ECON 202

False

If voters lack an economic incentive to become informed about pending legislation, then their preferences become a constraint on legislators voting for rent-seeking legislation. T/F

Public franchise

A government designation that a private firm is the only legal producer of a good or service.

non-excludable but rival

A green pasture has turned barren due to overgrazing. This happened because the pasture was ________.

Smokers and nonsmokers are likely to be able to eat meals the way they like.

A key advantage of assigning property rights to owners of restaurants is that.

Vertical merger

A merger between U.S. Steel and General Motors would be an example of a ...

Horizontal Merger

A merger between the Ford Motor Company and General Motors would be an example of a ...

Regulatory capture

A situation in which a firm being regulated successfully influences the regulatory agency's actions to benefit the interests of the firm, rather than the public interest.

Collusion

An agreement among firms to charge the same price or otherwise not to compete.

True

Arrow's impossibility theorem shows that political outcomes often critically depend on the order in which things are considered. T/F

B. A monopoly will produce less and charge a higher price than would a perfectly competitive industry producing the same good.

Assume a hypothetical case where an industry begins as perfectly competitive and then becomes a monopoly. Which of the following statements comparing the conditions in the industry under both market structures is true? A. A monopoly will produce more and advertise more than would a perfectly competitive industry producing the same good. B. A monopoly will produce less and charge a higher price than would a perfectly competitive industry producing the same good. C. A monopoly will produce less and charge a lower price than would a perfectly competitive industry producing the same good. D. A monopoly will produce more and charge a higher price than would a perfectly competitive industry producing the same good.

False

Banning smoking in restaurants is clearly economically efficient because passive smoke is harmful. T/F

lower its price to sell more of its product.

Because a monopoly's demand curve is the same as the market demand curve for its product the monopoly must ...

One should be cautious in calling on the government to improve economic performance.

Beginning in the 1950s economists began to investigate incentives within government. They found that:

lower, lower

Compared to perfect competition, the consumer surplus in a monopoly is _________ because price is higher and output is _________.

The market demand for a public good

Determined by adding up how much each consumer is willing to pay for each unit of the public good.

False

Economics shows that it is inefficient to recycle plastic bottles because they have little value. T/F

Voting systems are just another method for allocating resources.

Economists investigate voting mechanisms because:

Examples of rent seeking

Financial contributions to the campaigns of members of Congress, state legislators, and other elected officials by firms that seek special interest legislation that make the firms better off are...

Two factors that make regulating mergers complicated

First, it is not always clear what market firms are in. Second, the newly merged firm might be more efficient than the merging firms were individually.

It evaluates the costs and benefits of producing the good.

For certain public projects such as building a dam on a river or a bridge to an island, what procedure is a government likely to use to determine what quantity of a public good should be supplied?

True

For-profit producers will produce only private goods because buyers will be willing to pay for the goods since the benefits are excludable. T/F

A patent

Gives a firm the exclusive right to a new product for 20 years from the date the product is invented

Compensate firms for research and development costs.

Governments grant patents to

The tragedy of the commons.

Haiti was once a heavily forested country. Today, 80 percent of Haiti's forests have been cut down, primarily to be burned to create charcoal. The reduction in the number of trees has lead to devastating floods when it rains heavily. This is an example of

nonexcludable, rival

In England during the Middle Ages each village had an area of pasture on which any family in the village was allowed to graze its cows and sheep without charge. Eventually, the grass in the pasture would be depleted and no family's cow or sheep would get enough to eat. The reason the grass was depleted was because the area of pasture was _________________ and the consumption of the grass was ________.

D. Safeway has a monopoly at midnight but not during the day.

In Walnut Creek, California, there are three very popular supermarkets: Safeway, Whole Foods and Lunardi's. While Safeway remains open twenty-four hours a day, Whole Foods and Lunardi's close at 9 pm. Which of the following statements is true? A. Safeway is a monopoly all day because it produces a service that has no close substitutes. B. Safeway can ignore the pricing decisions of the other two supermarkets. C. Safeway probably has a higher markup to compensate for its higher cost of production. D. Safeway has a monopoly at midnight but not during the day.

Lie below the free market equilibrium price.

In order to be binding, a price ceiling must ...

False

It is well-known that the use of landfills effectively destroys the value of land for subsequent use. T/F

D. All of the Above

Key limitations on the government correcting "market failures" include: A. Information B. Misaligned incentives between the government and citizens C. The incentive of the government to tax and spend to help politicians get elected or re-elected. D. All of the above.

