ECON 221

Price elasticity of supply measures how much the quantity supplied responds to changes in the prices of inputs in this market.

False

In the long run, when price is greater than average total cost, some firms in a competitive market will choose to enter the market.

True

Profit-per-unit equals average revenue (that is, price) minus average total cost.

True

"The Chinese do not trade fairly with the U.S." is a positive statement, and "the minimum wage should be higher" is also a positive statement.

False

A firm produces 60 units of output with 5 workers, 65 units with 6 workers, and 68 units with 7 workers. The firm's production function exhibits increasing marginal product in this range of output.

False

A monopolist maximizes profit by producing an output level where marginal cost equals price, making the monopolist allocatively efficient

False

A profit-maximizing firm in a monopolistically competitive market charges the allocatively-efficient price, equal to marginal cost.

False

An economy cannot produce at any point on or inside its production possibilities frontier, so markets exist to choose which point beyond the PPF is best.

False

As long as there are different opportunity costs across a border, each country will gain from trade, even if one country has to buy things a price greater than their opportunity cost.

False

Common resources and public goods both are not excludable and they are not rival in consumption.

False

Economists usually don't need to abstract from the details of the world, because, conducting experiments is fairly easy in the economy.

False

If a higher price means greater quantity supplied, then the demand curve slopes upward.

False

If a hurricane causes an increase in the price of cotton, this will increase the equilibrium price and increase the equilibrium quantity in the market for cotton t-shirts (Were cotton is an input)

False

If a market generates positive externalities, a command-and-control solution will be more efficient than a corrective subsidy.

False

If a tariff is placed on imported watches, the price of imported watches will rise by the amount of the tariff, but the price domestically-produced watches will stay the same as before.

False

If belts and suspenders are substitutes, an increase in the price of belts will shift the demand curve for suspenders to the left because the cross-price elasticity is positive.

False

If tariffs increase the price of bicycles, the supply curve for skateboards, a consumer substitute for bicycles, will shift to the right.

False

If the marginal cost of producing the tenth unit of output is $3, and if the average: total cost of producing the tenth at ten unit of output is $2, then at ten units of output, average total cost is downward-sloping.

False

In a monopolistically competitive market, the number of firms usually does not adjusts to bring economic profits to zero

False

In one month, Moira can knit 8 sweaters or weave 4 baskets. In one month, Tori can knit 1 sweater or weave 3 baskets. Moira's opportunity cost of knitting sweaters is higher that Tori's opportunity cost of knitting sweaters and Tori had an absolute advantage in making sweaters and baskets.

False

In the prisoners' dilemma game, confessing is not the dominant strategy for both of the prisoners.

False

Normal goods have negative income elasticities of demand, while inferior goods have positive income elasticities of demand that are greater than the number one

False

President Obama cut taxes and increased government spending following the deep economic downturn in 2008 and 209. The goal was to permanently increase inflation because there is a tradeoff between inflation and unemployment.

False

Suppose the demand for calendars increases in November. At the same time, the price of the ink used in the production of calendars increases. In the market for calendars, the equilibrium quantity rises, but the effect on the equilibrium price is ambiguous.

False

The price elasticity of demand for a Chevrolet car has been estimated to be -4.2. This implies that raising the price of these cars when other car prices are stable should cause an increase in Chevrolet's revenue.

False

To be effective, a price ceiling must be set below the equilibrium price. This will cause s surplus in the market.

False

To say people respond to incentives means that people do not change their behavior when the costs and benefits of an action change.

False

Two countries cannot both gain from trade if one country is more productive in making everything, the less-productive country would suffer like a colony.

False

When a good is taxed, the tax revenue collected by the government equals the decrease in the welfare of buyers and sellers caused by the tax.

False

When a tax is imposed, consumer and producer surplus shrink, so when a food receives a subsidy, consumer and producer surplus both increase.

False

When an exporting country subsidizes its exports, its own citizens gain more consumer surplus.

False

All firms maximize profits by producing an output level where marginal revenue equals marginal cost for firms operating in perfectly competitive industries, maximizing profits also means producing an output level where price equals marginal cost and ATC 1s minimized.

