Econ 3 hw
The goal of a successful price discrimination strategy is to set the price you charge each _____ as close as possible to their _____
CUSTOMER; RESERVATION PRICE
The evidence suggests that for most people, the individual supply curve is _____
NEARLY VERTICAL
All these are examples of entry deterrence strategies EXCEPT
building excess capacity. patents and copyrights. brand proliferation. having large financial resources.
U.S. patent laws establish property rights for inventors of new products for _____ years
20
Jerome's current job pays $20,000/yr and provides $1,000 in benefits like insurance. He can start a business using the $50,000 he has in the bank earning 1.4% interest. The start-up would have $60,000 in revenue and cost $10,000/yr for rent, payroll, and materials. What would Jerome's economic profit be if he started this business?
28,300
Jerome's current job pays $X/yr and provides $Y in benefits like insurance. He can start a business using the $Z he has in the bank earning 1.4% interest. The start-up would have $A in revenue and cost $B/yr for rent, payroll, and materials. What would Jerome's economic profit be if he started this business?
A - B - [(X+Y)+(ZX1.4%)
An externality is
A BENEFIT OR COST EXPERIENCED BY SOMEONE WHO IS NOT A PRODUCER OR CONSUMER OF A GOOD OR SERVICE
How does a cap-and-trade system act like a corrective tax?
A CAP-AND-TRADE SYSTEM RAISES THE OPPORTUNITY COST OF POLLUTING THE AIR
How can successful product differentiation give you more market power?
BY MAKING IT LESS LIKELY THAT THERE IS A USEFUL SUBSTITUTE TO YOUR GOOD
What are the long-run effects of an increase in the minimum wage on labor demand?
Businesses adopt labor-saving technology and management practices in the long run as a result of an increase in minimum wage.
The government could prevent a natural monopoly from exploiting its market power by setting the price _____ the marginal cost
EQUAL
Various government support programs aimed at helping people without a job have an unintended side effect because these programs
INCREASE THE OPP COST OF WORKING
When the United States exports personal computers worldwide, the net effect of allowing exports causes total economic surplus to _____. This happens because sellers amplify their gains by selling more personal computers at the higher price, while buyers _____
INCREASE; MINIMIZE THEIR LOSSES BY PURCHASING A SMALLER QUANTITY
Activist groups launched a successful campaign to end the patent protection for AIDS drugs. As a result, many competitors were able to supply these drugs. This situation affected the market price for AIDS drugs by _____ competition, lowering the drug price to the _____
INCREASING; MARGINAL COST
The demand curve faced by a perfectly competitive firm _____
IS FLAT
The five arguments for limiting international trade that are the discussed in the chapter all argue whether or not international trade
IS GOOD FOR THE UNITED STATES
Domestic buyers earn consumer surplus when they get to buy a shirt at a price that
IS LOWER THAN THEIR MARGINAL BENEFIT
Your _____ is the time you spend working in the market
LABOR SUPPLY
The initial AIDS drug market is a real example of how businesses with _____ market power can _____ market forces
LARGE; DISTORT
Every hour that you spend working is one hour less you have available for other things besides paid work. Economists call this time
LEISURE
The less price sensitive a group is, the _____ their demand. Thus, you'll want to charge them a _____ price
LESS ELASTIC; HIGHER
Larry's Lube has just announced plans to add two more locations for its quick oil-change garages. This convinces Olive, owner of Olive's Oil Change, not to enter the market in that town because Larry's increased capacity means he can charge _____ than Olive and shows a _____
LESS; COMMITMENT TO THE MARKET
The hassle of clipping coupons or applying for rebates is
A HURDLE TO GETTING LOWER PRICES
What condition is NOT required to be satisfied for practicing price discrimination?
A PERFECTLY ELASTIC DEMAND CURVE
Princella's current job pays $X/yr and provides $Y in benefits like insurance. She can start a business using the $Z she has in the bank earning 1.4% interest. The start-up would have $A in revenue and cost $B/yr for rent, payroll, and materials. What would her accounting profit be if she started this business?
A-B
An airline company charges a high price for the flight from Toronto to Vancouver that leaves on a Wednesday and returns that Friday, and it charges a low price for the flight from Toronto to Vancouver that leaves on a Friday and returns on Sunday. What strategy is the airline company using?
