ECON Final

If the interest rate is 7 percent, what is the present value of $100 received two years from now.

$87.34

When Bill Dupp Construction Company lowers the prices of its homes by 10%, quantity sold rises by 20%. The price elasticity of demand is

-2

Which of the following is a primary difference between price searchers and price takers?

Price searchers have to cut their price to sell additional output, but price takers do not.

What is a substantial difference between price taker and price searcher with a low entry barrier (monopolistic competition) markets?

Price takers must accept the market price if they are going to sell any of their output, but price searchers will be able to increase their quantity sold if they are willing to cut their price

Clara Nett and Sara Nade operate music studios in the market pictured above. If the government sets a price of $9 what will happen in this market?

Shortage of 600

A government passes a new law allowing only 1,000 tons of pollution per day to be generated and simultaneously sells 1,000 transferable rights to emit one ton each of pollution per day. Which of the following is true?

The pollution will be created by those most willing and able to pay for the right to pollute.

How will consumers generally react to an increase in the price of butter?

They will substitute other goods like margarine for the more expensive butter.

Consider the following article on developments in the market for metals. Which of the following captures the important sense of the article in light of resource economics we covered in class?

This is a natural outcome in a market system as high metal prices induce people to search for alternatives.

Which of the following would most likely cause the current demand for DVD players to rise?

an increase in consumer income

Which of the following is a predictable side effect of increased government activity (e.g., taxes and subsidies) designed to redistribute income among citizens?

an increase in rent-seeking activity

Which of the following would be most likely to cause the demand for Miller beer to increase?

an increase in the price of Budweiser beer

Which of the following factors is least likely to be a barrier limiting the entry of potential competitors into a market?

an inelastic demand for a product

How did fascism (which includes "National SOCIALISM) flow from socialism and communism? They all agreed

c and d capitalism was socially destructive that nations needed a strong government to run society and the economy.

We discussed two broad groups of concerns about the effects the capitalist system might have on people and society. It might cause a.Class tension and injustice (e.g. the rich get richer and the poor get poorer);b. People to become greedy, selfish, individualistic, undermining individual character and social relations. Which of the following is true about how the various economic alternatives sought to address these problems, if at all.

a and b Communism and socialism sought to solve them by shifting from private ownership to collective ownership so people cannot be selfish. Fascism sought to solve these problems by giving people a common goal of the nation to overcome class tension and self-interest.

For a firm in a price-taker market, the firm's demand curve is

a horizontal line at the market price that is equal to the firm's marginal revenue curve.

What was the Progressive Era

a period of the early 1900s in which government activity to control or regulate the economy expanded enormously: regulation, income taxes, working conditions, pay, minimum wage, etc. intending to reign in the harsh conditions of the market

Consider the article: "Yes, We Have No Limes." For the moment, the equilibrium appears to have shifted from the middle to ___?Yes, We Have No Limes: Shortage Squeezes Bars, EateriesRestaurants Ask Customers to Harvest From Home; Turn Lemons Into Limeade?

d

If barley is a key input in brewing beer, then the latest changes (July - Sept) changes in the price of barley (from the graph, and the article) would move the BEER market from the middle to...

d

This illustrates two possible demand curves for a product, D1 and D2. Which of the following is true regarding these demand curves?

Demand curve D1 represents a demand curve that is relatively more inelastic than demand curve D2.

When investment funds are allocated by government rather than by markets,

political influence replaces market return as the basis for allocating funds.

If a federal agency requested funds to build a dam on an Idaho river to irrigate nearby farmland used for growing potatoes, the most active support for the project probably would come from

potato farmers who own the land to be irrigated.

Entrepreneurial judgment

is necessary to make business decisions when no fixed decision rule can be used

Which of the following will decrease the demand for coffee?

the discovery that caffeine can cause heart problems

When a firm generates external benefits, society would be better off if

the firm produced a larger output level.

Which of the following is true for a firm that is a monopolist?

the firm will produce a smaller quantity of output than what would be best from the viewpoint of ideal economic efficiency.

To maximize satisfaction from a fixed money budget, a consumer buying products A and B wants to make sure that the marginal utility of the last dollar spent on product A is

the same as the marginal utility of the last dollar spent on product B.

If a price-searcher firm can sell nine units at a price of $20, or it can sell ten units at a price of $17, what is the marginal revenue of the tenth unit?

-$10

If admission to a Carrie Atoon's concert in a football stadium is lowered from $60 to $40 and attendance increases from 25,000 to 35,000, the price elasticity of demand for attending the concert is approximately

-0.83.

When Rose Beeve (of Rosie's Gourmet Subs) lowered the price for her "Sub Standard Meal" from $7 to $5, her daily sales rose from 150 to 200. It must be that her elasticity is....

-0.86

Use the figure to answer the following question(s). The average variable cost (AVC) and average total cost (ATC) for a firm are indicated in Figure 8-4. If the marginal cost curve were constructed, at what output would it cross the AVC curve?

3

Suppose that Sean Deleer's Home Furnishings reduces the price of its premium ceiling light from $220 to $180 and, as a result, the quantity sold increased from 350 to 450. Over this price range the absolute value of the arc price elasticity of demand for the lights is:

1.25

If most businesses in an industry are earning a 13 percent rate of return on their assets, but your firm is earning 23 percent, your rate of economic profit is

10 percent.

When Amanda was signing her student loan papers, she noticed the interest rate on the loans was 9%. This stuck out to her both because she knew she would have to pay it back, but also because someone had left a newspaper on the table, and the paper reported that the inflation rate was _A__. This made her remember something from her econ class: that the real rate of interest was currently_B__. It must be that inflation is _A__ and the real rate of interest is _B__

3%; 6%

Suppose that the demand in a market is Qd = 200 - 10P and the supply is Qs = -40 + 20P. If the government requires that the price in the market will be $7, what will occur?

A shortage of 30 units

Suppose that the demand in a market is Qd = 200 - 10P and the supply is Qs = -40 + 20P. If the government requires that the price in the market will be $10, what will occur?

A surplus of 60 units

Which of these activities will most likely result in an external benefit?

An elderly woman plants a flower garden on the vacant lot next to her house.

The twentieth century was driven by worries about what would happen in the market economy. Fearing that big business would come to dominate the economy, to control their markets, and control workers, fascism, Nazism, and communism argued that governments would have to control markets, either by letting people keep firms and telling them they had to serve the state/race with them in the case of fascism and Nazism, or by taking them over entirely with communism. And you know how things turned out from there .But to really learn the lessons, we have to study carefully such questions as the following. 1. How bad did the problem of business power turn out to be? How bad a problem is "big business" or business generally today? 2. How effective are the solutions governments enact? 3. What is the best way to address the problem of business power, if at all? What did we learn?

As Nobel Prize winner George Stigler's research showed, the best market regulator turned out to be competition, there was actually more competition than we thought, and regulation often protected big businesses from their competitors, rather than protecting customers or improving competition.

Consider the following articles: U.S. Sugar Policy: Sweet for a Few, Sour for Most Which quadrant is the sugar case (the unusually high tariff on imported sugar) likely to be in?

B

Wine War II Wall Street Journal May 27, 2005. p. A.12 Consider the article "Wine War II." Which quadrant is the case likely to be in?

B

Suppose that Bill and Betty attend the Mount, Bob goes to the University of Maryland (note: about 70% of the cost per pupil is paid for by the state: students pay about $5000 of the $20,000 cost). Bill got a scholarship from the state of Maryland which pays for his tuition. Betty got a scholarship from the Knights of Columbus which pays for her tuition. Bob pays the $5000 tuition the state bills all by himself.Therefore, for their college education,

Bill's is publicly provided, privately produced; Betty's is privately provided, privately produced, Bob's is privately and publicly provided, publicly produced

Which of the following is the best description of the effects of an increase in the supply of bread?

Bread prices will fall, and bread sales will rise.

Which of the following people is likely to have the most elastic demand for ice cream?

Carl, who is poor and likes both ice cream and frozen yogurt

Many counties around the nation are struggling to control the sprawl of development. Montgomery county is one particular well-known example. If you ever wondered why there is so much undeveloped land along 270 between Frederick and Shady Grove, it is because Montgomery County set aside a tremendous number of acres to remain as open space. The effect(s) of this program has/have probably been...?

Changed the supply curve from S1 to S2, resulting in fewer new homes being constructed at any time, but making the supply curve more INELASTIC, forcing the prices to rise faster than they would have without the growth controls

Which of the following is true about the market and public sectors?

Competitive behavior is present in both sectors

Refer to Figure 3-20. Given this market,

Consumer surplus is 480 and producer surplus is 640

Which of the following is not a fundamental that underlies consumer behavior?

Consumers always make choices with perfect information.

Which of the following is true for Figure 8-7?

Firms producing output rates less than q1 or more than q2 will find it difficult to survive.

Which of the following observations was made famous by Adam Smith in his book The Wealth of Nations?

Households and firms interacting in markets are guided by an "invisible hand" that leads them to desirable market outcomes.

Consider the USGS Report noted above. USGS Director Reilly notes that estimates of Marcellus natural gas alone have frisen from 2 to 97 trillion cubic feet in 20 years. The 214 trillion cubic feet referred to in the first paragraph is probable reserves, while Reilly is referring to proven reserves. What are proven reserves?

How much is recoverable, at current prices and with current technologies.

If Jane's marginal benefit as a consumer in the jeans market is larger than the price of a pair of jeans,

Jane can benefit by purchasing more jeans.

Jane knows her economics from econ 102. That is good because she often uses the concepts to manage her small firm. One of the most basic decision making rules she understands is that a firm can always increase its profits as long as...

MR > MC

Which of the following statements about rent control in New York City is accurate?

Many well-to-do people live in rent-controlled apartments.

Sam Wich and Ella Vuhsub run a Sam & Ella's Bistro (Slogan: "Fill up at Sam&Ella's: Food you'll feel good about!") Suppose that the supply and demand for sandwiches are Qd = 3000 - 200P and Qs = -2400 +400P. If the government sets a price of $7, what will happen?

Shortage = 1200

Suppose that President Trump likes capitalism and wants government to be smaller and less powerful. Also in the news has been the rise of the Antifa movement (short for "Antifascist"), which has been violently protesting Trump. So, their name implies they are against fascism and their actions imply they are anti-Trump. Hmmm. This raises some questions. What on earth was Fascism, what were its basic views, is Trump a fascist/how do his views compare with fascism, etc.

