Economics Chapter 1-13
Billy Bob's Barber Shop knows that a 5 percent increase in the price of their haircuts results in a 15 percent decrease in the number of haircuts purchased. What is the elasticity of demand facing Billy Bob's Barber Shop?
3
In which of the following countries will the national government have the greatest influence with respect to the nation's economy?
Cuba
In countries like _____________ the command economy predominates.
Cuba and North Korea
The elasticity of demand is defined as the percentage change in quantity demanded divided by the percentage change in __________.
Price
The lesson of __________ is to forget about the money that's irretrievably gone and instead to focus on the marginal costs and benefits of future options
Sunk COsts
The lesson of __________ is to forget about the money that's irretrievably gone and instead to focus on the marginal costs and benefits of future options.
Sunk Costs
The typical pattern of costs for a monopoly can be analyzed by using: total cost fixed cost variable cost marginal cost average cost average variable cost
all of the above
The term "ceteris paribus" means that:
all variables except those specified are constant.
If a firm is producing so that the point chosen along the production possibility frontier is socially preferred, then that firm is said to have reached its
allocative efficiency
__________________ law implies ownership over an idea or concept or image
Intellectual property
A 10 percent increase in the price of soda leads to a 20 percent increase in the quantity of iced tea demanded. It appears that:
cross-price elasticity of demand for iced tea is -2.
The term ___________________ is used to describe the common pattern whereby each marginal unit of a consumed good provides less of an addition to utility than the previous unit.
diminishing marginal utility
Once I'MaPharmaCo. has received confirmation of the registration for its latest drug patent application, it will have created a monopoly for that product by restricting
entry into the market.
When J.K. Rowling exerts copyright ownership of her literary works, she creates a monopoly by restricting
entry into the market.
A manufacturer would likely make an ___________ in a market following the long-run process of beginning and expanding production in response to ________________ .
entry; a sustained pattern of profits
In a perfectly competitive market, each firm produces at a quantity where price is set
equal to marginal cost, both in the short run and in the long run.
The ___________ is the only price where quantity demanded is equal to quantity supplied.
equilibrium price
Which of the following would an economist identify as a difficulty relating to environmental command-control regulations?
high degree of inflexibility
Why are some producers forced to sell their products at the prevailing market price?
high degree of similarity to competitor's products
Which of the following would reduce the supply of microcomputers?
higher wage rates for the workers that assemble the computers
A perfectly elastic supply curve is
horizontal
The opportunity cost of an action:
is a subjective valuation that can be determined only by the individual who chooses the action.
Around the world, the cities with the dirtiest air and water are typically found in ___________________________ .
low-income countries in Africa and Asia
Refer to the diagram below. In this instance, at the range of output represented at point c,
profits will be maximized.
Marketable permits can be viewed as a form of improved _______________.
property rights
The graph below illustrates the electricity market. Consider market competition between firms where price is based on AR and select the most appropriate answer.
this market is imperfectly competitive with excess profits possible in the short-run
The evidence on the supply curve of financial capital is controversial, but at least in the short run, the elasticity of savings with respect to the interest rate appears to be __________.
inelastic
Which of the following best identifies what the concept of differentiated products is closely related to?
the degree of product variety that is available.
If the firm is producing at a quantity of output where marginal revenue exceeds marginal cost, then,
the firm should keep expanding production.
If cola and iced tea are good substitutes for consumers, then it is likely that:
their cross price elasticities are greater than zero.
If monopolistic competitors must expect a process of entry and exit like perfectly competitive firms,
they will be unable to earn higher-than-normal profits in the long run.
If each of two competing monopolists undertakes equal advertising efforts to attract consumers away from the other, the total result is
they will simply neutralize one another's efforts.
In a free market economy, firms operating in a perfectly competitive industry are said to have only one major choice to make. Which of the following correctly sets out that choice?
what quantity to produce
Refer to Figure 5-1. Graph B represents a demand curve that is relatively __________. Total revenue __________ as the price decreases from $10 to $5
inelastic; decreases
Refer to Figure 5-1. With reference to Graph B, at a price of $5, total revenue equals:
200
Refer to the table below. If the information pertains to the demand curve and the long run average cost curve for an electric company that is a natural monopoly, then what quantity will be produced in this market?
200
The SaferGlass Co. makes windshields for the automotive industry. It wants to develop a new product with shatterproof glass to increase safety. The development of the new glass requires them to change their production process significantly. The company has developed a list of possible ways of implementing the production process changes, along with estimates of how each would affect the production and sales costs. Based on these estimates, the table below shows the value of R&D projects that provide at least a certain social rate of return. Every investment in R&D would have an additional 3% social return: that is, an investment that pays at least a 4% return to the glass company will pay at least 7% return for society as a whole. If the opportunity cost of financial capital for SaferGlass Co. is 9%, the company will invest ______ in R&D if it receives only the private benefits of this investment.