ALTERNATIVE VERSIONS
_____ is important because it leads to market failure, producing _____
AN EXTERNALITY; INEFFICIENT OUTCOMES
An example of a public good would be
AN INTERSTATE HIGHWAY
The _____ is equal to total revenue divided by quantity sold
AVERAGE REVENUE
When buyers can negotiate with sellers in order to get a better deal, buyers are said to have
BARGAINING POWER
When there are factors making it difficult for a business to enter a market, the market is said to have _____
BARRIERS TO ENTRY
Why is it important to link your group discounts to verifiable characteristics, such as your customer's age, student status, or address?
BECAUSE BUYERS WILL TRY TO AVOID PAYING THE HIGH PRICE
Perfect price discrimination results in
CHARGING EACH CUSTOMER THEIR RESERVATION PRICE
Economists don't agree with the statement "Trade is a competition, and every time China wins, America loses," and they will try to explain it differently. Which does NOT describe economists' view on this trade issue?
CHINA COMPETES WITH THE US BY OFFERING A BETTER DEAL THROUGH IMPORTS
The _____ is the area below the demand curve, but above the price
CONSUMER SURPLUS
Sellers can set their price by looking at the _____ curve
DEMAND
When buyers have a degree of bargaining power, they can
DEMAND A LOWER PRICE FROM SELLERS
McDonald's has installed self-service ordering kiosks, how does that affect McDonald's demand for workers and why?
DEMAND FOR WORKERS WILL FALL, KIOSK AND THEM ARE SUBS
Businesses are on the _____ side, looking to hire the best workers they can find at the _____ price possible
DEMAND; LOWEST
The government should limit international trade. If we prevent unsafe or unethical practices at home, we should also hold firms to the same standards abroad. This argument is about
ENFORCING MINMUM STANDARDS
Profit-maximizing sellers should take every opportunity to sell their goods when they will boost their profits and keep selling until the marginal revenue _____ the marginal cost
EQUALS
The opportunity cost of working is
EVERYTHING YOU DO WHEN YOU ARE NOT WORKING
Due to the substitution effect, higher wages provide a _____ incentive to work. Higher wages lead workers to _____ the demand for leisure due to the income effect
GREATER; INCREASE
Sellers haggle because
HAGGLING CAN BE A VERY POWERFUL FORM OF PRICE DISCRIMINATION
An airline company wants to charge _____ prices to business travelers who typically have high reservation prices, and to charge _____ prices to more price-sensitive leisure travelers
HIGH; LOW
Regarding the substitution effect, a _____ wage increases the returns to working relative to leisure, leading you to _____
HIGHER ; WORK MORE
Congress passes an immigration bill restricting the number of foreigners with computer science degrees who can move to the United States. Determine how wages and number of jobs will change in the new equilibrium in the labor market for computer programmers?
HIGHER WAGES; AND FEWER JOBS WILL BE AVAILABLE
Fair trade would yield better working conditions and better income for foreign workers, which would lead to _____ prices and _____ in the United States
HIGHER; LOWER QUANTITY DEMANDED
The United States has relatively abundant capital. What abundant inputs drive its comparative advantage?
HIGHLY SKILLED WORKERS
With regard to labor supply, the substitution effect describes
HOW PEOPLE RESPOND TO A CHANGE IN RELATIVE PRICES
Bundling creates a(n) _____ to(for) getting the second good at a _____
HURDLE; LOWER PRICE
The closure of an auto plant is not just about lost jobs; it can also mean the death of a city, the end of a particular way of life, and the loss of local traditions. This scenario explains the blind spot of trade that trade
IS NOT JUST ABOUT ECONOMICS
The World Trade Organization (WTO) provides a way for all its member nations to
JOINTLY AGREE TO REDUCE OR ELIMINATE TRADE BARRIERS
The practical challenge in implementing a successful price discrimination strategy is sorting out which customers need a _____ price to be induced to buy your product, and which customers have high marginal benefits so they will _____ higher prices
LOW; STILL PAY
Just as labor demand is all about your marginal revenue product, your labor supply is all about the
MARGINAL BENEFIT OF LEISURE
When new rivals enter your industry, how does it affect the market share and market power of existing sellers?