Characteristic shared by a perfectly competitive firm and a monopoly.

Maximizes profits by producing a quantity for which marginal revenue equals marginal cost.

The tragedy of the commons

Occurs because some goods are non-excludable but rival in consumption.

True

One problem with using taxes to solve economic externalities is that politicians may spend the money on things they like, rather than things their constituents want. T/F

The tragedy of the commons

Over fishing leading to a rapid depletion of the stock of fish is an example of ________.

No, although Peet's coffee is a unique product, there are many different brands of coffee that are very close substitutes.

Peet's Coffee and Teas produces some flavorful varieties of Peet's brand coffee. Is Peet's a monopoly?

Monopolist's profit maximizing price and output

Point on a graph where marginal revenue equals marginal cost and charging the price on the market demand curve for that output.

True

Private producers have no incentive to provide public goods because once produced, it will not be possible to exclude those who do not pay for the good. T/F

The Sherman Act

Prohibited collusive price agreements among rival sellers.

True

Recycling is an economic issue because the goods that are recycled, the land for landfills, and the trucks and labor needed for both recycling and trash disposal are all examples of scarce resources. T/F

False

Recycling is not an economic problem because it involves running out of basic resources that our children might need. T/F

False

Recycling is not an economic problem because there is only so much land that can be used for landfill, and that land is substantially damaged by the creation of garbage dumps. T/F

gain, loss

Relative to a perfectly competitive market, a monopoly results in a ________ in producer surplus less than the _________ in consumer surplus.

True

Rent-seeking behavior, unlike profit-maximizing behavior in competitive markets, wastes society's scarce resources.

D. All of the above

Restaurant owners have an incentive to A. Fully account for the value impact of restaurant smoking on nonsmokers. B. Fully account for the value of restaurant smoking to smokers. C. Take into account how smoking shifts the overall demand curve for restaurant meals. D. All of the above.

A. An externality

Sewage treatment is an example of Selected Answer: A. An externality, B. An internalized externality, C. The need to return resources to their natural state, D. All of the above,

False

Smoking in restaurants is generally a bad idea because of the diseases caused by passive smoking. T/F

D. Firms that were regulated by the Interstate Commerce Commission (ICC) attempted for many years to influence the ICC's actions.

Some economists who use the public choice model to explain the ways government intervenes in the economy believe that regulatory capture results when an agency or commission is given authority over a particular industry or product. Which of the following is the best example of regulatory capture? A. The head of an agency is required to testify before Congress because Congress controls the size of the agency's budget. Congress "captures" the agency because of its budget authority. B. A federal government agency hires more employees than it requires to regulate an industry because it does not seek to minimize costs or maximize the agency's profits. C. The Food and Drug Administration (FDA) has increased the time and expense pharmaceutical firms incur to receive approval to market a new drug. D. Firms that were regulated by the Interstate Commerce Commission (ICC) attempted for many years to influence the ICC's actions.

Calculation of Herfindahl-Hirschman Index

Summing the squares of the market shares of each firm in the industry.

A. 16%

Suppose an industry is made up of 25 firms, all with equal market share. The four-firm concentration ratio of this industry is A. 16%. B. 20%. C. 25%. D. It cannot be determined from the information given.

People overuse a common resource.

The "tragedy of the commons" refers to the phenomenon where

E. A and B The opportunity cost of using the landfill, the cost of the trucks and labor needed to haul trash away

The appropriate charge for trash disposal should be set by A. The opportunity cost of using the landfill, B. The cost of the trucks and labor needed to haul trash away, C. The impact of buried plastic bottles that only slowly degrade. D. All of the above. E. A and B above.

False

The best solution to water pollution is to make the responsible people clean the water and return it to its natural state. T/F

Determining whether or not the government can be relied on to make things better.

The central question In trying to determine whether to involve the government in an economic issue is

Recyclers pay the full cost of picking up recycled products

The economically efficient amount of recycling will occur if ...

False

The government can be relied on to efficiently solve problems associated with pollution through (Pigovian) taxes. T/F

Arrow's Theorem

The impossibility of determining the "will of the people" by voting.