True

An excise tax on sellers shifts the supply curve to the left.

True

As a result of an increase in the earnings gap between skilled and unskilled jobs, the incentive to get a college education has been increasing during the last 40 years.

True

Cap-and-trade approaches to externalities usually require less oversight by government than corrective taxes, which require government to search around for the tax rate that results in the efficient level of emissions.

True

Cap-and-trade policies are built on the idea that social welfare can be enhanced by allowing firms to trade their rights to create negative externalities.

True

Drug interdiction, which reduces the supply of illegal drugs, will likely be associated with increases in crime. Interdiction will raise drug prices, and demand for drugs is inelastic; total spending on drugs will, therefore, rise, so addicts may need to steal more things to pay for their drugs.

True

Economists often find it worthwhile to deliberately make assumptions that do not necessarily accurately describe the real world.

True

If the marginal cost of serving a cafeteria meal is $1 and the average cost is $6, the cafeteria might increase its revenues and profits by selling most meals for $7 but quietly selling meal tickets to a few people at $4.50 each.

True

If the world price of a good is greater than the domestic price in a country under autarky, then that country becomes an exporter of that good.

True

The OPEC oil cartel might have difficulty maintaining high prices in the long run because price elasticities are usually more elastic in the long run than in the short run.

True

The more inelastic are demand and supply, the smaller is the deadweight loss of a tax.

True

The value of the marginal product of capital can be calculated as the market price of the output multiplied by the marginal product of capital.

True

Using excise tax revenue to fund a program that improves fairness is an example of the tension between efficiency and equality.

True

Say that Belarus has a comparative advantage in the production of linen, but Russia has an absolute advantage in the production of linen. If these two countries decide to trade, a. Belarus should export linen to Russia. b. Russia Should export linen to Belarus. c. trading linen would provide no net advantage to either country. d. Without additional information about opportunity costs, this question cannot be answered.

a. Belarus should export linen to Russia.

Which of the following statements best expresses a firm's profit-maximizing decision rule? a. If marginal revenue is greater than marginal cost, the firm should increase its output. b. If marginal revenue is less than marginal cost, the firm should shut down in the short run. c. If marginal revenue equals marginal cost, the firm should produce exactly one more unit of output d. All of the above are correct.

a. If marginal revenue is greater than marginal cost, the firm should increase its output.

Which of these does NOT describe a firm in a monopolistic competition? (That's not monopoly, but monopolistic competition) a. It makes a product that is identical to its competitors' product. b. It is one of many firms producing near-substitutes for each other. c. It experiences few barriers to entry and exit. d. It maximizes profit in the short run and long run.

a. It makes a product that is identical to its competitors' product.

In both monopoly and monopolistic competition, we expect that in the long run... a. P>MC b. P=MR. c. firms make positive economic profits. d. firms produce at minimum ATC, and are thus scale efficient.

a. P>MC

Compared to the allocatively efficient quantity, a monopoly chooses a. Too small a quantity and too high a price. b. Too high a quantity and too low a price. c. A quantity and price that are both too high. d. A quantity and a price that are both too low.

a. Too small a quantity and too high a price.

A $1 per unit excise tax levied on consumers of a product has the same effect as a. a $1 tax levied on producers of the product. b. a $1 subsidy paid to producers of the product. c. a price floor that raises the product's price by $1 d. a price ceiling that raises the product's price by $1.

a. a $1 tax levied on producers of the product.

When a tax 1s imposed on a good for which the demand is relatively elastic and the supply is relatively inelastic, a. buyers of the good will bear most of the burden of the tax. b. sellers of the good will bear most of the burden of the tax. c. the tax may actually increase consumer surplus. d both equilibrium price and quantity will increase.

a. buyers of the good will bear most of the burden of the tax.