MARKET SHARE AND POWER FALL
When economists think about trade, they apply the cost-benefit principle. Economists also focus too much on the bottom line that trade expands the pie. However, this misses the equally important fact that trade also
MAY REDISTRIBUTE PART OF YOUR SLICE OF THE PIE TO A FOREIGN WORKER
The firm demand curve of a company with higher market power is _____ than the firm demand curve of a company with lower market power
MORE INELASTIC
Martha currently runs a barbeque restaurant that is earning negative economic profits; however, the other barbeque restaurant across town just shut down. Should Martha shut down?
NO, BUT MARTHA SHOULD MAKE SHORT-RUN ADJUSMENTS
When the owner of a sushi restaurant hires a second cook, customers increase their orders from 70 to 110 orders per week. He pays each cook $500 per week and charges $15 per order. If he adds one more cook, he might get 30 extra orders per week. Should he hire a third cook? Why?
NO, HE SHOULD HIRE ONLY TWO COOKS TO GET THE MAXIMUM PROFIT OF $650
When the owner of a sushi restaurant hires a second cook, customers increase their orders from 50 to 100 orders per week. He pays each cook $400 per week and charges $18 per order. If he adds one more cook, he might get 20 extra orders per week. Should he hire a third cook? Why?
NO, HE SHOULD ONLY HIRE TWO COOKS TO GET MAX PROFIT OF 1K
While international trade doesn't affect the average wage earned by workers very much, it does_____, even within the United States
RAISES SOME WAGES WHILE LOWERING OTHERS
Speed limits are laws designed to _____, or to _____
REDUCE NEGATIVE EXTERNALITIES ; LOWER THE DANGER TOWARD OTHER MOTORISTS
Rules and regulations are often blunt instruments because they
REDUCE THE FORCES OF COMPETITION
When sellers offer selective discounts to buyers based on their marginal benefit, it decreases the market inefficiency by
REDUCING THE PROBLEM OF UNDERPRODUCTION
Businesses can boost their profits by charging each customer a price that's as close as possible to _____
RESERVATION PRICE
Companies charge higher prices in the United States than they do overseas because the higher disposable income of American consumers tends to both boost their _____ and diminish their _____
RESERVATION PRICES; PRICE SENSITIVITY
Perfect competition is rare because
SELLERS RARELY SELL PRODUCTS THAT ARE IDENTICAL TO THEIR COMPETITORS
To alleviate the problems associated with the tragedy of the commons, the government can
SET A QUOTA, APPLY A TAX, ASSIGN PROPERTY RIGHTS
To limit negative externalities, the government can eliminate the overproduction by using the quantity regulation of _____ to the socially optimal quantity
SETTING A QUOTA
Adjusting the price is an example of a _____ decision, and building a new factory is an example of a _____ decision
SHORT-RUN; LONG-RUN
Having employees work overtime is an example of a _____ decision, and opening a store in a new city is a _____ decision
SHORT-RUN; LONG-RUN
Modifying production levels is an example of a _____ decision, and responding to new competitors entering a market is a _____ decision
SHORT-RUN; LONG-RUN
The government imposes taxes equal to the damage (e.g., pollution) that electric companies do while producing electricity. What is the role of taxes in this example?
TAXES HELP FIRMS INTERNALIZE THE EXTERNALITIES
The losers when the United States institutes trade restrictions to protect an industry include
U.S. CONSUMERS OF IMPORTED GOODS, AND, IF OTHER COUNTRIES RETALIATE, U.S. EXPORTERS
Common resources differ from public goods in that
UNLIKE PUBLIC GOODS, COMMON RESOURCES ARE RIVALROUS IN CONSUMPTION
The quantity of labor supplied is fairly _____ to changes in wages when supply is _____
UNRESPONSIVE; INELASTIC
If the substitution effect dominates, the individual supply curve is _____
UPWARD-SLOPING
Which is NOT one of the sources of comparative advantage?
WORLD PRICE
Abuela's current job pays $A/yr and provides $B in benefits like insurance. She can start a business using the $C she has in the bank earning 1.2% interest. The start-up would have $X in revenue and cost $Y/yr for rent, payroll, and materials. What would her economic profit be if she started this business?
