ECON 3 TEST
In the long run, an oligopolist is most likely to
Experience economic profits because of barriers to entry.
A public good
Experiences the free-rider dilemma.
Government intervention may be appropriate to correct market outcomes because of
Externalities.
The government's role in limiting smoking in many buildings is justified by considerations of
Externalities.
Product differentiation refers to
Features that make one product appear different from competing products in the same market.
Which of the following is not characteristic of monopolistic competition?
Firms have zero control over price.
Which of the following is an example of a public good?
Flood control.
A mathematical summary of inequality based on the Lorenz curve is known as the
Gini coefficient.
Government failure will likely arise if
Government officials attempt to maximize their own utility.
A major difference between oligopoly and monopolistic competition is that oligopolies do not
Have many competitors.
The goal of a company in an oligopoly industry is to
Increase market share and profits.
Price leadership is a method by which oligopolies can
Increase prices without explicit price-fixing.
Product differentiation
Involves advertising unique product features.
A private good
Is consumed by one person and excludes consumption by others.
One of the main differences between an oligopoly and a monopolistically competitive firm is that a monopolistically competitive firm
Is relatively independent; an oligopoly is interdependent.
Which of the following is not true about a monopolistic competitor?
It can earn economic profits in the long run.
RC Cola lost market share in the 1980s due to
Its decision not to advertise.
Market failure implies that the market mechanism
Leads the economy to the wrong mix of output.
Brand loyalty usually makes the demand curve for a product
Less price-elastic.
Approximately what percentage of state and local expenditures do bond referenda account for?
Less than 1 percent.
If income is distributed equally, the
Lorenz curve is a straight line.
A graphic illustration of the cumulative size distribution of income is known as the
Lorenz curve.
The argument against greater equality in the distribution of income in the United States hinges basically on
Loss of incentives.
If oligopolists start cutting prices to capture a larger market share, the result will be
Lower prices, increased output, and smaller profits.
Which of the following occurs when the economy experiences inflation?
Macro instability.
Which of the following characterizes monopolistic competition?
Many firms produce a particular type of product, but each maintains some independent control over its own price.
Social demand is equal to
Market demand plus or minus externalities.
Which of the following is a source of market failure?
Market power.
The goal of an oligopoly is to maximize
Market share to achieve long-run economic profit.
The correct ranking of degree of market power (from highest to lowest) is
Monopoly, oligopoly, monopolistic competition, perfect competition.
If production in the economy is efficient, then changes in market prices
Move us along the edge of the production possibilities curve.
Which of the following may not characterize an oligopoly?
No market power.
Which market structure is characterized by a few interdependent firms?
Oligopoly
The only market structure in which there is significant interdependence among firms with regard to their pricing and output decisions is
Oligopoly.
The market
On its own may not always provide the optimal mix of goods and services.
Concentration ratios tend to overstate the power of some corporations to influence economic outcomes because they measure output
Only for domestic production when the true market boundaries are international for some markets.
Government failure may result from
Outright waste of resources by the public sector or misallocation of resources.
The concentration ratio for an oligopoly is
Over 60 percent.
Which of the following produces external benefits?
Passive smoke in a public building. All of the choices are correct. The inoculation of college students against the flu./ Garbage dumped in the Atlantic Ocean.
If public goods were marketed like private goods, then
People would wait for others to pay.
There are many corn farmers, each of whom produces the same product. The corn market can best be classified as
Perfect competition.
Medicare is an example of
Personal income. In-kind income./ A direct cash transfer payment. Free goods.
Which of the following industries is not an example of monopolistic competition?
Pizza delivery. Notebook computers. Toys. Airlines./
Distribution control can be accomplished through all but which one of the following methods?
Predatory pricing.
When a business advertises that its product has unique features that make it superior to other similar products, it is engaging in
Product differentiation.
Oligopolists have a mutual interest in coordinating production decisions in order to maximize joint
Profits
The concentration ratio measures the
Proportion of total output produced by the four largest producers in a specific market.
The federal government's role as the provider of national defense is justified by considerations of
Public goods.
The free-rider problem
Reflects the inability to exclude an individual from the benefits of someone else's purchase.
The optimal mix of output is the most desirable combination of output attainable with existing
Resources, technology, and social values.
The federal income tax is designed to
Shift the Lorenz curve inward.
The Herfindahl-Hirshman Index is the sum of the
Squared market shares of the firms in the market.
When new firms enter a monopolistically competitive industry, the market
Supply curve shifts to the right.
Market share can be computed by dividing
The amount sold by a single firm by the total sold in the market.
Personal income is
The income received by households before payment of personal taxes.
Market failure exists whenever
The market generates a suboptimal outcome of income distribution.
Wealth refers to
The market value of assets people own.
An industry's market structure refers to
The number and size of the firms in the industry.
When firms are interdependent,
The profit of one firm depends on how its rivals respond to its strategic decisions.
A nationwide concentration ratio is likely to understate market power when
The true markets are local and small.
Monopolistic competition results in
The wrong mix of output.
Which of the following is true about a monopolistically competitive industry?
There is excess capacity.
From 1990 to 2010, the public sector share of total output
Trended downward to 2000 and then upward to 2010.
The optimal mix of output may not be produced by an economy because of the existence of
Underproduction of public goods.
Firms in a monopolistically competitive market will
Use the profit-maximizing rule MC = MR.
The Herfindahl-Hirshman Index is
Used to identify cases worthy of antitrust concern.
The central question in determining whether a good is public or private is whether
We have the technical capability to exclude nonpayers.
The combined market share of the top four firms in a monopolistically competitive industry will typically be in the range of
20 to 40 percent.
The term market power refers to
A firm's ability to alter the market price or quantity of a good or service.
Income is measured as
A flow only.
Which of the following real-world situations is the result of excess capacity in a monopolistically competitive market?
A retail auto tire store orders too much inventory. Monopolistically competitive firms do not exist in the real world. A factory producing women's clothing produces more than it can sell during a season. Gas stations with infrequently used pumps are located at all four corners of an intersection./
Monopolistically competitive firms are productively inefficient because long-run equilibrium occurs at an output rate where
ATC is greater than minimum ATC.
The most common form of nonprice competition is
Advertising.
Externalities
Are the costs or benefits of market activities that "spill over" onto third parties.
Flat tax critics
Believe it would create additional vertical and horizontal inequities.
According to cost-benefit analysis, a government project should be undertaken as long as the
Benefits exceed the opportunity costs.
Monopolistically competitive firms have a "monopoly" element to them because
Brand loyalty gives them a captive audience.
In the cost-benefit analysis of public goods, the benefits
Can be only roughly estimated using highly subjective techniques.
In economics, a public good
Cannot be denied to consumers who have not paid.
In a market economy, producers will produce the goods and services that
Consumers demand.
Which of the following industries is likely to have the highest concentration ratio?
Corn production. Clothing manufacturing. Video game systems./ College education.
What is the most likely response by rivals when an oligopolist cuts its price to increase its sales?
Cut their prices.
If the Gini coefficient is greater for the United Kingdom than for Japan, we can conclude that the
Distribution of income in the United Kingdom is less equal than in Japan.
When oligopoly firms collude to raise prices,
Each firm benefits, but society loses.