450
The longer the time period considered, the more the elasticity of supply tends to:
Incresase
ToasterOvensInc. is developing technology to make a toaster oven than uses less electricity. If successful, the technology will significantly reduce the amount of energy that is wasted due to product inefficiencies. If the firm sells only in response to the market price, the quantity shown in the third column is supplied. If the firm were also to receive the broader social benefits of the new technology, the willingness to supply is shown in the fourth column.
$16, 740
In order to produce 100 pairs of oven gloves, Marcia incurs an average total cost of $2.50 per pair. Marcia's marginal cost is constant at $10.00 for every pair of oven gloves produced. The total cost to produce 50 pairs of oven gloves is
$200.00
The International Ecotourism Society estimates that international tourists interested in seeing nature or wildlife spend over
$450 billion per year.
In the circular flow diagram model:
(both a and b are correct ) // businesses receive revenues from households in exchange for providing goods and services and use those revenues to buy inputs from households. // households receive income from businesses in exchange for providing inputs and use that income to buy goods and services from businesses.
A monopolistic competitor has the following information about cost and demand. What will the firm's profits equal in the short run?
0
The table below shows a monopolist's demand curve and cost information for the production of its good. What quantity will it produce?
1,000
A country is currently creating 40 million tons of toxic waste per year. The table below shows the marginal costs and benefits of reducing the amount of toxic waste to various amounts. What level of toxic waste should the country reduce to?
10 million tons
Bruce works for a large bank. His wage increased from $30 per hour to $40 per hour. He can work up to 50 hours each week. The table below shows his utility from different levels of leisure and income. If Bruce decides to increase his weekly hours of work from 10 to 20 hours after his raise, the marginal utility loss from having less leisure is:
15
A country is currently creating 40 million tons of toxic waste per year. The table below shows the marginal costs and benefits of reducing the amount of toxic waste to various amounts. What number belongs in place of X?
1500
In the US economy, nearly half of all the workers employed by private firms work
18,000 large firms that employ more than 500 workers.
Larry attends college and works part-time job in a grocery store. He can work up to 30 hours each week at his job, which pays $9 per hour. The table below shows his utility from different levels of leisure and income. Larry's utility maximizing choice is to work for:
20
A drug company is deciding how much to invest in Research and Development into finding a cure for the common cold. The table below shows the company's demand for financial capital for R&D of this cold drug, based on its expected rates of return from selling the cure. Every investment has an additional 4% social return: that is, an investment that pays at least a 5% return to the drug company will create at least a 9% return for society as a whole. If the opportunity cost of financial capital for the drug company is 7%, the drug company will invest ___ in R&D if it receives both the private and the social benefits of this investment.
308
Molly attends college and works part-time job as a telemarketer. She can work up to 40 hours each week at her job, which pays $8 per hour. The table below shows her utility from different levels of leisure and income. Molly is currently working 20 hours per week. If she decides to work 30 hours instead, then her marginal utility loss from having less leisure is:
34
Approximately what percentage of the US labor force is employed by firms that have fewer than 100 employees?
35%
Refer to Figure 5-1. With reference to Graph A, at a price of $10, total revenue equals:
400
Todd is a cattle rancher. In June and July he spent his clothing budget on jeans and cowboy hats. Each pair of jeans cost $50 and each hat cost $100. At Todd's optimal choice, his marginal utility from the last pair of jeans purchased is 200. This means that his marginal utility from the last cowboy hat purchased is:
400
Given the data provided in the table below, what will the marginal revenue equal for production at quantity (Q) level 4?
5.00
The following table shows the demand curve and cost information for a firm that is a monopoly. What quantity should they produce to maximize their profits?
600 units
The following table shows the demand curve and cost information for a firm that is a monopoly. If they maximize their profits, what will their profits equal
650
A monopolistic competitor has the following information about cost and demand. Then, in the long run equilibrium, the firm will sell this good at what price?
7
Under current U.S. copyright legislation, works produced on a for-hire basis and owned by firms enjoy monopoly protection for
95 years from the date of publication.
_____________________ help to explain why every economy, as it develops, has an increasing proportion of its population living in urban areas.
Agglomeration factors
The slope of the _________________ is determined by the relative price of the two goods, which is calculated by taking the price of one good and dividing it by the price of the other good.
All points on the production possibilities frontier are equally efficient.
_____________ occurs when circumstances have allowed several large firms to have all or most of the sales in an industry.
An oligopoly
The model that economists use for illustrating the process of individual choice in a situation of scarcity is the _________________, sometimes also called the opportunity set, a diagram which shows what choices are possible.
Budget Constraint
Which of the following best characterizes the circular flow of income?