X − Y − (A + B) + (C × 1.2%)
A salon's owner used to have one hair stylist and she hired one more. The customers increased from 40 to 60 customers per week. She is paying each stylist $250 per week and charges $25 per haircut. If she adds one more hair stylist, she might get 15 extra customers per week. Should she hire a third hair stylist? Why?
YES, THE MR PRODUCT OF AN EXTRA WORKER EXCEEDS THE WAGE
You should segment your market based on characteristics that are not only verifiable but also difficult to change, to avoid the possibility that
YOUR CUSTOMERS WILL SWITCH INTO DIFFERENT GROUPS
One of the first factors that you'll think about when choosing an occupation is _____
YOUR LIKELY INCOME
A business wanting to use entry deterrence barriers against new rivals entering its market might _____ or _____
expand production or sales capacity; cultivate a reputation as a fierce competitor
Tesla wanted to sell its car at a high price to those customers with a high reservation price and at a lower price to those with a lower reservation price. Therefore, it created two versions of the same car, one that sold for $74,500 and another that sold for $68,000 and had poorer fuel economy. What is the hurdle that buyers had to leap over to get this lower price?
AN IMPERFECT GOOD
Sellers often offer discounts on their products to
ATTRACT CUSTOMERS WHOSE MARGINAL BENEFIT IS LOW
Opening up to international trade has a temporary effect on unemployment but may become permanent for some people because
IT'S HARD FOR WORKERS TO RETAIN AND FIND NEW JOBS
In a particular suburban area, suppose customers have a lot of choices in internet providers. They can choose a variety of products from small local providers, regional providers, or national providers. What is the market structure for the internet services in this suburban area?
MONOPOLISTIC COMPETITION
When people fail to factor in _____ externalities, they are less likely to engage in activities that are beneficial to _____
POSITIVE ; SOCIETY
A study that examined eight dog and human medications found that the price was typically around twice as high at the human pharmacy than at the veterinary pharmacy. It's a simple case of _____, charging different species _____ for the exact same drug
PRICE DISCRIMINATION; DIFFERENT PRICES
Which market is NOT a natural monopoly?
THE INTERNET
The maximum price you can charge is all about
WHAT YOUR CUSTOMERS ARE WILLING TO PAY
Goods that are rival and also nonexcludable create a _____ externality because _____
NEGATIVE ; YOUR PRIVATE BENEFITS CREATE EXTERNAL COSTS TO OTHERS
Goods that are _____ and _____ are known as common resources
NONEXCLUDABLE ; RIVAL
If men on average are willing to pay $20 to see a movie, and women on average are willing to pay $20 dollars to see a movie, movie theaters will
NOT USE GROUP PRICING BECAUSE OF SIMILAR DEMAND
The idea behind group pricing is to use _____, like being a student, that are related to each customer's _____
OBSERVABLE PROXIES; RESERVATION PRICE
Long-run profitability of a company does NOT depend on
OPERATING IN A COMPETITIVE MARKET
Sierra's Sub Shop learns that a rival, Hasana's Hoagies, is thinking of opening a restaurant across town. Sierra had been considering opening a second shop near the site where Hasana might build her restaurant. Sierra _____ build the second shop because it would show commitment to the market and _____ Hasana from entering the market
SHOULD; DETER
If your firm has a lot of market power, a price hike will lead you to lose very few customers. This means your firm's demand curve is relatively _____ and it is relatively _____
STEEP; INELASTIC
Market failures arise because
THE INTEREST OF BYSTANDERS ARE IGNORED OR UNDERWEIGHTED
Group pricing can be an effective price discrimination strategy when _____ and hard-to-change factors like a customer's home address do a good job in sorting out which buyers have high _____
VERIFIABLE; RESERVATION PRICES
Which does NOT explain how technological changes would benefit the future of work?
WORKERS AND MACHINES ARE SUBSTITUTES
Foreign governments can manipulate their exchange rate to be artificially low. As a result, U.S.
EXPORTING FIRMS AND IMPORT-COMPETING FIRMS BOTH LOSE BUSINESS
Globalization is transforming the available opportunities and extending them across national borders. Which of these has NOT contributed to this phenomenon?
