroad.

A good will have a more elastic demand, the

greater the availability of close substitutes

If the Korean steel industry subsidizes the steel that it sells to the United States, the

harm done to U.S. steel producers is less than the benefit that accrues to U.S. consumers of steel.

A country has a comparative advantage in a product if the world price is

higher than that country's domestic price without trade.

Tom Brady should probably not mow his own lawn because

his opportunity cost of mowing his lawn is higher than the cost of paying someone to mow it for him

A difference between explicit and implicit costs is that

implicit costs do not require a direct monetary outlay by the firm, whereas explicit costs do.

As a general rule, when accountants calculate profit they account for explicit costs but usually ignore

implicit costs.

Externalities tend to cause markets to be

inefficient

A firm has market power if it can

influence the market price of the good it sells.

With no price discrimination, the monopolist sells every unit at the same price. Therefore

price is greater than marginal revenue.

Buyers and sellers who have no influence on market price are referred to as

price takers.

A cheeseburger is a

private good, because it is excludable and rival in consumption.

Because of the free-rider problem,

private markets tend to undersupply public goods.

According to the Coase theorem, in the presence of externalities

private parties can bargain to reach an efficient outcome.

According to the Coase theorem, private markets will solve externality problems and allocate resources efficiently as long as

private parties can bargain with sufficiently low transaction costs.

A key characteristic of a competitive market is that

producers sell nearly identical products.

Markets do not ensure that the air we breathe is clean because

property rights are not well established for clean air.

Economists at the Department of the Treasury

provide advice on tax policy to the President

Congress relies on economists at the Congressional Budget Office to

provide independent evaluations of policy proposals.

A perfectly inelastic demand implies that buyers

purchase the same amount as before when the price rises or falls.

For a firm, the production function represents the relationship between

quantity of inputs and quantity of output.

If soybean farmers know that the demand for soybeans is inelastic, in order to increase their total revenues they should

reduce the number of acres they plant to decrease their output.

The production possibilities frontier illustrates

the combinations of output that an economy can produce.

In most societies, resources are allocated by

the combined actions of millions of households and firms

After a country goes from disallowing trade in coffee with other countries to allowing trade in coffee with other countries,

the domestic price of coffee will equal the world price of coffee.

Buyers are able to buy all they want to buy and sellers are able to sell all they want to sell at

the equilibrium price but not above or below the equilibrium price.

In a perfectly competitive market, the horizontal sum of all the individual firms' supply curves is

the market supply curve.

Monopoly profit is not a social problem because

the profit represents a transfer from the consumer to the producer with no loss in total surplus.

A production possibilities frontier is bowed outward when

the rate of tradeoff between the two goods being produced depends on how much of each good is being produced.

A production possibilities frontier is a straight line when

the rate of tradeoff between the two goods being produced is constant.

Generally, a firm is more willing and able to increase quantity supplied in response to a price change when

the relevant time period is long rather than short.

When two countries trade with one another, it is most likely because

the two countries wish to take advantage of the principle of comparative advantage.

Domestic producers of a good become better off, and domestic consumers of a good become worse off, when a country begins allowing international trade in that good and

the world price exceeds the domestic price of the good that prevailed before international trade was allowed.

Public schools, parks, libraries, and roads are paid for largely through tax revenue because

these goods create a free-rider problem.

The supply of a good or service is determined by

those who sell the good or service.

Economists use some familiar terms in specialized ways

to provide a new and useful way of thinking about the world.

Economics is the study of how society manages its

unlimited wants and limited resources.

When two variables move in the same direction, the curve relating them is

upward sloping, and we say the variables are positively related.

Alexis is a lawyer. She bills her clients $100 an hour for her services. She can also mow her lawn in 30 minutes. She can hire someone to mow her lawn who takes an hour. Of the following prices, which is the highest Alexis would pay someone to mow her lawn?

$49

A monopoly firm can sell 150 units of output for $10 per unit. Alternatively, it can sell 151 units of output for $9.90 per unit. The marginal revenue of the 151st unit of output is

-$5.10

Ken and Traci are two woodworkers who both make tables and chairs. In one month, Ken can make 3 tables or 18 chairs, whereas Traci can make 8 tables or 24 chairs. Given this, we know that the opportunity cost of 1 chair is

1/6 table for Ken and 1/3 table for Traci.

Approximately what percentage of the world's economies experience scarcity?