The central focus of facism was that 1. the state (government) should be all powerful, and that 2. capital was evil. Since Trump loves capitalism and wants smaller government which is less powerful, Trump would appear to be opposed to the two main goals of fascism, i.e. extremely anti-fascist himself. So, anti-fascists should support Trump...

In general, the relationship between worker protection policies and the unemployment rate is?

The general effect is to raise unemployment rates in the short and long run

Which of the following is true of government activities under a system of representative democracy?

When voters pay in proportion to benefits received, all voters will gain if the government activity is productive.

One formula for the wage paid to workers is MP*Poutput =wage: i.e. the firm will pay workers up to the amount they earn for the firm. In this formulation, this "value they add to the firm" is a combination of two factors: i. how many additional units they add to output (the marginal productivity (MP) part); and ii. the value (price) of each of those units.Which of the following is NOT an implication of this market mechanism?

Workers would be better off with a system which pays based upon need (e.g. living wage) than one in which pay is based upon productivity

If the demand for computer scientists increases relative to their supply,

a computer science major will be more attractive to college students.

A decrease in supply will cause

a decrease in quantity demanded.

A decrease in demand will cause

a decrease in quantity supplied.

In Figure 3-6, suppose D1 and S1 indicate initial conditions in the market for ice cream. Which of the following changes would tend to cause a shift from S1 to S2 in the market for ice cream?

a decrease in the price of milk, an ingredient used to produce ice cream

Which of the following would lead to an increase in the demand for computer software?

a decrease in the price of personal computers

What is referred to in the article below as "risk selection" is also known as The Competition Cure

adverse selection

In the past year, the term "fascist" has been back in use. Fascism is not simply "any government I don't like." What was/were basic points about fascism?

all of the above

Market failures? Why should businesses be concerned about them?

all of the above

Pope John Paul II and Aleksander Yakovlev (former director of propaganda for the Soviet Union) argue that

all of the above

Diminishing marginal returns begin

at q=50

In the article "Regulation is good for Goldman, what term most likely was in the blank?

barriers to entry

Advertising that helps establish brand names like "Starbucks" coffee and "Nike" athletic shoes

benefit consumers by assuring them of a known quality level.

The major distinction between private and public goods is that

both b and c are correct. unlike private goods, public goods are nonexcludable--it is difficult or impossible to prevent nonpaying customers from receiving the good. unlike private goods, public goods are nonrival in consumption--the consumption of a unit by one person does not detract from the amount available to others.

An increase in the demand for a product will cause

both the demand for and prices of the resources used to produce the product to increase.

Long-lasting resources used to expand the production of goods and services in the future are called

capital goods.

In blank in the article "Cronyism vs the Constitution," Allan Meltzer refers to a term we used in class. What is that term? Mr. Meltzer is the University Professor of Political Economy at the Tepper School, Carnegie Mellon University, and the director of the Hoover Institution's program on regulation and the rule of law.

captured

The textile industry is composed of a large number of small firms. In recent years, these firms have suffered economic losses, and many sellers have left the industry. Economic theory suggests that if technology, imports, and other factors remain constant, these conditions will

cause the market supply to decline and the price of textiles to rise.

The single factor that affects how much firms make in profits is

competition

The two conflicting tendencies that a firm has in an oligopolistic industry are the incentive to

cooperate to maximize joint profits with the other firms versus the incentive to cheat on the agreement in order to increase the firm's share of the profit.

The net present value of $1,000 received in the future would

decline if the $1,000 were received later

The net present value of $1,000 received in the future would

decrease if the interest rate rose.

A decrease in the marginal product of labor would be represented by:

decrease in labor demand

An increase in the price of a good normally increases the

demand for its substitutes

The demand for a factor of production depends largely on the

demand for the products that it helps to produce.

Darrin Tudrop runs a parachuting company. He plans to lower the price per jump in order to increase revenues. When the local newspaper reported on it, the headline was "Falling Prices per Fall Cause Revenue to Rise for Darrin Tudrops." Demand must be

elastic.

If Patricia Cayke INcreases the price of her famous "Patti Cakes" from $8 per cake to $10 and this DEcreases cash receipts (revenue) by 10 percent, the price elasticity of demand (in the $8 to $10 range) is

elastic.

Nobel Laureate Gary Becker wrote the following regarding the rise of the price of oil. What word likely goes in the blank?

elasticity

The following question(s) refer(s) to the figure below, which depicts the demand, marginal revenue, and cost curves facing a firm in a competitive price-searcher (price searcher with low entry barrier/monopolistically competitive) industry. Refer to Figure 10-14. In the long run, we would expect

firms to exit this industry until zero economic profits are restored.

A college has found that during every home football game, a group of students sits on a hillside next to the stadium and watches the game without purchasing tickets. In economics, the problem that this college is facing is referred to as a

free rider problem.

Assuming this is the market for natural gas, the events in this article will tend to move the equilibrium from the middle to...? Natural Gas Prices Dive as Winter Turns MildPuko, Timothy. Wall Street Journal, 10 Jan 2017: B.1.Winter weather forecasts keep warming up, a trend that is sending natural-gas prices into free fall.Forecasts now show a sharp cold spell abruptly ending this week. Extremely warm temperatures will follow, covering half the country and often more into late January.

g

Under competitive conditions, market prices

generally bring the self-interest of individuals into harmony with the general welfare.

Adam Smith's description of this phenomenon included the name which has stuck with it ever since: the "invisible hand." It implies that

in a market system, firms only get paid if they produce what people want, thus a market system induces people to consider what people want and make it for them.

When a reduction in the price of a good allows a consumer to purchase more of all goods, this effect is called the

income effect

What term goes in the blanks?Wonder Land: Welcome to '__________' Daniel Henninger. Wall Street Journal __________.

moral hazard

If firms in a competitive price-searcher market are currently experiencing economic profits, then over time,

new firms will enter the market, and the current firms will experience a decrease in demand for their products until zero economic profit is again restored.

When a price ceiling prevents a higher market price from rationing a good,

non-price factors will play a more important role in the rationing process.

A major problem with regulatory agencies is that they

often come to represent the interests of established firms in the industry and use their power to limit competition.

Under which one of the following market structures are firms most likely to enter into a price-fixing agreement designed to maximize their joint profit?

oligopoly

The costs of a firm indicate the desire of consumers for

other goods that might have been produced with the same resources.

In the short run, a profit-maximizing firm in a price-taker market will definitely stop production if

price is less than average variable cost.

Hardhead Hank sells bike helmets. Assuming this is a long run picture of his cost and demand conditions, most likely Hank is in a ____ market?

price searcher with low entry barrier

Consider the article below. The term most likely to go in the blank is Drilled, Baby, Drilled Wall Street Journal, 02 Feb 2018:

price(s)

If a firm in a competitive price-searcher (low entry barrier; i.e. "monopolistic competition") market finds that its marginal cost exceeds its marginal revenue at the current rate of output, it should

raise the price of the product and reduce its output.

Consider the article "Dow Chemical Launches Makeover." Most likely, they have discovered that they are operating in

region c: diseconomies of scale

This table is from a government study which estimated the costs of regulations on various sizes of businesses One basic conclusion from such research is indicated above. This is that

regulation typically favors larger firms at the expense of smaller firms.

Andy owns a firm in a price taker market, while Amy owns a firm in a competitive price searcher market (price searcher with low entry barrier/monopolistically competitive). Both can maximize profit by

selling any and all units for which marginal revenue exceeds marginal costs.

Proposed legislation before Congress involves cap and trade policies to limit CO2 emissions. These policies work by

setting a total amount of pollutant, then handing out rights (permits) to the pollution and letting people trade those rights (permits)

When the price of steel rises, Ford uses more aluminum in the production of its cars. This is an example of

substitution in production.

Which of the following is true?

the United States has the least worker protection policies, and a lower unemployment rate than European countries with stronger worker protection polices.

Hugh Gemussel's Fitness Center is a small business that employs 12 people. Which of the following is the best example of an implicit cost incurred by this firm?

the accounting services provided free of charge to the firm by Hugh's wife, who is an accountan

Investment in capital goods only makes sense when

the capital goods can be used to increase the future output of consumption goods.

The fact that a gallon of gasoline commands a higher market price than a gallon of water indicates that

the marginal utility of a gallon of gasoline is greater than the marginal utility of a gallon of water.

If a price-taker industry is in long-run equilibrium, the market price in the industry will be just sufficient to cover the firm's average

total costs.

At P = $18, the firm would produce output such that total revenue would be about

2160

Hardhead Hank sells bike helmets. Assuming Hank faces the demand and cost conditions pictured above, what price should he charge?

24

Hardhead Hank sells bike helmets. Suppose the current price is $24 in the market. What is the long run equilibrium market price likely to be?

24

Given the details above, the firm will have total revenue of

272

You work at Dan Sing's Dance Studio. Dan wants to have a 20% off sale on lessons and wants to know by how much quantity sold will likely increase. Suppose that price elasticity of demand is 1.4. You tell him...

28%

Given this cost information, average variable cost of producing the 5th unit is/are:

29.2

Given the details above, the firm will have a total cost of

306

Use the figure to answer the following question(s). What is the firm's total cost in Figure 8-1 when it produces four units?

60

These are the cost curves for one very small firm in a large market. If the firm produces 10 units of output, its total fixed cost is

60.

What is the difference between accounting profit and economic profit?

Accounting profit makes no allowance for several implicit costs, including equity capital, while economic profit takes these costs into account.

There are 1,000 identical firms in a price-taker industry. In the short run, total revenues of each firm exceed total costs. What will happen in the long run?

Additional firms will enter the market, and price will be driven down to where each firm will be making just enough to stay in business.

Which of the following best explains why making air travel completely safe is not efficient?

After some level of safety is reached, making airplanes even safer is not worth the opportunity cost that would be incurred.

Which of the following best explains why making automobiles completely safe is not efficient?

After some level of safety is reached, making cars even safer will not be worth the additional cost.

We discussed the reasons for governments providing public goods. Which of the following is true regarding government involvement in research in society

All of the above.

Suppose you were going to receive $12,000 in 3 years. If the interest rate was 8%, what is the value of that $12,000 future amount worth to you now?

$9,526

Suppose external BENEFITS are present in a market which results in the actual market price of $34 and market output of 126 units. How does this outcome compare to the efficient, ideal equilibrium?

The efficient outcome would be greater than 126 units.