A labor-augmenting technological change moves the labor......... curve to the........ a. demand... right b. demand... left c. supply... night d. supply... left.

a. demand... right

When a country allows trade and becomes an exporter of a good, a. domestic producers become better off, and domestic consumers become worse off. b. domestic producers become worse off, and domestic consumers become better off. c. domestic producers become better off, but the effect on the well-being of domestic consumers is ambiguous. d. domestic consumers become worse off, but the effect on the well-being of domestic producers is ambiguous.

a. domestic producers become better off, and domestic consumers become worse off.

Most of the income earned in the U.S. economy is ultimately paid to a. households, in the form of wages and fringe benefits. b. landowners and natural resource owners, in the form of rent. c. capital owners, in the form of interest. d. entrepreneurs, in the form of profit.

a. households, in the form of wages and fringe benefits.

Circle the letter of each answer that is a common argument against free trade: a. international trade destroys jobs. b. international trade harms national security. c. international trade is biased by unfair competition, like export subsidies and lax environmental laws. d. trade restrictions can be useful to force trading partners to change their policies.

a. international trade destroys jobs.

If the price of apple pies rose to $100 per pie, consumers would purchase fewer pies than if the price were $5 per pie. If the price of ice cream fell to $0.30 per scoop, consumers would purchase more ice cream than if the price were $5 per scoop. These relationships illustrate the a. law of demand. b. law of supply. c. difference between normal and inferior goods. d. difference between substitute and complement goods.

a. law of demand.

A person can benefit from specialization and trade by obtaining a good at a price that is a. lower than his or her opportunity cost of that good. b. unrelated to his or her opportunity cost of that good. c. higher than his or her opportunity cost of that good. d. lower than his or her hourly wage.

a. lower than his or her opportunity cost of that good.

Assume, for the U.S., that the domestic price of apples without international trade is lower than the world price of apples. This suggests that, in the production of apples, a. the U.S. has a comparative advantage over other countries and the U.S. will export apples. b. the U.S. has a comparative advantage over other countries and the U.S. will import apples. c. other countries have a comparative advantage over the U.S. and the U.S. will export apples. d. other countries have a comparative advantage over the U.S. and the U.S. will import apples.

a. the U.S. has a comparative advantage over other countries and the U.S. will export apples.

When the entry and exit of firms in an industry does not affect any firm's cost curves' locations, a. the long-run market supply curve must be horizontal. b. the long-run market supply curve must be upward-sloping. c. the long-run market supply curve must be downward-sloping. d. we do not have sufficient information to determine the shape of the long-run market supply curve.

a. the long-run market supply curve must be horizontal.

lf marijuana is legalized, production facilities will be rare, and creating them takes some time. Demand is expected to suddenly shift to the night, and initially be fairly inelastic. This all means that a. the tax should initially have a burden shared relatively evenly by buyers and sellers, and there will be a fairly small deadweight loss. b. a large initial deadweight loss will gradually shrink as elasticities change over time. c. producers will bear nearly all the burden of the tax. d. marijuana 1s actually a public good, and thus should be produced by the state, not private markets.

a. the tax should initially have a burden shared relatively evenly by buyers and sellers, and there will be a fairly small deadweight loss.

A bakery operating in a competitive market sells its product for $5 per loaf, and hires labor for $15 per hour. To maximize profit, the bakery should hire labor until the marginal product of labor is a. 2 loaves per hour. b. 3 loaves per hour c. 5 loaves per hour d. 15 loaves per hour

b. 3 loaves per hour

A change in which of the following will NOT shift the demand curve for hamburgers? a. The price of hot dogs, a substitute. b. The price of hamburgers. c. The price of hamburger buns, a compliment. d. The income of hamburger buyers, for whom hamburgers are an inferior good.

b. The price of hamburgers.

Suppose a producer is able to separate customers into two groups, one having an inelastic demand and the other having an elastic demand. If the producer's objective is to increase total revenue, she should a. increase the price charged to customers with the elastic demand and decrease the price charged to customers with the inelastic demand. b. decrease the price charged to customers with the elastic demand and increase the price charged to customers with the inelastic demand. c. decrease the price to both groups of customers. d. increase the price for both groups of customers.

b. decrease the price charged to customers with the elastic demand and increase the price charged to customers with the inelastic demand.