E. A. and B. Private costs do not equal social costs Private benefits do not equal social benefits.

The key problem(s) with externalities is that A. Private costs do not equal social costs. B. Private benefits do not equal social benefits. C. The government is often inefficient. D. All of the above. E. A and B above.

People who smoke need more medical care, but they also (unfortunately) tend to die younger, and that creates an offsetting reduction in health care costs

The key to Viscusi's findings about the net impact of smoking on healthcare costs is that

Assign property rights to restaurant owners.

The key to solving problems associated with smoking in restaurants is to...

To keep firms from artificially restricting competition to raise prices.

The lawsuit the Justice Department brought against Apple regarding the pricing of e-books for its iPad is an example of attempts by the government

The price for which marginal revenue equals marginal cost.

The most profitable price for a monopolist is

There is no general answer

The net effect of smoking in a restaurant is to...

Monopoly firm

The only seller of a good or service that does not have a close substitute.

the cost of the land after the landfill is full

The opportunity cost of using land for a landfill is determined by: The value of the land before the landfill was developed, minus...

True

The possibility of "government failures" should be evaluated before getting the government involved in addressing "market failures." T/F

self-interests, public interest

The public choice model assumes that government policymakers are likely to pursue their own ________________ , even if their self-interests conflict with the ________________ .

No competitors apparently found the profit level attractive enough to enter the market.

The reason that the Fisherman's Friend restaurant in Stonington, Maine had a monopoly on selling seafood dinners in that town is most likely due to

True

The social benefit of a given level of a public good is the vertical sum of all private benefits for that level. T/F

True

The social problem of smoking in restaurants because smokers and nonsmokers want to use the air in different ways. T/F

E. A and B

To establish Arrow's theorem you need to Selected Answer: : A. Consider who would win when you vote in various ways, B. Show that the outcome depends on the order in which things are compared, C. Show that politicians act strategically. D. All of the above. E. A and B above.

D. All of the above.

To evaluate recycling, you must consider A. The demand for recycled products, B. The incremental costs to society for recycling products, C. The value of the land used for landfills, D. All of the above. E. B and C above.

Marginal revenue is equal to marginal cost.

To maximize profit a monopolist will produce where

The external costs and benefits of smoking were about equal, so there wasn't a significant negative externality to smoking.

W. Kip Viscusi studied tobacco smoking and concluded that...

B. Sea otters in the coastal waters of the Pacific Ocean

Which of the following is an example of a common resource? A. public health care services in the United States B. Sea otters in the coastal waters of the Pacific Ocean C. catfish in a private pond in Mississippi D. impounded dogs in a dog pound

B. elephants in the wild

Which of the following is an example of a common resource? A. public transportation B. elephants in the wild C. lions in a zoo D. a college education

D. engaging in aggressive advertising that slams a competitor's product

Which of the following is not an example of rent-seeking behavior? A. competition for the exclusive right to import a product B. lobbying the government to impose tariffs on certain imported products C. competition for subsidies D. engaging in aggressive advertising that slams a competitor's product

C. Being the only seller in the market, the monopolist faces the market demand curve.

Which of the following is true for a monopolist? A. Being the only seller in the market, the monopolist faces a downward sloping demand curve that lies below the marginal revenue curve. B. Being the only seller in the market, the monopolist faces a perfectly inelastic demand curve. C.Being the only seller in the market, the monopolist faces the market demand curve. D. Being the only seller in the market, the monopolist faces a perfectly elastic demand curve.

B. Because rent seeking redistributes society's resources, anyone engaging in such behavior is violating the law.

Which of the following statements about rent seeking is false? A. Rent seeking often involves governments because governments transfer huge amounts of funds that economic agents must compete for. B. Because rent seeking redistributes society's resources, anyone engaging in such behavior is violating the law. C. A person is engaging in rent-seeking behavior when he uses the political process to acquire ownership of a resource that belongs to the public. D. If a firm can benefit from government intervention in the economy, it is more likely to spend resources attempting to secure this intervention than toward innovating its product to gain a competitive edge in the market.

C. A monopoly must have some kind of government privilege or government imposed barrier to maintain its monopoly.

Which one of the following about a monopoly is false? A. A monopoly could break even in the long run. B. A monopoly status could be temporary. C. A monopoly must have some kind of government privilege or government imposed barrier to maintain its monopoly. D. A monopoly could make profits in the long run.

because it does not produce some output for which marginal benefit exceeds marginal cost

Why does a monopoly cause a deadweight loss?