Which of the following is/are known as "market type pollution control policies?

a and c "Cap and Trade": where the government sets a cap on emissions, permits for this are handed out, and firms trade them. Taxes equal to the amount of the externality per unit of pollution

According to economic theory, which of the following would most likely cause the demand curve for hamburgers to decrease?

a drop in the price of hot dogs

The law of diminishing returns indicates why

a firm's marginal costs will eventually increase as the firm expands output in the short run.

The term market refers to

a group of buyers and sellers of a particular good or service.

If the market price were $18, the firm would likely make a quantity such that they made

a profit of $400

This editorial "Powering Down the Wind Subsidy" from the Wall St Journal attacks a practice of government and business entanglement: government helping business (from which the politicians get donations), and businesses lobbying government for more handouts, etc. This is not the free market. The term we used in class was also that in the blank in the article.

crony capitalism

According to the following article, GM spent $500 million to develop the ZEV, and only sold about 1100 of them. According to this, given the fixed amount they spent on the program and the number they actually sold, GM had approximately a(n)GM and the Zero Emissions Vehicle

average fixed cost of $454,545 per car

Charlotte ("Char") Donnay and Mary ("Mare") Lowe own a winery. Suppose that for their region, this is effectively a price searcher market with low entry barriers. If they are maximizing their profits, and the market is in long run equilibrium, then their price equals

average total cost, and economic profits are zero.

The events described in the article "The Last Anti-Fat Crusaders" would likely have what effect on the market for fast food (which has high levels of fat)?Assuming you start in the middle, this news would imply that the equilibrium has shifted to...The Last Anti-Fat Crusaders

b

Which of the following would be publicly provided, privately produced?

b and c "Single Payer option 1": The government reimburses people for health care they receive, but doctors, hospitals remain independent, not run by the government. "Single Payer option 2": The government reimburses people for the purchase of health insurance. People buy their own insurance with that money, and the insurance company pays for care received, but doctors, hospitals remain independent.

To pay their way through college, Greg manages Pizza Hut and Ben manages Stavros. After some wining and dining by Greg and Ben, the town officials rule that only two pizza places may operate in the town. The payoffs in terms of monthly profit are given for each price level. If they both charge a high price, they each get $8000 per month. But if one charges a low price ($8) while the other is charging a high price ($12), the person with the low price gets most of the business and gets profits of $10,000 per month. If they both charge a low price, they only make $5000 per month each. While one might think that this law would er, um, help Ben and Greg, what do you think the likely outcome will be?

both charge $8

Which of the following activities is LEAST likely to give rise to external costs or benefits?

buying a hamburger and eating it for lunch

The changes described in the article would likely move the market for almonds from the middle to?

c

Which of the curves most likely represents the curve implied by the underlined portion of the article below? About Those Nutty Almond Investors . . . Bagott, Jeremy. Wall Street Journal, 13 Sep 2016: A.9.

c

Consider the following article: U.S. Sugar Policy: Sweet for a Few, Sour for Most How does this diagram capture the dynamics of the sugar tariff?

c and d The costs of the tariff are widely distributed over the population: this means that each person bears so small a cost that it is not worth fighting it, and it would be too hard to organize so many people. Thus they tend not to organize and fight the bad policy The benefits of the high tariff provided concentrated benefits to the small number of domestic sugar producers: thus they have strong incentive to organize, and there are fewer of them to organize, thus they tend to be more organized

According to Alexander Yakovlev, former director of propaganda for the Soviet Union

communism's problems arose from Marxism itself. Marx naively believed that if you just fixed the economic ownership in the system to make it more fair, people would then be good. Instead, the concentration of economic and political power, without a belief in absolute right or wrong, enabled brutality.

In the long run, neither competitive price takers nor competitive price searchers (price searchers with low entry barriers/monopolistically competitive firms) will be able to earn economic profits because

competition will force prices down to the level of per-unit production costs.

Which of the following provides consumers the best protection against prices that persistently exceed the cost of production?

competitive markets

Externalities cause the market mechanism to allocate goods and resources inefficiently because

competitive markets fail to give producers and consumers correct price signals.

Because of the free-rider problem,

competitive markets will tend to undersupply public goods.

Assuming that the following quotation is consistent with what we covered in class, what term should go in the blank?

competitiveness

Marx developed the name "capitalism" as a derogatory term to indicate the group he believed dominated/ran the economy, the capitalists (business owners). If we were to use his criteria, i.e. who ultimately controls the economy and what is made in it, in a market economy, what is produced is ultimately determined by

consumers

Jan: "I'm kind of worried about our boss, Al. I think he's getting paranoid, yah know, excessively worried." Jim: "How so?" Jan: "Well, when I asked him why we keep prices so low, even though there are no competitors around for miles, he said 'You have to in the deli business. There's always the threat someone might come in and start a competing place and give me competition. You have to act like you're in competition or they'll get you.' Then he made up some big term, saying, 'The game is still pretty competitive when you're in a ____ market."

contestable

An increase in the real interest rate will increase the

cost of current consumption goods relative to future consumption.

From the standpoint of society as a whole, rent seeking is

counterproductive because it takes resources away from the creation of wealth in the private sector.

Over the last few decades, one lesson economists have learned is that the marginal revenue product theory of employment holds. As a result,

countries with extensive labor market protection policies also have higher unemployment rates

A competitive capital market is important to society because it directs resources toward projects that

create wealth.

Consider the article "Free Fall: Adjusted for Inflation, Print Newspaper Advertising Will Be Lower This Year Than in 1950", what term should go in the blank at the end?Free-fall: Adjusted for Inflation, Print Newspaper Advertising Will be Lower This Year Than in 1950

creative destruction

This would be an example of what economic historian Joseph Schumpeter called ______

creative destruction

Consider the article "The Federal Reserve's Too Cozy Relations with Banks." What term did we use to describe this phenomenon in which firms benefit from their connections to the political and regulatory process. Mr. Haber is a professor of political science at Stanford University and a senior fellow at the Hoover Institution. Mr. Levine is a professor of business at the University of California, Berkeley.

crony capitalism

This editorial "_____'s Favorite Trick: More Regulation" attacks a practice of government and business entanglement: government helping business (from which the politicians get donations), and businesses lobbying government for more handouts, etc. This is not the free market. What term goes in the blank?________'s Favorite Trick: More Regulation by Jonathan Witt March 26, 2014

crony capitalism

Consider the following article on pilots. Assuming this is the market for air travel, the events in this article will tend to move the equilibrium from the middle to...?Airlines Face Acute Shortage Of Pilots

d

The changes described in the article would likely move the market for gas from the middle to?Alabama pipeline shutdown could send gas prices higher

d

Consider the article: "Energy Crisis Postponed." Yes, the article is true. The recent breakthrough has massively expanded our potential to access natural gas by multiple times (Texas researchers estimate 9 times!). For the moment, this massive change has shifited the equilibrium from the middle to ___?

e

The demand D1 and short-run supply SSR of accountants is indicated in Figure 12-2. Which of the following would most likely shift the demand for accountants from D1 to D2?

enacting legislation that increases the complexity of personal and business tax returns

What resource is being referred to in the following paragraph on CEO compensation ?

entrepreneurial ability

When economic losses are present in a market, firms will tend to

exit from the market.

Refer to Figure 5-4. The figure illustrates an industry that generates

external costs.

The concept we discussed which is implied here by the artist in the following story is A tourist in New Orleans decided to have his picture painted by a sidewalk artist in front of the St. Louis Cathedral. When the artist was done, the tourist was amazed by the quality of the painting, but shocked to here that the price was $200. "I'll pay it," he said hesitatingly, "because it is such a great picture. But how can you charge so much? It only took you five minutes to paint.""No," the artist corrected him, "30 years and five minutes."

human capital

Consider the following quotes from John Paul II's encyclical on the economy Centesimus Annus. What concept is he referring in the first (A) and second (B) cases?

human capital, social capital

Time costs, unlike money prices, differ among individuals. Therefore,

high-wage consumers generally choose fewer time-intensive commodities than do low-income consumers.

The marginal productivity principle says that a profit-maximizing firm should

hire labor until another worker costs more to hire than he can earn for the firm

When an employer pays the cost of educating a worker, it is likely that the employer

hopes to recapture its investment in the form of increased labor productivity.

Which of the following goods are most likely to be complements?

hot dogs and hot dog buns

Forty years ago, it was estimated that we had only 30 (THIRTY) years of oil left. Today the estimate is 50 (FIFTY!). Estimated years left of oil reserves ROSE over the period. The explanation for this is that when people refer to "reserves" of a resource, they mean

how much is known to be available, recoverable with current technology, at current prices, and if these grow reserves will be larger

Emma Thyst runs a jewely store. Most of what she sells are luxuries. In general, they have a(n)

income elasticity greater than 1

A profit-maximizing monopolist that produces in the short run will

increase output as long as the marginal revenue exceeds the marginal cost of producing that unit.

As the period for firms to expand output is lengthened, the elasticity of the market supply curve will

increase.

Interestingly, estimated years left of oil reserves grew across the last century. We've long since passed any prior predictions that "in 20 years the world will run out of oil." The explanation for this is that when people refer to "reserves" of a resource, they mean

how much is known to be available, recoverable with current technology, at current prices, and if these grow reserves will be larger

As the present value of the future earnings from owning an asset ____, the market value of the asset ____.

increases; increases

When members of an oligopolistic industry agree to collude, raising their product price substantially above average cost, the passage of time (months and years)

is likely to erode the agreement, as ways to cheat are developed by some participants and new entry is encouraged by the high price.

The graph below depicts the cost structure for a firm in a competitive market. Refer to Figure 9-13. When price rises from P3 to P4, the firm finds that

it can earn a positive profit by increasing production to Q4.

Which of the following provides the best explanation for diseconomies of scale?

large management structures may be bureaucratic and inefficient.

"I'm tired of eating muffins for breakfast. Today I'm trying a bagel." This statement most clearly reflects the

law of diminishing marginal utility.

From the standpoint of economic efficiency, competitive markets tend to provide

less of a public good than would be efficient.

Kim Ono's Asian Clothing Emporium has been wildly successful and she is considering expanding. Since the new location is still in the blueprint stage, the expected per-unit cost of producing alternative rates of output is reflected by the its

long-run average total cost curve.

Given the details above, the firm will have a

loss of $34

New products provide a classic case of the consumer information problem. However, in some cases consumers partially solve the problem by trusting the "brand name" of the producer of the new product. Because firms spend millions of dollars advertising and maintaining their brand names, the likelihood of a "brand name" firm intentionally selling a dangerous or shoddy new product is

low because the firm with a brand name has a lot to lose if word spreads about bad consumer experiences.