100%

Abe owns a dog; the dog's barking annoys Abe's neighbor, Jenny. Suppose that the benefit of owning the dog is worth $200 to Abe and that Jenny bears a cost of $400 from the barking. Assuming Abe has the legal right to keep the dog, a possible private solution to this problem is that

Jenny pays Abe $300 to give the dog to his parents who live on an isolated farm.

A survey of professional economists revealed that more than three-fourths of them agreed with fourteen economic propositions. Which of the following is not one of those propositions?

The United States should withdraw from the North American Free Trade Agreement (NAFTA).

A dentist shares an office building with a radio station. The electrical current from the dentist's drill causes static in the radio broadcast, causing the radio station to lose $10,000 in profits. The radio station could put up a shield at a cost of $30,000; the dentist could buy a new drill that causes less interference for $6,000. Either would restore the radio station's lost profits. What is the economically efficient outcome?

The dentist gets a new drill; it does not matter who pays for it

In the long run, a firm will enter a competitive industry if

a. total revenue exceeds total cost. b. The price exceeds the average total cost. c. the firm can earn economic profits. d. All of the above are correct.

Almost all economists agree that rent control

adversely affects the availability and quality of housing.

A competitive market is one in which there

are so many buyers and so many sellers that each has a negligible impact on the price of the product.

A monopolist will choose to increase output when

at the present level of output, marginal revenue exceeds marginal cost.

If marginal cost is greater than average total cost, then

average total cost is increasing

Profit-maximizing firms enter a competitive market when existing firms in that market have

average total costs less than market price

In analyzing international trade, we often focus on a country whose economy is small relative to the rest of the world. We do so

because then we can assume that world prices of goods are unaffected by that country's participation in international trade.

For which of the following goods is the income elasticity of demand likely highest?

boats

A good will have a more inelastic demand, the

broader the definition of the market.

A model that shows how dollars flow through markets among households and firms is called the

circular-flow diagram.

Fire protection is a

club good, because it is excludable but not rival in consumption.

Suppose that a firm's long-run average total costs of producing an individual income tax return is $75 when it produces 1,000 returns and $75 when it produces 1,200 returns. For this range of output, the firm is experiencing

constant returns to scale.

Equilibrium price must decrease when demand

decreases and supply does not change, when demand does not change and supply increases, and when demand decreases and supply increases simultaneously.

A firm that is a natural monopoly

is not likely to be concerned about new entrants eroding its monopoly power

National defense is a classic example of a public good because

it is difficult to exclude people from receiving the benefits from national defense once it is provided.

Suppose researchers at the University of Wisconsin discover a new vitamin that increases the milk production of dairy cows. If the demand for milk is relatively inelastic, the discovery will

lower both price and total revenues

In order to sell more of its product, a monopolist must

lower its price.

Dog owners do not bear the full cost of the noise their barking dogs create and often take too few precautions to prevent their dogs from barking. Local governments address this problem by

making it illegal to "disturb the peace."

Economists assume that the typical person who starts her own business does so with the intention of

maximizing profits.

Marginal revenue can become negative for

monopoly firms but not for competitive firms.

A cost imposed on someone who is neither the consumer nor the producer is called a

negative externality

Cost-benefit analysts often encounter the problem that those who would benefit from government provision of a public good tend to

overstate the benefit they would receive from the public good and those who would be harmed by government provision of a public good tend to overstate the costs they would incur from the public good.

A likely example of substitute goods for most people would be

pencils and pens.

For which pairs of goods is the cross-price elasticity most likely to be positive?

pens and pencils

In class action lawsuits interested parties to the lawsuit are not required to pay attorney fees directly. This is an example of an attempt to

reduce the transaction costs of finding a private solution to an externality

Almost all economists agree that tariffs and import quotas

reduces general economic welfare.

When an economist points out that you and millions of other people are interdependent, he or she is referring to the fact that we all

rely upon one another for the goods and services we consume

One should be especially wary of the national-security argument for restricting trade when that argument is made by

representatives of industry.

The phenomenon of scarcity stems from the fact that

resources are limited.

Resources are

scarce for households and scarce for economies.

Economics deals primarily with the concept of

scarcity

The price elasticity of supply measures how responsive

sellers are to a change in price.

The most likely explanation for economies of scale is

specialization of labor.

A improvement in production technology will shift the

supply curve to the right.

For a good that is a necessity, demand

tends to be inelastic.

In a market with a fixed number of firms, as long as price is above average

variable cost, each firm's marginal-cost curve is its supply curve.