OPPORTUNITY COSTS HAVE RISEN
_____ are a symbol that represents a uniform price that applies to everyone.
PRICE TAGS
People argued that we should build cars in Detroit and stop growing them in Iowa. They were arguing for
PROTECTING JOBS FOR WORKERS IN THE UNITED STATES
The argument about _____ has a broader interpretation that suggests that we also need to protect domestic sources of food, so that we can eat if today's trading partners become tomorrow's enemies
PROTECTING NATIONAL SECURITY
Airlines charge thousands of dollars more for a business-class seat, which is only a little more comfortable, and it often seems they're trying to make economy class more miserable. This is an example of the hurdle of
SLIGHTLY WORSE SERVICE
Governments can increase the consumption of a product that creates positive externalities by
SUBSIDIZING THE PRODUCTION OF THE PRODUCT SO THAT THE SUPPLY IS INCREASED AND MARKET PRICE IS REDUCED
As a worker, you are on the _____ side, looking to sell your labor for the _____ you can get
SUPPLY; HIGHEST WAGE
Creating barriers such as having to repurchase smartphone apps when changing to another brand is a strategy known as _____
SWITCHING COSTS
Which of these is NOT one of the three key ideas helping you shape your segmentation strategy? Segment your market into groups whose demand curves differ. Target your group discounts based on verifiable characteristics. Base group discounts on difficult-to-change characteristics. Segment your market into groups whose demand is similar
Segment your market into groups whose demand is similar
If a natural monopoly operates at a loss, as may happen after a price ceiling is imposed, it may exit the industry. What does the government do to prevent the exit of natural monopolies that provide an essential service like water or electricity?
THE GOVERNMENT PROVIDES SERVICES DIRECTLY
When a firm sets a higher price when its product is new and then gradually lowers the price over time, it is practicing
THE HURDLE METHOD
It's rare to see discounts based on your income because
THE INFORMATION IS NOT EASILY VERIFIABLE
Government policies that specify _____ are likely to give an incentive to businesses to solve externality problems
THE INTENDED OBJECTIVES
The price of a haircut is determined by
THE INTERSECTION OF THE SUPPLY AND DEMAND CURVES
Laws, rules, and regulations can be used to remove the externalities in all the following situations, EXCEPT
THE KYOTO PROTOCOL TO LIMIT GREENHOUSE EMISSIONS
In a perfectly competitive labor market
THE MARKET FORCES DETERMINE THE WAGE
The labor market is driven by
THE PEOPLE'S DEMAND FOR THE GOODS AND SERVICES THAT WORKERS PROVIDE
The world price for watermelons is $3 each. In the United States, the price for watermelons is $6 each. What will happen to the U.S. market for watermelons when imports are allowed?
THE PRICE OF WATERMELONS IN THE US WILL FALL TO $3
The price elasticity of the supply of labor measures how
THE QUANTITY OF LABOR SUPPLIED RESPONDS TO WAGE CHANGE
How does a fall in the price of machinery affect the demand for low-skilled workers and does the substitution effect or the scale effect dominate in this scenario?
THE SUBSTITUTION EFFECT DOMINATES AND LEADS TO A DECREASE IN THE DEMAND FOR LOW-SKILLED WORKERS
What determines your customers' reservation price?
THEIR MARGINAL BENEFIT
Economists may need to pay more attention to the short-run disruption from international trade because
THESE TEMPORARY EFFECTS CAN LAST LONG ENOUGH TO BE NEARLY PERMANENT FOR THE PEOPLE INVOLVED
Tesla wanted to sell an electric car at a high price to those customers with a high reservation price and at a lower price to those with a lower reservation price. Therefore, it created two versions of a car, one that sold for $74,500 and another that sold for $68,000 and had a shorter charge range. Why are some customers willing to pay more for the car?
THEY ARENT WILLING TO OVERCOME THE HURDLE
Which statement is NOT true about oligopolistic businesses?
THEY HAVE MARKET POWER VERY SIMILAR TO A MONOPOLIST'S
Which of these is NOT a goal for the World Trade Organization?
TO INCREASE MINIMUM WAGE
The characteristics that are verifiable vary a bit, depending on your industry. A movie theater can verify whether a customer is a student by asking _____, but an online retailer can't do this
TO SEE THERE STUDENT ID
Economists explain that trade is about reallocating tasks so that they're done more efficiently. This explanation supports economists' view on trade that
TRADE IS ABOUT COOPERATION, NOT COMPETITION