Despite being a college graduate, Jack Adams cannot name any of his representatives in Congress and he has no idea which issues are being debated and voted on this week in Congress. According to public choice analysis, Jack is

making a rational personal choice because knowing these things gives him little personal benefit.

Which of the following is the best definition of "physical capital"?

man-made resources used to produce other goods

Consider the following passage from President Clinton's 1996 Economic Report of the President (p60). What concept is being alluded to in the underlined clause?

marginal revenue product

Fun Time Inc. uses the same property and equipment to provide skiing services for six months during the winter and mountain roller boarding for six months during the summer. Monthly revenue and cost figures during the summer and winter months for Fun Time are shown below. Fun Time's $1,000 monthly fixed costs will be incurred as long as it remains in business. Which of the following should Fun Time do if it wants to maximize its annual profit?

operate in both the winter and summer

Fun Time Inc. uses the same property and equipment to provide skiing services for six months during the winter and mountain roller boarding for six months during the summer. Monthly revenue and cost figures during the summer and winter months for Fun Time are shown below. Fun Time's $1,000 monthly fixed costs will be incurred as long as it remains in business. Which of the following should Fun Time do if it wants to maximize its profit?

operate in the winter, but shut down during the summer

Assume that you have Demand Qd = 70 - 10P and Supply Qs = -5 + 5P.If there is a negative externality of $3, what would be the efficient outcome?

p = 7; q = 30

Suppose that the demand in a market is Qd = 200 - 10P and the supply is Qs = -40 + 20P. The equilibrium price and quantity will be

p = 8; q = 120

Assume that you have Demand Qd = 100 - 10P and Supply Qs = -20 + 5P.What equilibrium price and quantity will result?

p = 8; q = 20

Assume that you have Demand Qd = 100 - 10P and Supply Qs = -5 + 5P.If there is a negative externality of $3, what would be the efficient outcome?

p = 8; q = 20

Assume that you have Demand Qd = 100 - 10P and Supply Qs = -20 + 5P.If there is a negative externality of $3, what would be the efficient outcome?

p = 9; q = 10

What would be the efficient price and quantity given the following graph?The supply and demand areSupply: Qs = -4000 + 100PDemand: Qd = 8000 - 50P

p=100, q = 3000

Bill owns a firm in a price taker market, while Beth owns a firm in a competitive price searcher market. In the long run, equilibrium will be _________ for Bill's price taker firm and _______ for Beth's competitive price searcher.

p=MC=MR=minATC; MR=MC & P=ATC

Other things constant, the price elasticity of demand for a product will tend to be smaller (more inelastic) if

people spend an insignificant share of their income on the product.

A completely horizontal demand curve implies a price elasticity of demand that is

perfectly elastic.

The shortsightedness effect suggests that

politicians have a strong incentive to support projects that yield immediate and easily recognized benefits, especially when the costs of the projects are difficult to identify and are observable only in the distant future.

Curt Peterson and his brother Rod run window furnishings store, (Curt & Rod's Window WonderWorld) selling drapes, curtains, blinds, decorations, etc. They are the largest seller of such products in the city, but ultimately it is not THAT hard to enter their market. The market model which most likely expresses the conditions in which they operate is

price searcher, low entry barrier (monopolistic competition)

William Service is CEO of a bill service company, which provides assistance for small firms in handling how they recover payment from customers. This bill service is an important, but not complicated, function for anyone with experience in accounting and finance. Most likely it is a ____ firm.

price searcher, low entry barrier (monopolistic competition)

Producers tend to be better represented in lobbying efforts and other elements of the political process than consumers because

producers are generally better organized than consumers.

Rhoda Dendrann owns a landscaping business in a small city. She knows that (as a competitive price-searcher (i.e. in low entry barrier market), she can raise her price without losing all of her customers. This is a result of

product differentiation: other firms are substitutes, but not perfect substitutes for her services.

Hugh Gemussels finds that demand for club memberships increases when incomes in the area decline. It can be concluded that the

product is an inferior service.

To say that a circumstance is efficient implies

production has expanded as long as marginal benefit of the next unit has exceeded marginal cost, up to the equality MB = MC, but no further

As new firms enter a competitive price-searcher (price searcher with low entry barrier/monopolistically competitive) market, it can be expected that

profits of existing firms will decrease

When the tax to fund a government project is allocated among voters in proportion to the benefits they receive from the project,

projects that are productive (efficient) will tend to be favored by an overwhelming majority of voters.

See "Artists in Harness" by George Will below. In a recent event, a higher official of the National Endowment for the Arts (a government agency that is the largest grant source to artists in the US) called up many artists who has received government grants or who were applying for them and asked them to devote their talents to making the administration look good, to help sell the government's policies. Note that in this sense, there is an exchange: the public officials have something to sell to the artists (grants) in return for (publicity leading to) votes. The school of economics that examines government as this process of exchange and looks at self interest in collective action is known as

public choice

The branch of economics that attempts to understand the outcomes observed in the public sector by examining the incentives faced by the individual actors involved (such as voters, politicians, and bureaucrats) is known as

public choice analysis

A Columbia School of Journalism report encourages the government to "help" fund/subsidize newspapers. What term would be most applicable in the blank? I'm not asking whether you think this is a sound argument or good idea (having the government run the newspapers?!!) , but rather that you understand what term the writer is trying to claim applies here as a justification for government involvement.The quotation from their report is as follows: Columbia Journalism Review Editorial Nov/Dec 2009. "If we don't get beyond the rational but outdated fear of government help for accountability journalism—if we just let the market sort it out—this vital ______ will continue to decline."

public good

A good for which it is impossible or at least very costly to exclude nonpaying customers from receiving the good and for which many individuals can share in the consumption of the same unit of the good is called a

public good.

If the garbage truck is picking up trash from your house, they cannot be at my house at the same time. Thus if garbage collection is done by the town, it could be described as a

publicly provided private good

Fire protection is generally paid for and done by by cities and towns. However, if the truck is at Laura's house, it cannot be at Chellie's at the same time. Thus fire protection paid for by a city or town would be considered a _____ good.

publicly provided, private

Given the small amount of traffic the town of Lee tends to have, for the most part one person's use has little effect on others using the same roads. Suppose that the town of Lee hires Shaughnessy's contruction company to build its roads. In this case, the roads are

publicly provided, privately produced, public goods

Use the figure to answer the following question(s). At what output does the firm depicted in Figure 8-6 minimize its per-unit cost of production?

q2

Another Day, Another Crisis...Below is a selection of headlines from the New York Times regarding a prior "timber crisis" in the U.S. "The End of Lumber Supply" 12/31/1900 "Timber Famine Near Says Roosevelt & National Forest Service" 1/6/05 "Hickory Disappearing, Supply of Wood Nears End: Much Wasted & There's No Substitute" 10/31/08"Banish Christmas Trees, Dr. MacArthur Says this Heathenish Practice Denudes Forests" 12/7/08"Urges Laws to Save Trees, Forest Will Be Wiped Out in Ten Years at Present Rate, Whipple Says" 12/16/08Given what we covered regarding how markets adjust to resource scarcity (and that you still see trees, including Christmas trees) what do you suppose happened to alleviate the crisis most dramatically (and rapidly, i.e. by about 1920)?

railroad companies, the largest single industrial user of wood products at the time, and others reduced wood use in response to the higher prices by using iron and cement instead

People often think that regulation is intended to protect customers from companies. Not so simple. Uber founder Travis Kalanick knows his econ...or at least that related to regulation. In fact, he used the exact term we used for the phenomenon he is describing, i.e. _________: that regulators care more about protecting producers from regulation than customers from the producers. Notice, this isn't a problem of LACK of regulation, but that the regulators are serving the wrong group, certain producers, AGAINST the customers!

regulatory capture

When Tom Maydo lowers the price of vegetables at his stand by 10% and the quantity demanded INcreases by 20%, demand is classified as

relatively elastic.

In 2006, the American Association of Retired Persons (AARP) spent over $70 million on lobbying-related expenses in an attempt to get policies enacted that would benefit retirees. In economics, the term used to describe such activity is

rent seeking

In the screen shot shown (whether true or not), Federal Express is making a case about what UPS is doing. They are claiming that rather than improve what they do, UPS is getting the government to hinder its competitors. In essence, they are accusing UPS of _____This general term applies to any case in which, rather than improve their products or services, firms seek to use the power of government to hinder competitors either by favorable regulation, laws, or court rulings.

rent seeking

In 1931, Pope Pius wrote the following about firms trying to get the government to help them by hindering competition from other firms. What concept is at issue in the underlined section of the passage from Pope Pius' encyclical?

rent-seeking behavior

What concept is at issue in the underlined section of the passage? Europe v. U.S. Business Wall Street Journal

rent-seeking behavior

The article "Hell Hath no Fury" pertains to organizations engaged in ______ behavior as a means of obtaining a ____ Hell Hath No Fury Like a Lawyer Scorned

rent-seeking; barrier to entry

Jen's firm is firm is making positive economic profits, these economic profits

signal owners of factors of production to move resources into this industry.

Physical and human capital investments are

similar in that both involve forgoing current income (and consumption) with the objective of increasing one's future income (and consumption).

A system of economic organization in which the ownership and control of productive capital assets rests with the state and in which resources are allocated through central planning and political decision making is called

socialism.

If firms in a competitive price-searcher market (i.e. with low entry barriers) are currently earning economic losses, then in the long run,

some existing firms will exit the market, and the remaining firms will experience an increase in demand for their products until zero economic profit is again restored.

In a price-taker market, economic losses indicate that

some firms have miscalculated, producing goods that are less valuable than the resources used to make them.

When the conditions in a competitive price-taker market are such that the firms are consistently unable to cover their production costs,

some firms will exit from the industry, and market price will rise until the remaining firms can earn the normal rate of return.

The long run is a period of

sufficient length to allow a firm to alter its plant size and capacity and all other factors of production.

Shannon is watching Nightmare on Elm Street 95 with Lauren, Kassie, and Ashley. Halfway through the movie Kelly (who has seen it before) comes in and informs them that the movie is terrible (as they've noticed so far) and only gets worse. (She then leaves.) Shannon argues that they should all leave rather than suffer through any longer. However, the others argue that they want to stay to "get their money's worth" even though each new scene only disgusts them further. Apparently Shannon learned the principle of

sunk costs

A technological improvement in producing good A would be illustrated in a supply and demand diagram as a shift in the

supply curve for A to the right.