Businesses buy resources from households, and households use their income from the sale of resources to buy goods and services from businesses.
Refer to Figure 2-1. An economy is operating at full employment, and then workers in the bread industry are laid off. This change is portrayed in the movement from:
C to F
Demand is said to be _____________ when the quantity demanded is not very responsive to changes in price.
Inelastic
Which of the following would be classified as a differentiated product produced by a monopolistic competitor?
Channel No. 5
How does the U.S. Bureau of Labor Statistics gather information with regard to the typical consumption choices of Americans?
Consumer Expenditure Survey
In a perfectly competitive market setting, which of the following would be a true statement? Selected Answer: Wage rates trend toward marginal revenue product levels. Answers: Market price automatically sets itself exactly at equilibrium. Market price rarely trends toward the equilibrium value. Wage rates mirror marginal revenue product levels exactly. Wage rates trend toward marginal revenue product levels.
D
____________________________ occur when the marginal gain in output diminishes as each additional unit of input is added.
Diminishing marginal returns
In the first chapter of The Wealth of Nations, Smith introduces the idea of the __________, which means the way in which the work required to produce a good or service is divided into a number of tasks that are performed by different workers.
Divison of Labor
Demand is said to be ___________ when the quantity demanded is very responsive to changes in price.
Elastic
When economists are sketching examples of a demand or supply curve that is close to horizontal, they refer to that demand or supply curve as ____________.
Elastic
__________ is the change in what is on the horizontal axis (quantity) divided by the change in what is on the vertical axis (price).
Elasticity
When making decisions about what safety systems should be required in cars or airplanes, the ___________________ will only approve rules where the estimated cost per life saved is __________ or less.
Environmental Protection Agency; $3 million
If an increase in the price of Good X causes a decrease in the demand for Good Y, we can conclude that:
Goods X and Y are complement goods.
As a person receives more of a good, the _______________ from each additional unit of the good declines.
Maringal Utility
_____________ and __________________ refer to the quantity and price at a point in time.
Productive; allocative efficiency
Refer to the diagram below. At the point marked m,
TR is exactly equal to TC, so profits equal zero.
_____________ is calculated by taking the quantity of everything that is sold and multiplying it by the sale price.
Total revenue
The general pattern that consumption of the first few units of any good tends to bring a higher level of _______ to a person than consumption of later units is a common pattern.
Utility
In the framework of monopolistic competition, advertising works because it causes
a steeper perceived demand curve, as well as c above.
Which of the following is a question economists have struggled to address with only partial success?
Whether a market-oriented economy produces the optimal amount of variety?
In order for a good to be classified as ______________ , when one person uses the good, others are also able to use it.
Which of the following would most likely be recognized as a defining characteristic of a public good?
The problem of pollution arises in primarily ______________ economies around the world.
a and b
Which of the following would most likely shift the production possibilities curve inward?
a decrease in the average number of hours worked per week as the labor force chooses to enjoy more leisure time
Which of the following is most likely a topic of discussion in macroeconomics?
a decrease in the unemployment rate
Which of the following lies primarily within the realm of macroeconomics?
a study of how tax cuts stimulate aggregate production
When the quantity of environmental protection is low so that pollution is extensive, then there are usually ______________ to reduce pollution and the ______________ .
a lot of cheap and easy ways; marginal benefits of doing so are quite high
When P > MC in a monopolistically competitive market, that industry will most likely produce ______________________ than would be found in a perfectly competitive industry.
a lower quantity of a good and charge a higher price
In terms of microeconomic analysis, what is the function of "utils"?
a measurement of utility
Why are the underlying economic meanings of the perceived demand curves for a monopolist and monopolistic competitor different?
a monopolist faces the market demand curve and a monopolist competitor does not
Which of the following represents a difference in the process by which a monopolistic competitor and a monopolist make their respective decisions about quantity and price?
a monopolist need not fear entry and also selection b above
The challenge of preserving biodiversity,
a nation can protect biodiversity within its own borders and c.
The refundable charge of 5 or 10 cents for returning recyclable cans and bottles works like
a pollution tax incentive to avoid littering.
While the traditional approach of U.S. government policies for environmental protection has had some level of success, some economists are proposing a change to
a range of more flexible, market-oriented pollution control policies.
Which one of the following is the most accurate description of a monopolist?
a sole producer of a product for which good substitutes are lacking in a market with high barriers to entry
The federal government funds __________ of the nation's basic research, much of which ____________________________.
about half; conducted at colleges and universities
Perfect competition displays _____________________ because the social benefits of additional production, as measured by the price that people are willing to pay, are in balance with the ____________ to society of that production.
allocative efficiency; marginal costs
The marginal revenue curve for a monopolist ____________________ the market demand curve.
always lies beneath
One concern that environmentalists have is that market-oriented environmental tools are
an excuse to allow pollution to be maintained or to grow.