Because the demand for Mountain Dew tends to be quite elastic, a regulation that raises the production costs of making Mountain Dew would tend to a. increase the total revenue of producers. b. decrease the total revenue of producers. c. decrease the demand. d increase the supply.

b. decrease the total revenue of producers.

Abraham Kuyper argued that "sphere sovereignty" requires that a. government must endorse and regulate some religions, and discourage others. b. government must avoid taxing and regulating the market. c. government must establish justice, which generally requires taxation and regulation. d. because markets are efficient, government and religion should follow free-market principles when organizing themselves.

b. government must avoid taxing and regulating the market.

If oligopoly firms do not cooperate, we would expect that the industry will produce a level of output that is __ the competitive level and__ the monopoly level a. less than... more than b. more than... less than c. less than... equal to d. equal to...more than

b. more than... less than

The difference between social cost and private cost is a measure of the a. amount sellers are losing as the result of a negative externality. b. size of an externality's cost. c. cost reduction when the negative externality is eliminated. d. consumer surplus that is gained by free international trade.

b. size of an externality's cost.

The before-trade price of fish in Denmark is $10.00 per pound. The world price of fish is $6.00 per pound. Denmark is a price-taker in the fish market. If Denmark begins to allow trade in fish, its consumers of fish will become a. better off, its producers of fish will become better off, and on balance the citizens of Denmark will become better off. b. worse off, its producers of fish will become better off, and on balance the citizens of Denmark will become worse off. c. worse off, its producers of fish will become better off, and on balance the citizens of Denmark will become worse off. d. better off, its producers of fish will become worse off, and on balance the citizens of Denmark will become better off.

b. worse off, its producers of fish will become better off, and on balance the citizens of Denmark will become worse off.

Which of the following statements is true for markets in which the demand curve slopes downward and the supply curve slopes upward'? a. As the size of a tax increases, tax revenue continually rises and deadweight loss continually falls. b. As the size of the tax increases, tax revenue and deadweight loss rise initially, but both eventually begin to fall. c. As the size of the tax increases, tax revenue rises initially, but it eventually begins to fall; deadweight loss continually rises. d. As the size of the tax increases, the deadweight loss increases half as fast.

c. As the size of the tax increases, tax revenue rises initially, but it eventually begins to fall; deadweight loss continually rises.

Imagine that hot dog stands in New York City are in a competitive market in long-run equilibrium. Now imagine that the city imposes a $2-per-hot-dog license fee to legally operate a hot dog stand. How does this policy affect the total number of hot dogs sold in NYC the short run and in the long run? a. Fewer in the short run, more in the long run. b. More in the short run, no change in the long run. c. Fewer in the short run, fewer in the long run. d. No change in the short run, more in the long run.

c. Fewer in the short run, fewer in the long run.

Antitrust laws aim to a. Encourage price fixing b. Encourage mergers, unless they would result in economies of scale c. Prevent the reduction of competition d. Decrease the regulation of monopolies, so they will act fairly

c. Prevent the reduction of competition

The price of tea rose sharply last month, but the quantity sold did not change. Five people suggest explanations: Terry: Demand increased, but supply was perfectly inelastic. Berry: Demand increased, but demand was perfectly inelastic. Harry: Demand increased, but supply decreased at the same time. Larry: Supply decreased, but demand was unit elastic. Mary: Supply decreased, but demand was perfectly inelastic. a. Terry, Berry, Harry. b. Terry, Berry, Mary. c. Terry, Harry, Mary. d. Berry, Harry, Mary.

c. Terry, Harry, Mary.

In three weeks, Michigan voters will decide whether to legalize and tax marijuana production. The use of marijuana is generally excludable, and it is usually rival in use. Using marijuana is thought to impose costs on persons who are not themselves users, much as cigarettes and alcohol do. This makes marijuana a. a public good. b. a common resource. c. a private good with a negative externality. d. a club good, which explains why there are private clubs where people use drugs.

c. a private good with a negative externality.