What is the problem happening in idea or information based industries, from music to print media?

technology is increasingly making them less rival and less excludable

One of the effects of patents is to

temporarily provide the patent owner with monopoly power that helps recover costs of research and development.

Pollution charges will be efficient if

the charge is just equal to the cost borne by others from the pollution.

Ruth Abaga is thinking about whether to raise the price of turnips at her shop. You tell her that if the price of turnips increases, revenue from turnips will decline if

the demand for turnips is elastic.

If a profit-maximizing restaurant is going to increase its revenues by charging senior citizens (persons age 65 and over) lower prices than other customers,

the demand of senior citizens for the services of the restaurant must be elastic.

Airlines generally charge travelers willing to stay over Saturday night lower fares because

the demand of these travelers is elastic, and therefore, the lower fares generate more revenue.

The excess supply created when governments impose a price floor above equilibrium is

the difference between the new quantity supplied and the new quantity demanded.

In both price-taker and competitive price-searcher markets (price searcher with low entry barrier/monopolistically competitive), short-run economic profits will lead to

the entry of additional firms into the market and the eventual restoration of zero long-run economic profits.

The rational-ignorance effect is a result of

the expectation of individual voters that their vote will not be decisive, thus they believe it is not worth it to obtain information on particular issues or candidates

When goods are produced privately, but the cost of their purchase is paid for by the taxpayer or some other third party,

the incentives for private producers of such goods to control costs and provide them at low prices will be substantially reduced

Dr. Manbush runs a research lab studying the ever popular corn-earworm. After receiving a large research grant from the federal government, he has to expand his output of papers. He can expand both lab space and researchers, but lab space takes time to acquire, while people can be found immediately lying around the science building (idle or asleep in classes). He notices an interesting phenomenon. If he adds workers when his lab space is fixed, output from each additional worker actually declines. However, if he expands both lab space and workers together, output per additional worker actually grows. What might explain this puzzling observation?

the law of diminishing marginal returns applies when lab space is fixed, but he faces increasingreturns to scale when lab space is not fixed.

What concept is central to the article "Paying for the Thousand Dollar Pill." Paying for the Thousand-Dollar PillSpecialty drugs account for 25% of U.S. drug costs. Health plans need to know more about them. The more units you produce...

the lower the average fixed cost per unit

When Michael opens the paper, he sees that the local car dealership is offering "financing" for a car loan: i.e. they will give him money to buy a car if he agrees to pay 10% on the loan. If the real interest rate is 7%, it must mean that

the nominal interest rate is 10%

One implicit cost that firms must face is the "cost" that funds invested in them could be invested and getting a return in some other sector. This is referred to as

the opportunity cost of capital.

If a local government began licensing funeral homes in the area, effectively making them into a cartel, we would expect

the price of funeral services to rise, and the number of funerals performed in the area to fall.

If a monopolist wants to maximize profit, what price should he charge?

the price on the demand curve associated with the MC = MR output

Which of the following is an example of political action that reflects the shortsightedness effect?

the promise of future benefits without providing for their funding

A decrease in supply means that

the quantity supplied at each price will decrease.

The efficient level of output of a good with an externality occurs when

the true marginal cost of production equals the true marginal benefit of the good.

Venezuela has been in the news regularly because despite having extensive national resources, particularly oil, it has been experiencing high inflation, failing economy, and falling living standards over the past two decades. Conditions are so bad, the average weight per person of the population has been falling on what is bitterly referred to as the "Venezuelan diet." The country has gone from one of the richest in Latin America to one of the poorest. What went wrong?

they adopted socialism (common ownership) under Hugo Chavez

A problem common to both price ceilings and price floors is that

they are poorly targeted: rather than helping those with less income, much of the benefit does not go to those who do NOT need it, and the costs are borne by those with less income.

According to the following article providing data on the fungicide Captan, The article states, correctly, that only two companies produce it in the United States. How should we respond to this?

this is not in itself a problem if there are other fungicides besides captan that can compete with it, even if only two companies produce captan specifically

Consider the following story. Drivers and welders can earn enormous amounts of money doing the same job hundreds of miles further north. How can we get such skill up north where the oil (and cold are)? One way to define the concept we might use to assess this is MP*Po = wage, i.e. the marginal product times the output price equals what people are paid, or, people are paid the value of what they produce for others via the firms for which they work.. This formula captures the very important idea that we want a system that provides the right incentives. Here this mechanism provides the right incentive in two key areas,

to raise one's productivity (as reflected in marginal revenue product) and to allocate scarce labor resources toward making those outputs which are most highly valued

Powderject Vaccines is housed in a high tech lab building guaranteed to insure that the infectious diseases on which they work do not escape. These buildings are complicated and cannot simply be built in a flash. Thus once they make a building, they have to work in it for many years. If their CEO Lendon Peters wants to think about how to expand output while they are in one of their buildings, he will have to

treat the building as a fixed input and use the law of diminishing marginal returns to determine optimal output given that building size they have.

Which of the following will be an obstacle to oligopolistic collusion in a market?

unstable demand conditions

If Susan has a positive rate of time preference, she will

value the receipt of $10,000 twenty years from now less than she would value receipt of the $10,000 now.

Consider the article on the GM Volt. What concept goes in the blank?Factbox: Estimating costs of making General Motors' Volt

variable costs

The fact that voters perceive their votes as unlikely to actually change the outcome of an election causes

voters to have little incentive to become informed about candidates and political issues.

An improvement in technology that allows workers to process twice as many insurance forms in an hour than before will cause

wages of workers to rise because their marginal revenue product has increased.

Firms often complain about regulations, so it is common to think they don't want government regulations. This is not necessarily true. Often firms do want regulations. For example, it is commonly believed that the Upton Sinclair's The Jungle exposed rotten conditions in the meatpacking industry, with the intent of calling for government regulation to improve conditions since businesses themselves would fight food processing regulations and wouldn't provide sanitary conditions on their own. However, Sinclair actually wrote "The Federal inspection of meat was, historically, established at the packers' request. It is maintained and paid for by the people of the United States for the benefit of the packers." (1906). During Congressional hearings on the industry, one spokesman for the meatpackers stated "We are now and have always been in favor of the extension of the inspection, also to the adoption of the sanitary regulations that will insure the very best possible conditions." In light of what we discussed this semester, scholarship on regulation indicates that most likely the spokesman's statement (Goldberg, LF:291)

was partly true: the big meatpacking firms did welcome regulation: because it was easier for the large firms to meet the regulations than smaller/independent firms and butchers. Thus regulation would protect big firms from small competitors.

Which of the following is the best example of an action that imposes an external cost?

water pollution from an upstream factory that increases the cost of providing clean water to downstream residents

For many years Heinz corporation had the slogan "57 Varieties of Heinz." Apparently, they might just have well have been saying

we have economies of scope

In which of the following situations is the political process likely to result in the inefficient and wasteful use of resources?

when the benefits are concentrated and the costs widespread

For which age group of workers do restrictive employee dismissal policies increase the unemployment rate the most?

young workers since employers have the least information about them, and are less willing to take a risk on them than on more established workers

In the short run, if average variable costs equal $60, average total costs equal $70, and output equals 100, the total fixed costs should equal

$1,000.

Suppose you were going to receive $12,000 in 2 years. If the interest rate was 8%, what is the value of that $12,000 future amount worth to you now?

$10, 288

Use the figure to answer the following question(s). When the market price is $60 in Figure 9-9, the firm's maximum daily profit will be approximately

$100.

If the interest rate is 5 percent, what is the current value of $110 to be received one year from now?

$104

Suppose you were going to receive $12,000 in a year. If the interest rate was 8%, what is the value of that $12,000 future amount worth to you now?

$11,111

These are the cost curves for one very small firm in a large market. They will only make a profit if the price was at least

$12

If the interest rate was 5 percent and an investment project was expected to yield net revenue of $3,000 per year (to be received at year-end) for each of the next three years, profit-maximizing decision makers would undertake the investment only as long as it cost less than

$8,170

Using the cost information, TOTAL variable cost for producing 18 units is about

$126

Use the figure to answer the following question(s) What price should a competitive price-searcher firm (price searcher with low entry barrier/monopolistically competitive) with the cost and demand conditions depicted in Figure 10-4 charge if it wants to maximize its profit?

$20

Using the cost information, total cost for producing 22 units is about

$264

Given this cost information, the AVERAGE fixed cost for the 18th unit is (about)

$3

Suppose you were going to receive $12,000 at the end of EACH of the next 4 years. If the interest rate was 8%, what is the value of that total future amount worth to you now?

$39,746

Arty Choake leaves his $34,000 waiter position to start his own restaurant. After expenses, his net income was $38,000. His economic profit was

$4,000.

Using the cost information for the 18th unit, TOTAL fixed costs are about

$54

If average fixed costs equal $60 and average total costs equal $120 when output is 100, the total variable cost must be

$6,000.

If the interest rate is 8 percent, the present value of $750 to be received two years from now is

$643.

These are the cost curves for one very small firm in a large market. They would only choose to produce if the price was ___ or greater.

$7

Using the cost information, AVERAGE variable cost for producing 18 units is about

$7

If the interest rate is 8 percent and an investment undertaken and paid for today is expected to yield $3,000 per year (to be received at year end) for each of the next three years, a profit-maximizing decision maker would undertake the investment only as long as the cost remained less than approximately

$7,731.

Figure 9-15 At which price and quantity is profit maximized for the competitive price-taker firm represented in Figure 9-15?

$8 and 70

Deb O'Nair runs a formalwear rental company. When she raised the price of renting a tuxedo from $90 to $120, sales of tuxedos dropped from 300 to 200 per week. Her elasticity is

-1.4

If the price in the market were 13, the firm would have total revenue of

1170

The total cost of making 90 units is about

1170

If the market price were $18, the firm would produce a quantity such that total cost would be

1400

Given this cost information, total variable cost of the 5th unit is:

146

Given the details above, what quantity will the firm choose

17

Given this cost information, total cost of the 4th unit is:

180

These are the cost curves for one very small firm in a large market. If the market price is $12, total revenue will be

180

Senator Goodheart argues "Firms in the United States make so much in profit, even after taxes, that society should demand that they give back more. Either they should pay more in taxes, give more voluntarily, or accept the greater regulatory burdens we impose." In order to assess such claims, and the political attractiveness of them, we need to know what profit levels are and what people perceive them to be. According to your textbook (last paragraph of ch 11), surveys indicate that people think US firms make about __% in profit. Studies of firms find that the actual figure is about __%

30;5

Days of Labor Units of Output Suppose that the firm pays its workers $55 per day. Each unit of output sells for $12. How many days of labor should the firm hire?