Using the term "spillover" is a less formal means of describing
an externality.
In the U.S., the amount in savings contributed to IRAs rose from $239 billion in 1992 to $3,667 billion by 2005, while overall savings actually dropped from low to lower. Evidence suggests that, in the economy as a whole, increased savings in these retirement accounts:
are being offset by negative savings or less savings in other kinds of accounts
Through the process of exit, monopolistically competitive firms remaining in the market
are no longer earning losses.
The _____________________ curve will always lie below the curve for average cost because average cost includes _____________ in the numerator of the calculation.
average variable cost; fixed costs
Marginal utility can:
be positive, negative, or zero
Temperatures have persisted below freezing levels in Florida throughout the months of December and January. As a result, demand for electricity sharply increased and the price of electricity rose sharply. The price of coal also rose. In these circumstances, any resulting shifts in the supply curves for coal miners and electricity producers
can also be interpreted as shifts of their respective marginal cost curves.
Command-and-control regulation is a body of law that
can include both b and c.
Specialization
can lead to an increase in overall production.
Refer to the table below. In this instance, expansion of output
causes input prices to rise as demand for inputs increases.
Those firms in the oil refining industry that can reduce pollution __________________ will do so _______________________ .
cheaply and easily; to minimize their pollution taxes
If I'MSmartCo's research and development project succeeds, then
competitors may find a way to adapt and copy the underlying idea without incurring R&D costs.
When technology is advancing so quickly, even a patent from, say, two years ago may be ___________________, because __________________________ .
completely outdated; no firm is relying on that technology any longer
A situation known as _____________________ occurs when all production inputs are allowed to expand, but that expansion does not result in much of a change in the average cost of production.
constant returns to scale
The form of legal protection intended to prevent reproduction of original works is referred to as ______________ law.
copyright
Intellectual property law is a body of law that includes
copyright legislation, as well as all of the above
The ______________ of all firms can be broken down into some common underlying patterns.
cost structure
If a monopoly or a monopolistic competitor raises their prices, then
decline in quantity demanded will be larger for the monopolistic competitor.
Refer to Figure 3-2. A change from Point A to Point B represents a(n):
decrease in quantity demanded
Refer to Figure 3-3. A change from Point A to Point E represents a(n):
decrease in supply.
The two primary factors determining monopoly market power are the firm's
demand curve and its cost structure
In economics, labor demand is synonymous with
derived demand.
The term "basic research" applies specifically to research pertaining to fundamental scientific breakthroughs that may offer commercial applications in the ______________.
distant future
If a solar panel manufacturer wants to look at its total costs of production in the short run, which of the following would provide a useful starting point?
divide total costs into two categories: fixed costs that can't be changed in the short run and variable costs that can be
A successful advertising campaign may allow competing monopolists to
do all of the above.
The demand curve as perceived by a monopolistic competitor is ______________ .
downward-sloping
Which of the following is most likely to cause variation in American household spending patterns?
each of the above will cause a variation
If a perfectly competitive market involves many firms selling identical products, then, in the face of such competition,
each of these firms must act as a price-taker.
Ideally, a patent should cover a long enough period of time for the inventor to _______________, but that period should not be so long that it allows the inventor to _____________________________.
earn a hearty return; charge a high monopoly price permanently
If the supply curve for housing is perfectly inelastic, then a reduction in demand will cause the equilibrium price to:
fall and the equilibrium quantity to stay the same.
How can parties who find themselves in a prisoner's dilemma situation avoid the undesired outcome and cooperate with each other?
find effective ways to penalize firms who do not cooperate
A firm's ___________ consist of expenditures that must be made before production starts that typically, over the short run, _______________ regardless of the level of production.
fixed costs; do not change,
The demand curve as perceived by a perfectly competitive firm is __________ .
flat
A perfectly competitive industry is a ____________________
hypothetical extreme.
Which of the following can be thought of as an adjustment for the risks involved with respect to the cost of a firm acquiring financial capital?
imposition of hurdle rates of interest
Economic profit can be derived from calculating total revenues minus all of the firm's costs,
including its opportunity costs.
When economists attempt to predict the spending patterns of U.S. households, they will typically view the _____________________ as a primary determining factor that influences the individual consumption choices that each will make.
income level of each household
I'maSolarPanelCo. manufactures and distributes solar panels in the US market. Two years ago, it had 5 US competitors, but government stimulus in the industry has encouraged 7 new US competitors to enter the market. In these circumstances, I'maSolarPanelCo.'s price for its output
is dictated by the forces of demand and supply.
Refer to Figure 2-2. At Point A in the production possibilities graph shown above, the economy:
is not using its resources efficiently.