If demand is relatively inelastic and supply is relatively elastic, a technology improvement in producing the good will result in a. no change in consumer surplus. b. a large deadweight loss triangle. c. a somewhat larger quantity produced, and a relatively large reduction in its price. d. an increase in the product's price.

c. a somewhat larger quantity produced, and a relatively large reduction in its price.

When a country takes an infant industry approach to international trade, it a. removes trade restrictions so its competitor's industries will remain immature. b. reduces its trade restrictions while other countries do the same. c. creates trade restrictions to protect its emerging industries. d. seeks to develop industries that meet the needs of young children, to improve its human capital.

c. creates trade restrictions to protect its emerging industries.

A new $1000-per-year license fee for all lawn service firms will... a. increase average total cost and marginal cost. b. increase marginal cost only c. increase average fixed cost and average total costs, and tend to create economies of scale d. reduce average variable cost but increase average total cost.

c. increase average fixed cost and average total costs, and tend to create economies of scale

Any point on a production possibilities frontier represents a combination of two goods that a. is efficient, but not feasible. b. feasible, but not efficient. c. is efficient and feasible, and may or may not be desirable. d. is neither efficient nor feasible.

c. is efficient and feasible, and may or may not be desirable.

According to the Coase theorem, private markets will solve externality problems and allocate resources efficiently as long as a. the externalities that are present are positive, not negative. b. government assigns property nights to the harmed party, not the party causing harm. c. private parties can bargain with sufficiently low transaction costs. d. businesses are free to determine an appropriate level of production.

c. private parties can bargain with sufficiently low transaction costs.

In the presence of negative externalities, the unregulated market will a. maximize producer and consumer surplus in that market. b. produce too little and charge too much. c. produce too much and charge too little. d. be unable to function, since this is an instance of a public good.

c. produce too much and charge too little.

A consulting firm hires Daniella because she was an econ major. Her new job does not directly require any knowledge of economics, but the firm thinks that anyone who can handle econ must be smart and hard-working. This is an example of a. a compensating differential b. discrimination and occupational segregation c. signaling and screening d. efficiency wages

c. signaling and screening

The opportunity cost of going to a movie is a. the price of the ticket. b. the price of the ticket, plus the cost of the food you buy at the theater. c. the total amount of money you spend going to the movie, plus the value of the time advantage spent going to the movie. d. the price of your Netflix subscription, which you will be wasting by going to a movie in a theater.

c. the total amount of money you spend going to the movie, plus the value of the time you spent going to the movie.

We would expect that new firms would enter a monopolistically competitive market if a. MR>MC b. MR<ATC c. P>MR d. P>ATC.

d. P>ATC.

Which of the following should be held constant when calculating an income elasticity of demand? a. the price of the good b. prices of related goods c. expectations about future prices d. all of the above should be held constant.

d. all of the above should be held constant.

A small manufacturing company pays its employees about twice what other, similar firms pay, even though it y" could pay less and still find all the workers is needs. It believes the higher wages make workers more loyal and hard-working, which reduces turnover and per-unit labor costs. This is an example of... a. compensating differential b. human capital c. signaling. d. efficiency wages.

d. efficiency wages.

Because monopolistically competitive firms produce differentiated products, each firm a. faces a demand curve that is horizontal. b. faces a demand curve that is vertical. c. has no control over product price. d. has some control over product price, facing a downward-sloping demand curve.

d. has some control over product price, facing a downward-sloping demand curve.

There are lots of good substitutes for a Sonic hamburger. For people who use home heating oil there's no good substitute, and when the oil is needed it's necessary in a short time frame. Therefore the price elasticity of demand for Sonic hamburgers is probably a. closer to zero than the elasticity for heating oil. b zero, because hamburgers and heating oil are neither substitutes nor compliments. c. the same as the income elasticity of demand for heating oil. d. more elastic than demand for heating oil.

d. more elastic than demand for heating oil.

The burden of an excise tax falls mainly on consumers if a. the tax is levied on consumers. b. the tax is levied on producers. c. advantage is inelastic and demand is elastic. d. supply is elastic and demand is inelastic.

d. supply is elastic and demand is inelastic.