4

The marginal cost of producing the 60th unit is

5

Most of you will be working in business. Business is affected by government policies. Government policies come from politicians voting for what they generally think people want. Thus what people THINK is true is critical, even if it is wrong! People may think policies are good ideas merely because what they think they know is actually wrong. One important example of this is firm profitability. If firms are very profitable, this might imply that companies could pay more in taxes, pay more to workers, pay for more expensive environmental and safety regulation, etc., and voters would demand such policies. If they are not very profitable, that might change what we think should be done. So we had better get this straight. And as a business person, you had better help your friends understand the correct figures. Remember, the business life you save may be your own. Ready to start on this? The average after tax profit of firms in the United States is about ___. Most people think that this profit level is about ___?

5%, 30%

Sarah recently got a raise from $500 to $550 per week. She now purchases 50 percent more in groceries on a weekly basis. Sarah's income elasticity for groceries is

5.

Use the information in the table below to answer the following question(s). The firm hires labor competitively and sells its product in a competitive price-taker market. If the market wage rate is $25 per day, how many workers should the firm hire if it wants to maximize profits?

6

The firm would only produce if the price were higher than

7

If the price in the market were 9, the firm would produce about ___ units

80

Given this cost information, total fixed cost is:

84

Given this cost information, total fixed cost of producing the 5th unit is/are:

84

Which of the following most clearly illustrates the concept of "derived demand"?

A boom in the housing market leads to an increase in the demand for lumber and electricians.

Of these curves:

B would more likely represent the demand curve for gasoline in the long run, while C would represent the demand curve for gasoline in the short run.

The idea that business failure is a positive force for progress in a market economy is often summarized by the term "creative destruction." Which of the following best states the central idea of this principle?

Business failure allows the assets and resources from that business to move into other areas where those resources are now more productive and highly valued.

Consider the article "There Will be Fuel" by Clifford Krauss in the New York Times (Nov 16, 2010). The term most likely to go in the blank is

high prices

Jack Cuzi's Hot Tub Emporium faces a market in which the supply and demand are Qd = 3000 - 200P and Qs = -2400 +400P. What will be the consumer surplus and producer surplus?

CS=$3600; PS=$1800

ack Cuzi's Hot Tub Emporium faces a market in which the supply and demand are Qd = 3000 - 200P and Qs = -2400 +400P. What will be the consumer surplus and producer surplus?

CS=$3600; PS=$1800

What profit does the firm pictured here make?

DEFC, which is actually a loss not a profit

Doris Open runs the prominent Doris Open Holiday Hotel and needs to upgrade her computer. If Doris receives $3,000 of value from a computer that she was able to purchase from Joe's Computer Shop for $1,800, this indicates that

Doris reaped a consumer surplus of $1,200 from the purchase of the computer.

Consider the following passage, especially the quotation "regulation is acquired by the industry and is designed and operated primarily for its benefit." What economist won his Nobel prize for proving that this is commonly the case with regulation (that firms use regulation by government to limit competition)?

George Stigler

After listening to a news broadcast about some mining company, your friend says "How can we let this continue? The power of big business just keeps growing and growing. In many markets, there are only a few producers, and no doubt there are many cases where they collude to jack the prices up." Fortunately, you know that across the 20th century, we spent a great deal of effort studying this exact question. Which of the following is NOT true about what we learned?

Government regulations like price controls tend not to be effective, but regulations like anti-trust laws tend to be very effective.

Which of the following is true of saving and investment?

If investment is going to be undertaken, someone must save.

Assume that black beans and rice are staples in the diet of one particular family. How could you tell if these goods were complements, substitutes, or unrelated goods?

If the price of black beans rose and the consumption of rice increased, they would be substitutes.

In general, this has been a massive increase in overall level of resources, with average gains per household of $2500 per year, equal to 6.8% of income for the poorest 5th of households. Consider the diagram and the related article. What is so astounding about this is that the US reduced CO2 emissions about 18%, back to 1990 levels, because we shifted into natural gas, which is less carbon intensive than coal or even oil. At the same time, we REDUCED the cost of energy so much that it was equal to poor households seeing their incomes rise 5-6%, several thousand dollars per year per household. What is the lesson we discussed from this in class.

If you switch energy sources to another technology because the new technology is more efficient, you can have a massive switch and save people money (raise their well-being)

Sally Mander and Ella Fint run a pet store. The figure represents demand for their bird food. Which of the following is true for the demand curve depicted above?

In the $3 to $4 range, the demand curve is inelastic.

Despite many differences, the market and public sectors are similar in which one of the following respects?

It will be costly to use scarce goods, whether through the private or the public sector.

Harry Smith sells wheat in a price-taker market. With regard to Smith's price and output choices, which of the following is true?

It would be senseless for Smith to try to increase sales by lowering the price of his product.

Consider the following diagram. Assume that the cost in cents per kilowatt hours for electricity is about 5-6 cents if produced by fossil fuels such as natural gas. The pattern from the graph indicates that.

It would still be a waste of resources to massively switch away from fossil fuels and into solar or wind because both remain less efficient. However, assuming continued growth in efficiency, it would make sense to shift into them massively in the future.

Which of the following is the best example of the substitution effect?

Joe buys fewer apples and more oranges as the result of an increase in the price of apples.

Consider this passage from The Trumpet of the Swanby E.B. White. In it, a Trumpeter swan named Louis who cannot honk learns instead to use a real trumpet (as well as write on a little slate chalkboard). This is the scene (chapter 14 "Boston") where Louis goes to a lake which has a boat business in which people get rides in boats shaped like swans. Needless to say, they find a real trumpeter swan who can play songs on a trumpet interesting. "Hello!" said the Boatman. Louis lifted his trumpet. "Ko-Hoh!" he replied. At the sound, every bird in the park looked up. The Boatman jumped. Buston residents as far as a mile away looked up and said, "What's that?"... The sound made a big impression... The man in charge of the Swan Boat was probably the most surprised man in Boston. He examined Louis's trumpet, his moneybag, his lifesaving medal, his slate, and his chalk pencil. Then he asked Louis what he wanted. Louis wrote on his slate: "Have trumpet. Need work." "O.K.," said the Boatman. "You've got yourself a job. A boat leaves here in five minutes for a trip around the lake. Your job will be to swim in front of the boat, leading the way and blowing your horn." "What salary do I get?" asked Louis on his slate. "We'll settle that later, when we see how you make out," said the Boatman. "This is just a tryout."Question: How does this relate to our discussion of a minimum wage?

Low minimum wages allow businesses to take a chance on workers before committing to longer employment at higher wages. Policies which force businesses to pay more money reduce the willingness of businesses to take risks on employees.

Assume that you are a member of the U.S. House of Representatives from your home state and district. Which of the following best explains why you have a strong incentive to get the federal government to finance pork-barrel projects in your district?

Most of the benefits of pork-barrel projects within your district will accrue to your constituents, whereas most of the costs will be imposed on voters from other districts.

Use the figure to answer the following question(s). If the cost and demand conditions of this competitive price-searcher (price searcher with low entry barrier/monopolistically competitive) firm depicted in Figure 10-2 are representative of the market, what will happen in the future?

New firms will enter the market, and demand facing this firm will decline.

Dan Gerous runs the famous Dan Gerous Outdoor Adventure Center. His market conditions are above. What are the equilibrium price and quantity in this market? P*_____ Q*_____

P=$7; Q=1600

This is the market for acting lessons offered by Hugh Geegoze. What are the equilibrium price and quantity in this market? P*_____ Q*_____

P=$7; Q=1600

Tim Idd's Drama Studio offers acting lessons. Suppose that the supply and demand for lessons in the market are Qd = 3000 - 200P and Qs = -1200 +400P. What will be the equilibrium price and quantity in this market? P*_____ Q*_____

P=$7; Q=1600

Beau Ring runs a comedy club (The Beau Ring Comedy Castle). Suppose that the supply and demand in the market are Qd = 3000 - 200P and Qs = -2400 +400P. What will be the equilibrium price and quantity for tickets in this market? P*_____ Q*_____

P=$9; Q=1200

What are the long run equilibrium conditions in a price taker market?

P=MR=MC=Min ATC

Refer to Figure 10-11. Which of the graphs shown would be consistent with a firm in a competitive price-searcher market (price searcher with low entry barrier/monopolistically competitive) that is earning a positive profit?

Panel c

Bob goes out to dinner three times per week, usually either to the local steak house or a Chinese restaurant in town. If the steak house were to raise its prices, Bob would probably (1) be less inclined to eat at the steak house and more inclined to eat at the Chinese restaurant when he did go out and (2) eat out fewer times per week because at the higher prices he cannot afford to eat out as much.

Part 1 is an example of the substitution effect, part 2 of the income effect.

The figure below illustrates the cost and revenue structure for a monopoly firm. Refer to Figure 11-17. What level of output would produce the maximum profit for the firm

Q2

In the article "School of Hard Knocks, Annie Paul reviews a book called How Children Succeed by Paul Tough, which refers to the "character hypothesis" and "non-cognitive skills" like persistence, discipline, peservance, sense of purpose. This matches what Nobel prize winnerSchool of Hard Knocks by ANNIE MURPHY PAUL New York Times. August 23, 2012 Book review of 'How Children Succeed: Grit, Curiosity, and the Hidden Power of Character By Paul Tough

Robert Fogel called spiritual resources/assets

Beau Ring runs a comedy club (The Beau Ring Comedy Castle). Suppose that the supply and demand in the market are Qd = 3000 - 200P and Qs = -2400 +400P. If the government decides to interfere with this market and sets a price of $7 what will happen in this market?

Shortage of 1200

Madame Gerous runs the famous Dame Gerous Outdoor Adventure Center. Her market conditions are above. If the government sets a price of $5 what will happen in this market?

Shortage of 1200

Dane Gerous runs the famous Dane Gerous Outdoor Adventure Center. His market conditions are above. If the government sets a price of $6 what will happen in the market?

Shortage of 600

Which of the following will most likely result from rent controls that reduce monthly rental rates below market equilibrium?

Shortages and black markets for rental housing will develop.

Tom Maydo sells vegetables in a price taker market. Suppose product price in the full market is $24. Tom finds that at Q = 200, MR = MC, AFC = $6; AVC = $25. What do you advise Tom to do?