I'mAComputerCo. would likely be more willing to undertake an innovative research project to reduce the amount of electricity required to run its computers if there were some form of guarantee that if it succeeded,
it could sell the new computers as a monopoly for at least a few years.
The term _____________ is used to describe the additional cost of producing one more unit.
marginal cost
The demand curve for a typical good has a(n):
negative slope because some consumers switch to other goods as the price rises.
What happens in a perfectly competitive industry when economic profit isgreater than zero?
new firms may enter the industry and all of the above
A public good is a good that is ____________________ , and thus is difficult for market producers to sell to individual consumers.
nonexcludable and nonrivalrous
In circumstances involving millions of emitters of small amounts of pollution who have no strong interest in trading, _________________ will typically offer a better choice for achieving desired reductions of environmental pollution levels.
pollution charges
In a monopolistically competitive market, the rule for maximizing profit is to set MR = MC, which means
price is higher than marginal revenue.
The downward slope of the demand curve again illustrates the pattern that as _____________ rises, _________________ decreases.
price, quantity demanded
For a positive externality, _________________________than the social benefits.
private benefits of an action are less
For a negative externality, the __________________________ than the costs imposed on society as a whole.
private costs of an action are less
In the case of technology, it can sometimes be quite difficult for ______________ to earn a ____________ rate of return from their inventions.
private investors; reasonable
_________________ refers to the total number of units that are purchased at that price.
quantity demanded
Which of the following is an example of economic output that can injure the environment?
radio-active waste leaking into a river, and all of the above
During a severe recession, the government issued food stamps that could only be used to acquire food to a greater number of families. The budget line graph shows food on the horizontal axis and everything else on the vertical axis. The government expects that issuing the food stamps will cause each family's budget constraint line to:
shift to the right.
In the _________, the perfectly competitive firm will seek out ________________________ .
short run; the quantity of output where profits are highest
Product differentiation may occur in _______________ because ____________________ created strong preferences for certain brands.
the minds of buyers; past habits and advertising
If a government wants to establish a marketable permit program, it must begin by determining
the overall quantity of a certain pollutant that will be allowed.
When entry occurs in a monopolistically competitive industry,
the perceived demand and marginal revenue curves for each firm will shift to the left.
Refer to the diagram above. In this instance, point e shown on the graph indicates
the point where profits will increase by reducing output
A pollution charge is a form of tax imposed on
the quantity of pollution that a firm emits.
The theoretical model of the intertemporal budget constraint for the U.S. economy as a whole suggests that the most common pattern seems to be that:
the quantity of savings doesn't adjust much to changes in the rate of return.
If one firm operating in an oligopoly raises its price and other firms do not do so,
the sales of the firm that increased its price will decline sharply.
f new manufacturers enter the computer industry, then (ceteris paribus):
the supply curve shifts to the right.
In the highly competitive setting in which oligopoly firms operate, which of the following are considered to be typical temptations each may face?
to cooperate to act as a single monopoly and all of the above
Why would a profit-seeking firm need to tailor its decisions about the quantity of labor inputs that it purchases?
to produce the profit-maximizing quantity of output at the lowest possible average cost
Why was the Clean Air Act amended in 1990?
to reduce sulfur dioxide emissions from electric power plants to half of 1980 levels
In the business world, a _________________ is recognized as a legally acceptable way for any business to keep knowledge of its particular methods of production from being known by competing firms.
trade secret
If market-oriented environmental tools offer a mechanism or providing either the same environmental protection at lower cost, or providing a greater degree of environmental protection for the same cost, then this ___________ will arise for ________________ .
trade-off; all countries around the globe
Demand is said to be __________ when the quantity demanded changes at the same proportion as the price.
unit elastic
If a comparison between average cost and price reveals whether a firm is earning profits, then a comparison between average variable cost and price reveals
whether the firm is earning profit if fixed costs are left out of the calculation.
Bulgaria primarily produces two goods, nesting dolls and grapes. The production of both goods primarily requires labor. The following table shows possible combinations of nesting dolls and grapes. Suppose Bulgaria prefers grapes. Which of the following points is better?
B
If a glass manufacturer has only a few ________________ of reducing pollutants, it will ____________________ .
costly ways; end up paying the pollution tax.
Which of the following falls outside of the classification of business expenses that fall into the category of fixed costs?
costs incurred in the act of producing
When __________________, a firm will supply a higher quantity at any given price for its output, and the supply curve will shift to the right.
costs of production fall
Which of the following falls outside of the classification of business expenditures that fall into the category of variable costs?
costs of research and development
A 10 percent decrease in the price of potato chips leads to a 30 percent increase in the quantity of soda demanded. It appears that:
cross-price elasticity of demand for soda is -3.
In the U.S., the command-and-control environmental laws of the early 1970s, together with the ensuing amendments and updates that have been made to them over time,
are given considerable credit for cleaner air and water in recent decades.
The graph below illustrates the total cost function for GoodieCookie Co. How are the company's fixed costs represented in this graph?
as the point where the total cost curve touches the vertical axis
Refer to the diagram Fig 6-3 below. What is the significance of the point marked L1 at the bottom upward-sloping portion of the individual labor supply (2) curve?
as wages increase over this range, the quantity of hours worked also increases.
The flexibility of marketable permits program developed for the oil refining industry is credited with achieving the reduction in lead pollution for __________ less cost than command-and-control regulation would have required.
at least 20%
If the price that a firm charges is higher than its ________________ cost of production for that quantity produced, then the firm will earn profits.
average
If the price that a firm charges is lower than its ____________ of production, the firm will suffer losses.
average cost
In order to determine ____________, the firm's total costs must be divided by the quantity of its output.
average cost
The long-term result of entry and exit in a perfectly competitive market is that all firms end up selling at the price level determined by the lowest point on the
average cost curve.
If the average product for six workers is fifteen and the marginalproduct of the seventh worker is eighteen, then
average product is rising
The desire of businesses to __________________________, so that they can raise the prices that they charge and earn higher profits, has been well-understood by economists for a long time.
avoid competing with each other
By 2007, US market deregulation has proven to be most toxic to the overall health of the US economy in the ________________________ .
banking sector
Occasionally, _________________ may lead to pure monopoly; in other market conditions, they may limit competition _________________ .
barriers to entry; to a few oligoply firms
A positive externality arises in a situation where a third party, outside the transaction,
benefits from a market transaction by others.
A situation where the level of output, scale and average costs are all rising is called
both a and b are correct
Ireland and England both fish in the Irish Sea. If this sea is over-fished, the fish stocks will fall and fish will eventually become extinct. Both countries have to decide whether to fish a lot or a little. The payoffs are given in the table below. The outcome of this game is ________ , which illustrates the _________ .
both countries choosing to fish a lot, prisoner's dilemma
Paddy and Mick are the only two inhabitants of a small island off the coast of Ireland. They burn coal to keep their houses warm at night. However, this coal burning is harming the air quality on their island. Both Paddy and Mick could install air filters on their chimneys. These filters cost 50 each. Each filter provides a social benefit of 80, but those benefits are divided equally among Paddy and Mick. If both Paddy and Mick install the filters
both will gain 30
The slope of the _________________ is determined by the relative price of the two goods, which is calculated by taking the price of one good and dividing it by the price of the other good.
budget constraint
The nature of demand indicates that as the price of a good increases:
buyers desire to purchase less of it.
Environmentalist groups act to directly reduce of emissions by
buying marketable emission permits and not re-selling them.
Oligopoly firms acting individually may seek to gain profits ___________________________ .
by expanding levels of output and cutting prices
The choice on a production possibilities set that is socially preferred, or the choice on an individual's budget constraint that is personally preferred, will display _____________________.
allocative efficiency
Substitution and income effects of a change in price of a good may be used to explain the:
direct relationship between income and demand.
When __________________ exist, doubling of all inputs will result in more than doubling output, which means __________________________________________.
economies of scale; a larger factory can produce at a lower average cost than a smaller company.
The leader of a federal political party made the following campaign promise: "My administration will increase national defense without requiring sacrifices elsewhere in the economy." The promise can be kept if:
either b) or c) occurs, but not as a result of a).
Supply is said to be ____________ when the quantity supplied is very responsive to changes in price.
elastic
In a monopolistic competitive industry, firms can try to differentiate their products by
enhancing product's physical aspects and all of the above.
If the price is below the equilibrium level, then the quantity demanded will exceed the quantity supplied. This is known as ___________________
excess demand
An individual who wants others to pay for public goods, but plans to use those goods for their own purposes, is often referred to as a ______________ .
free rider
Even with wage increases, the supply curve of labor is most often inelastic for which of the following?
full-time workers
With respect to the benefits of clean air and water, which of the following would most likely be classified as being relatively easy to value in economic terms?
gains in farming, fishing and tourism
The branch of mathematics that analyzes situations in which players must make decisions and then receive payoffs most often used by economists is
game theory.
Economies of scale may arise from all but one of the following. Which one is it?
government economic subsidies protect firms from competition to avoid losses.
Which of the following would most likely create the setting for an oligopoly?
government grants Alex, Trent, and Alyse each a patent for their respective molybdenum based electric car batteries
If a firm's efforts to be technologically innovative will create a positive externality, then that firm will likely
have less incentive to innovate to the extent that the whole of society desires.
If pollutants are emitted into the air and water, what costs might be incurred as a result?
health injuries and all of the above
Refer to Figure 3-3. A change from Point A to Point B represents a(n):
increase in quantity supplied.