Shut down operations.

Which of the following would be the most likely result from a new government program that provided significant financial aid for children of low- and middle-income families to attend college?

Starting salaries of new college graduates would fall as the supply of graduates increased.

Dick Shonary runs a book store specializing in reference books (Dick Shonary's Reference Book World). Suppose that the supply and demand in the market are Qd = 3000 - 200P and Qs = -2400 +400P. If the government sets a price of $12, what will happen?

Surplus = 1800

Dan Gerous runs the famous Dan Gerous Outdoor Adventure Center. His market conditions are above. If the government sets a price of $9 what will happen in this market?

Surplus of 1200

If Susan receives $3,000 of value from a computer that she was able to purchase from Joe's Computer Shop for $1,800, this indicates that

Susan reaped a consumer surplus of $1,200 from the purchase of the computer.

Consider the underlined section (as well as general theme) in following article. In what way(s) does the issue here exemplify what we discussed in class? What is Commissioner McDowell getting at when he states that the ruling seems to be"ignorant of current market conditions which obviate the need for a cap."Another Video Smackdown: The FCC's anti-cable campaign gets whacked

The massive increase in product variety provides people with ever more options. This increased competition reduces the power of any one firm in a given market and makes anti-trust regulation LESS necessary because people have more options.

Under which of the following market conditions is it most difficult to maintain a cartel agreement?

There are many firms in the industry and these firms have different costs.

Which of the following is characteristic of a competitive price-taker market?

There is free entry into and exit from the market

Assuming this is the market for chocolate, the events in this article will tend to move the equilibrium from the middle to...? Chocolate Makers Fight Melting Supply --- Mondelez, Other Manufacturers Spend $1 Billion To Boost Cocoa Output

a

In recent years, the term "Crony Capitalism" has seen a resurgence. What is meant by that?

a setting in which businesses are private, but the government is very active in telling businesses how to operate, as well as being heavily involved in its own purchases. This connection corrupts both business and government: certain businesses try to influence government to guarantee they get profits and competitors are stopped, and government officials get businesses to support some government policies in exchange for protection in other areas.

In recent years, the term "Crony Capitalism" has seen a resurgence. What is meant by that?

a setting in which producers are private, but the government is very active in telling producers/businesses how to operate, as well as being heavily involved in its own purchases. This connection corrupts both business and government: certain businesses try to influence government to guarantee they get profits and competitors are stopped, and government officials get businesses to support some government policies in exchange for protection in other areas.

A natural monopoly is a market where

a single large firm can produce the entire market output at a lower per-unit cost than a group of smaller firms.

In some industries where firms experience declining average total costs over the full range of output that consumers are willing to buy,

a single large firm will develop, and it will have cost advantages that protect it from potential rivals.

Consider the following diagram. In it, S1 provides a view of the world oil supply from about 1990 to 2010. Which of the following is INCORRECT.

a to c (on S1) is very INelastic. Changes in demand from D1 to D3 (and vice versa) largely affect quantity exchanged with little impact on price.

What did progressive policies have to do with eugenics?

a&b They assumed social problems either come from inside people, or from responses to external conditions. Progressives believed those social problems that arose from harsh economic circumstances caused by the market could be addressed by controlling the market. But they thought that problems due to people's genes could only be dealt with by eliminating the bad genes. Since they had no qualms using government to intefere with/control people's economic lives, they had no problems having government interfere with people's family lives. The same ideology of control extended to both areas. Many economists who were eugenicists thought that economic policies could help weed out the bad genes. For example, high minimum wages would induce employers to not want to hire those immigrants with "bad genes" and from "inferior races." This would reduce the chances those types could reproduce and decrease the likelihood they would immigrate to the United States

People often assume that progressive policies seemed so nice: reigning in the terrible abuses of those heartless capitalist pigs. And the people were so smart and educated: the intellectual elite. How could they espouse such horrid ideas as the following?

all of the above

Which of the following is a source of information that helps consumers acquire information about the quality of a good or service?

all of the above

Which of the following would decrease the price of packaged hot dogs?

all of the above

When a good is nonexcludable,

all of the above are true.

Which of the following factors affect interest rates in the loanable funds market?

all of the above.

Other things being equal, the effect of an increase in the price of orange juice would be illustrated by

an upward movement along the demand curve for orange juice.

Consider the article "Family Dollar Tree General." What concept is involved in deciding if the companies should be allowed to merge or not (and would go in the blanks)?

anti trust

If the government uses a pollution tax, how much of a tax must be imposed on each unit of production?

approximately $0.35

Sunk costs

are expenditures made in the past that cannot be regained no matter what is done now or in the future.

Public choice analysis

assumes individuals in the public sector act in their own self-interests.

The short-run average total cost (ATC) curve of a firm will tend to be U-shaped because

at low levels of output, AFC will be high, while at high levels of output, MC will be high as the result of diminishing returns.

Giving local governments more power is less dangerous than giving the same power to the national government because

d & e higher exit options exist at the local level--it is easier for people to move away from a bad local government. The fallacy of composition becomes more problematic as more is done at the national level because people are more likely to believe the costs can be passed onto another district, or less likely to realize that even though they receive pork paid for by others, they are also paying to provide pork to others.

Curtis and Roderick run "Curt 'N Rod's Window Furnishings." They are analyzing the market for window blinds. In which of the following cases will the total spending on a their blinds decrease?

demand is elastic and price rises

When a shortage occurs in the market for a good, quantity

demanded exceeds quantity supplied and the market mechanism pushes the price up, which in turn encourages more production and less consumption.

The methodology of public choice analysis

develops a logically consistent theory based on how individual actors (such as voters, politicians, and bureaucrats) respond to incentives (especially in the public sector)

Economic profit provides both human and physical capital decision makers with an incentive to

discover and develop beneficial and productive investment opportunities to boost that human or physical capital

Movement from point b to point c in Figure 8-13 indicates that the firm is experiencing

diseconomies of scale.

Assuming this is the market for sugar, the events in this article will tend to move the equilibrium from the middle to...?India Makes Plans To Pour Out Its Sugar --- Decision To Unload The Sweetener Could Reduce Prices By 15%, According To Traders

e

Consider the USGS Report noted above. Assume ONLY the events described in the article. If we started in the middle, where is the new equilibrium as a result of these events?

e

Release Date: OCTOBER 3, 2019The Marcellus Shale and Point Pleasant-Utica Shale formations of the Appalachian Basin contain an estimated mean of 214 trillion cubic feet of undiscovered, technically recoverable continuous resources of natural gas, according to new USGS assessments."Watching our estimates for the Marcellus rise from 2 trillion to 84 trillion to 97 trillion in under 20 years demonstrates the effects American ingenuity and new technology can have," said USGS Director Jim Reilly. "Knowing where these resources are located and how much exists is crucial to ensuring our nation's energy independence.Consider the USGS Report noted above. Assume ONLY the events described in the article. If we started in the middle, where is the new equilibrium as a result of these events?

e

The changes described in this article would imply that the equilibrium has shifted from the middle to ?Looking for Gold in Them Thar Trees; Investors Rush Into Almonds, But Will They Malia Wollan. Wall Street Journal (Eastern edition). New York, N.Y.: Sep 6, 2007. p. B.1Greg Hostetler is a real-estate developer who builds subdivisions in California's Central Valley. But the past few years, he's gone nuts. To be precise, Mr. Hostetler has been building a sideline in almonds, spending $60 million to buy and plant 4,500 acres of trees since 2000. This year, he plans to shell out at least another $5 million to plant an additional 1,000 acres.

e

Across the 20th century, many countries sought to use different policies to raise the pay to workers. This included such policies as higher minimum wages, increased unionization, centralized pay set by the government, limitations on hiring and firing, higher unemployment compensation, etc. Many of these would work well in restricted labor markets of the late 1800s or rural labor markets in many developing countries today, in which workers with limited mobility and job options had (have) little choice and thus were frequently underpaid by companies. The vast majority of labor markets in developed countries today, are competitive enough that

e and f Such policies ultimately attempt to raise pay without raising productivity. Since they do nothing to raise productivity, the overall economic pie cannot be any larger. Thus any increases in pay for one group, could only come at the expense of pay for others. The least skilled are unlikely to win those conflicts Such policies will tend to make the least skilled too expensive to hire since firms would be required to pay them more than the value of output they could produce.

This program provides a subsidy to the wage of low income people who work. It is our largest form of direct cash assistance to those in need. Economists believe it is far more effective than the minimum wage since it goes only to those who need it, without causign distortions in the labor market. Since it is only received if one works, it does not discourage people from working.

earned income tax credit

The condition that is present when all units creating more benefit than cost have been produced in a market is known as

economic efficiency.

In a world of imperfect knowledge and uncertainty, the return to investors who undertake projects that increase the value of resources is called

economic profit

Consider the article "Berry Battle." Suppose you were Elizabeth Coleman White (the cranberry farmer who helped develop cultivated blueberries). Recognizing that blueberries had a different harvest time than the cranberries you grew, you guessed at the possibilities if you could just help improve the types of blueberries available. When your parents and others objected to your plans, you said to them, "Look, we can expand our earnings by being able to use our land, equipment, and people for a greater portion of the year. This expansion of the different types of products we produce means we can spread the costs of fixed inputs across a greater total amount of output than with just cranberries. This is just an application of the concept of _____, which is when you have a reduction in costs that results from producing greater variety of output." Berry Battle: Highbush Versus Lowbush

economies of scope

A major problem of government spending is that it is not clear who pays for it. Each person wishes "the government" would pay for his/her special issue, forgetting that everyone else is trying to stick him/her with the bill too. This error, believing that if one person benefits from a program, we all can benefit from a program, is the Carl has just received $4000 from a government program to update his windows in his house. It was paid for by taxes paid by Allen and Bert. Allen and Bert would like to get money for their windows too. Senator Spendthrift tells them he will expand the program for them. For example, that would mean that if Allen got the program too, his $4000 would be paid for by Bert and Carl. Senator Spendthrift has made a basic logical error: believing that something which appears to benefit one person can be extended to benefit all. In Government spending, the error is that a program must be paid for someone. If simply one person benefits from the program, he/she benefits from others paying. But this cannot be extended to the population, or everyone is simply paying for everyone else's stuff. This basic error in logic is known as

fallacy of composition

Consider the underlined selections from Nobel Prize winner Friedrich Hayek from chapter 8 of his book Road to Serfdom. In it, Hayek writes that a move to socialist production doesn't improve productivity, thus the size of the economic pie must remain the same size. However, because some unions are connected with power first, they manage to force government to offer them higher pay. Many in the population who see those early workers getting higher wages assume they too will get more once the country becomes socialist. But they quickly discover that the method (government power) which raised the earnings of the first group, cannot raise the well-being of everyone. Much of the appeal of socialism thus results from a philosophical error—assuming that something that appears to work for one group can be extended to work for all groups. This is the

fallacy of composition

Last year, Bill won the lottery for $100,000, thus doubling his income, and allowing him to buy twice as much as usual. Seeing the gain in Bill's well-being from doubling his income, Amanda, president of the central bank, decided to double everyone's income by doubling how much money was printed and handing it to people based upon how much cash they already have: If they have $50, they get $50. If $100, they get $100. Amanda was shocked to discover the result of this doubling action was that prices went up but consumption didn't: i.e. no-one was actually better off. In reasoning from Bill's experience to a national policy, Amanda made a___error.