The key assumption that accompanies the use of numbers for measuring utility is that:
individuals choose based on their preferences.
Saving money is a(n) ____________________, because it involves less consumption in the present, but the ability to consume more in the future.
intertemporal choice
If an alternative policy could encourage both _____________________, instead of ________________________, consumers would benefit.
invention and competition; invention and monopoly
If a steel manufacturer considers the costs of labor and materials, as well as the broader costs of environmental injuries resulting from its manufacturing processes,
it is factoring in the social costs of the pollution it generates.
While the U.S. command-and-control environmental regulations initiated in the 1970s have been very effective at reducing pollution, some economists have difficulty with the legislation because
it is full of fine print and exceptions, and costly for some firms to comply with.
Why would a typical U.S. business fail to take the social costs of pollution into consideration during the development of their operating strategies?
it isn't required to pay any of the cost of cleaning up its pollution
When a monopolist increases sales by one unit,
it loses some marginal revenue and all of the above.
The arguments presented by economists regarding U.S. environmental command-and-control regulations generally
lack flexibility and a and b above.
If the CEO of I'MaBigBank is playing prisoner's dilemma then, from his perspective, the gains to be had from cooperation are
larger than the rewards from pursuing self-interest.
Economists refer to this pattern, the ___________________________________, which means that as a person receives more of a good, the additional or marginal utility from each additional unit of the good declines.
law of diminishing marginal utility
Low and middle-income societies correctly point out that high-income countries have historically
legitimately lacked moral standing in addition to all the above.
Which of the following is most likely to be a monopoly?
local electricity distributor
If a firm faces ________________________, while the prices for the output the firm produces remain unchanged, a firm's profits will increase.
lower costs of production
Most choices involve _________________, which involves comparing the benefits and costs of choosing a little more or a little less of a good.
marginal analysis
Most real-world choices aren't about getting all of one thing or another, instead, most choices involve _________________, which involves comparing the benefits and costs of choosing a little more or a little less of a good.
marginal analysis
Rather than arguing over whether the ultimate goal is zero pollution or a reasonable level of pollution, the immediate focus should be to tackle the environmental issues where the _____________________ and the __________________ .
marginal benefits are greatest; marginal costs are least
In economics, the term "shutdown point" refers to the point where the
marginal cost curve crosses the average variable cost curve.
A pollution charge gives the trucking industry an incentive to reduce its emissions, as long as the _____________ of reducing the emissions is _______________ .
marginal cost; less than the tax
Under perfect competition, any profit-maximizing producer faces a market price equal to its
marginal costs
If a monopolist increases quantity by one unit, but sells the increased output at a slightly lower price,
marginal revenue is affected by adding one additional unit sold at the new price.
The term _________________ refers to the additional utility provided by one additional unit of consumption.
marginal utility
A decrease in consumer preference for a product, other things being equal, will cause:
market demand to shift to the left.
The main categories of market-oriented approaches to pollution control are
marketable permits; better-defined property rights; pollution charges.
Environmentalist groups tend to prefer ________________ to ___________________.
marketable permits; pollution charges
The perceived demand curve for a group of competing oligopoly firms will appear kinked as a result of their commitment to
match price cuts, but not price increases.
Shopping malls typically lease retail space to a large number of clothing stores. When this group of retailers competes to sell similar but not identical products, they engage in what economists call ________________________.
monopolistic competition
In economics, a firm that faces no competitors is referred to as _________________.
monopoly
As the name monopolistic competition implies, a firm's decisions in this setting will in certain ways resemble ______________ and in other ways resemble________________ .
monopoly; perfect competition
A __________________ exists when the quantity demanded in the market is less than the quantity at the bottom of the long-run average cost curve.
natural monopoly
Property rights are the legal rights of ownership on which others are
not allowed to infringe without paying compensation.
Michigan (MI) and Wisconsin (WI) both border Lake Michigan. Both states pollute Lake Michigan and both states suffer the consequences of the pollution. However, the two states face a prisoner's dilemma of the sort studied in Chapter 12. Each country must decide whether to protect or not to protect Lake Michigan from pollution. The payoffs from the choices are shown in the table below. From the table, we know that if Wisconsin chooses to protect the lake, Michigan will choose to ______ the lake. If Wisconsin chooses to not protect the lake, Michigan will choose to ______ the lake
not protect, not protect
When quantity demanded decreases in response to a change in price:
there is a movement up along the demand curve.
The first step to be undertaken by a profit-maximizing monopolistic competitor wanting to decide what price to charge is to
select the profit maximizing quantity to produce
The shape of the perceived demand curve for a perfectly competitive firm reflects that firm's ability to
sell any quantity it wishes at the prevailing market price.