fallacy of composition

Benito Mussolini (formerly head of the Italian socialist movement) was the person who started fascism. When he said "Nothing above the state. Nothing outside the state. Nothing but the state." that also reflected fascist views about society and capitalism. Which of the following expresses fascist views of capitalism, especially in comparison with other alternative economic arrangements of the 20th century.

fascism, socialism and communism all thought capitalism was evil but disagreed about how to deal with it. Fascism assumed that a strong state and emphasis on nationalism would be enough to contain the evils of capitalism (people could own businesses, but only if they did what the government told them), while socialism and communism thought the only solution was to have the government own the means of production.

Suppose you are the vice president of marketing for Utz Snack Foods. The events described in the article "Low-Salt Diets Shown to Pose Health Hazard" (yes, that's correct: the latest collapse of general prescriptions about what to eat after the evidence against fat fell in spring 2014...) would likely have what effect on the market for your low-salt potato chips?

g

Public choice analysis suggests that the primary motivating factor for politicians will be finding the policies that are most likely to

get them reelected.

According to the article we ready by Tom Leonard about Economics and Eugenics, many prominent economists joined the other elite intellectuals in being in favor of eugenics. What was eugenics?

government control of human reproduction: encouraging those with "good genes" to reproduce, and discouraging (or sterilizing) those with "bad genes" from reproducing; all intended to "improve the gene pool"

Monopolists may be able to earn profit, even in the long run, as the result of

high barriers to entry.

When a firm in a competitive market is earning profits, this indicates that the firm is

increasing the value of resources.

One way to invest in human capital is by

increasing your education.

Which of the terms applies to the underlined portion of the article below?About Those Nutty Almond Investors . . . Bagott, Jeremy. Wall Street Journal, 13 Sep 2016: A.9.

inelastic supply

If a 10 percent rise in airfares leads to a 5 percent increase in total expenditures on air travel, the price elasticity of demand for air travel in this range must be _____. Note: they raise the price, and revenues go UP.

inelastic.

Alexander Yakovlev was the intellectual giant behind Gorbachov's effort to reform the Soviet Union, and to ultimately tear down communism. For some time he was head of the office of propaganda of the communist party in the Soviet Union, and in that capacity, perhaps the person most in charge of justifying Soviet actions in terms of underlying Marxist theory. However, after witnessing all the horrors Marxism had caused (a hundred million killed, scores of millions more imprisoned and tortured, families and civil society destroyed, etc.) he eventually became disillusioned with Marxism. He then used his position as leading communist expert on Marx to write about the failures of the Marxist theory underlying communism, to explain why Marx's ideas themselves were the problem, and not merely how the Soviet Union had tried to implement them. It wasn't a failure of one country, but the very ideas that were wrong in the first place. In this passage, he considers the question of "For whom will production occur?" "By what mechanism will an economy produce what people want?" Yakovlev considers two conflicting positions of Karl Marx and Adam Smith. Marx argued that capitalists would NOT care about what customers wanted, while Adam Smith claimed markets would force business owners to make what customers wanted. What is the term Smith used for this principle, and to which Yakovlev is referring?

invisible hand

Anita Crystal received a 10 percent increase in her salary and purchased 20 percent more jewelry. For Anita, jewelry

is all of the above.

Only this after all that study & work? 20 years after getting his MBA, Jake wrote back to his professors to proclaim that he was now CEO of a firm which was currently making zero economic profits! This statement implies that his firm

is doing as well as it could in any other line of business.

Frieda Roame offers guided mountain excursions. The monetary cost may not be high, but the trips do involve time. Given this, Frieda has to factor in time cost for her services. For her, economic analysis suggests that the time cost of using a product

is generally greater for high-wage consumers than for those earning lower wages.

Consider the following three quotations. Communists, Nazis, and fascists all feared that markets would pay workers too little, i.e. allowing exploitation. On the other hand, some economists such as Clark argued that markets do pay workers what they earn. Note that Clark agrees with their sense of justice: he even states that if markets pay too little/unjustly, workers SHOULD revolt! But Clark proceeds with the right approach: if we are to make such arguments seriously, we must actually study this: are people paid what they earn or not? Clark's work helped develop the concept that helped answer this question, i.e. _____

marginal revenue product

In the price taker market, we observed that profits provide an incentive/compensation for firms to move investment that could be doing many things into its most productive, valuable uses. But that isn't the only place you want such incentive mechanisms. The same is true of the labor market generally: the labor market provides several incentives that are critical for it to function effectively. Consider the following story. Drivers and welders could earn enormous amounts of money doing the exact same job hundreds of miles further south. How can we get such skill up north where the oil (and cold) are? Pay such workers an enourmous amount. But how will we make that happen? It will happen "automatically." This is possible because an increase in the price of the output relative to other uses will raise the pay to resources used in that output. One way to define the concept we might use to assess this is MP*P, i.e. the marginal product times the output price. This formula captures the very important opservation that we want a system that helps provide the right incentives. Here this mechanism makes earnings depend upon 2 parts: i. productivity of the resource (MP) and ii. the value of output (Poutput). These are precisely the parts one would guess should be considered: productivity and importance of output. The first part implies markets provide an incentive to raise one's productivity to raise one's pay, while the second provides an incentive/compensation for the recipient to devote his/her talents to output more highly valued. This amazing mechanism which does two important functions (raise investment to improve ones productivity and allocate one's productivity to the most highly valued uses) is captured in the term

marginal revenue product

What concept underlies the argument Brock is making in the following article?It's the productivity, stupid! By Walter E. Block May 22, 2020

marginal revenue product

If consumer tastes are changing more in favor of the consumption of a particular good the

market demand curve would shift to the right.

In general, firms will produce at a rate of output such that marginal revenue equals marginal cost because this output rate will

maximize the firm's profit.

In the absence of government regulation, which of the following products would most closely fit the competitive price-taker (purely competitive) model?

milk because there are many dairy farmers producing a virtually identical product

Campaign Against Bottled Water: "Think Outside the Bottle" from www.stopcorporateabuse.com (Links to an external site.) You are CEO of a company which makes bottled water. Then you hear the noise of another protest outside your building. "Oh no, not another groundless protest by economic illiterates," you groan, "what is it this time?" Not that you think it is bad to protest, you even think it is good to protest bad businesses. What you despise is good people wasting their time protesting good businesses merely because they don't understand economics and dislike certain markets or the overall market system generally due to that ignorance. Looking out your window, you can read the placards and hear the chants. Just then the reporter from NBC news shows up with the film crew to get your response. Like the protestors, the reporter had educational malpractice committed on him and is malinformed about even the basics of markets. You'll have to make it simple, but accessible. When he states that the protestors are worried about "corporate water undermining support for municipal water systems" and "corporate control of water" you tell him that the first makes little sense since no one will be bathing in Evian or Perrier, so you are no threat to public water systems. As for the second, you tell him that the ____ for your industry is 0.08%, i.e. a firm would achieve sufficient economies of scale to compete with even large firms if they could achieve just 0.08% (less than one thousandth) of the overall market. This insures that even if big corporations are involved, any firm could easily enter. This concept ("big enough to have reduced their costs down to the level of other firms"), is critical for assessing the claims of the protesters to understand and is known as

minimum efficient scale

The book uses the term "price searcher market with low entry barriers" and "competitive price searcher market" almost interchangeably. Another common term for this type of market is

monopolistic competition

Your book uses the term "price searcher market with low entry barriers" to describe markets with a small number of firms that are in the market, but others may easily enter. The book uses the term to convey the reality that such firms have to search out the combination of price, quantity, product attributes, convenience, etc. that people want in order to maximize profits. On the other hand, others have used a different term. These markets look like a monopoly or oligopoly since there are just a few firms, but the easy entry means it is very competitive. Thus another common term is ______ market.

monopolistic competition

Consider the article "Do Bike Helmet Laws Really Make People Safer" from the May 2013 Atlantic. Bike laws don't necessarily result in fewer accidents. What concept might explain this (to the author) apparent paradox? http://www.theatlanticcities.com/commute/2013/05/do-bike-helmet-laws-really-makeEric Jaffe May 29, 2013

moral hazard

What term most likely goes in the blank in the article "Too Big to Maintain" by George Will?Too Big to Maintain? By George F. Will, Published: October 12

moral hazard

_______ in Politics: Government handouts encourage citizens to act less prudently.Thomas Sowell http://www.nationalreview.com/articles/print/244893; August 27, 2010One of the things that make it tough to figure out how much has to be charged for insurance is that people behave differently when they are insured from the way they behave when they are not insured. What term would go in the blank?

moral hazard

The supply of human capital to a particular use is

more inelastic in the short run since it takes time for persons to acquire a particular skill.

Why are ideas public goods?

multiple people can use the same idea simultaneously, without affecting each other's benefit from the idea

"Recently, one European and two American large-scale projects have attempted to examine all costs associated with electricity production, all the way from the mortal risks of mining coal, the traffic hazards of transportation,...to the tax codes...and similar considerations and costs. Altogether these studies find that the extra social cost of new coal-fired power plants is around 0.16-0.59 cents per kilowatt hour. None of the three studies, however, quantifies the costs of carbon dioxide which probably means an additional 0.64 cents per kilowatt hour. ...It would still be much more effective to tax energy such that its actual price would adequately reflect the social costs in production and emissions. Lomborg, Bjorn. The Skeptical Environmentalist. p132.What does Lomborg mean by the term "extra social cost"?

negative externality