Traditionally, policies for environmental protection in the U.S. have focused on __________________ pollutant could be emitted.
setting limits for how much of each
What role can advertising play with respect to differentiated products?
shapes consumers intangible preferences
A monopolistically competitive firm may earn abnormally high profits in the
short term, but the process of entry will drive those profits to zero in the long run.
A highly innovative firm operating in a competitive market will usually have
some time before competitors catch up to its innovations.
Garth inherited $25,000. He needs to decide how much to spend now and how much to save for later. If he saves the money, then he can earn 15% interest on the total before he spends it. Using the information about his marginal utility in the table below, Garth should:
spend nothing now and $28,750 in the future
The total revenue curve for a monopolist will
start low, rise, and then decline.
Interpret the following statement: "An increase in the price of wheat will encourage farmers to increase the quantity of wheat supplied to the market.
statement is correct
But nearly all supply curves share a basic similarity: they slope _______________.
up from left to right
If I'maJuiceCo. establishes a bottling plant in Delaware, it will most likely
use production technologies that conserve on the number of workers.
In deciding how many hours to work, Beulah will make a choice that maximizes her _______; that is, she will choose according to her preferences for leisure time and income.
utility
If a paper mill shuts down its operations for three months so that it produces nothing, its __________________ will be reduced to zero?
variable costs
In economics, the demand for a good refers to the amount of the good that people:
will buy at various prices.
If no externalities of pollution exist in a particular industry, the interaction of demand and supply _________________________ .
will coordinate social costs and benefits
A drought decreases the supply of agricultural products, which means that at any given price a lower quantity will be supplied; conversely, especially good weather would shift the __________________ .
supply curve to the right
In monopolistic competition, the end result of entry and exist is that firms end up with a price that lies
on the downward-sloping portion of the average cost curve.
The perceived demand for a monopolistic competitor
takes competitors into account.
Jay and Jen are married with two children. They are preparing a household budget for the coming year. Based on statistical information for American households, approximately what portion of this family's annual consumption will most likely be budgeted for food and vehicle expenses?
one-third
The difference between playing a board game and a playing a video game is the
technology of the video game
Some studies done by economists have found that the original inventor receives _________________________________________________ from innovations, while other businesses and new product users receive the rest of the benefit.
one-third to one-half of the total economic benefits
In many cases, it is reasonable to refer to the ________________ as the price.
opportunity cost
Roughly speaking, patent law covers __________ and __________ law protects an author's original books.
original inventive creations; copyright
Following the assumption that firms maximize profits, how will the price and output policy of an unregulated monopolist compare with ideal market efficiency?
output will be too small and its price too high.
Some of the leading ecotourism destinations include:
the Caribbean, New Zealand and all of the above
Which of the following has become the least willing to sacrifice their environmental quality for some additional economic output?
the European Union
Government ______________ regulations specify that inventors will maintain exclusive legal rights to their respective inventions for ______________ .
patent; a limited time
When exit occurs in a monopolistically competitive industry the
perceived demand and marginal revenue curves will shift to the right.
When a government establishes a marketable permit program to address environmental pollution, it is actually issuing a form of
permit to pollute.
A beekeeper decides to locate her business on a plot of land that is between an apple orchard and an elementary school. A positive externality that can result is
the bees helping to pollinate the orchard, leading to more fruit.
The opportunity cost of attending university is likely to include all except which of the following?
the cost of haircuts received during the school term
Refer to the graph shown below. Based on the information illustrated in the graph, which of the following is correct?
producing a marginal unit is increasing average costs overall
A monopolist is able to maximize its profits by
producing output where MR = MC and charging a price along the demand curve.
A monopolistically competitive industry does not display ____________________ in either the short-run, when firms are making _______________, nor in the long-run, when firms are earning ________________ .
productive and allocative efficiency; profits and losses; zero profits
Monopolistic competitors can make a _____________ in the short-run, but in the long run, ______________ will drive these firms toward _______________________ .
profit or loss; entry and exit; a zero-profit outcome
Refer to the table below. If the firm produces 5 units that it sells for $39.00 each, what will its profits or losses equal?
profits equal $40
In the event that Only1Corp. obtains control of all the natural gas producers in the US, it would most likely
raise prices, cut production, and realize positive economic profits.
Government has a variety of policies that allow inventors to _____________________ , such as the granting patents and __________________ .
receive an increased rate of return; subsidization of research and development
The typical slope of the demand curve as perceived by a monopolistic competitor will
reflect that firm's ability raise its price without losing all of its customers.
The price elasticity of demand measures the:
responsiveness of quantity demanded to a change in price.
Which of the following occurs simultaneously with an income effect?
substitution effect
If oligopolists compete hard against each other,
zero profits result for all.
If the demand curve for a life-saving medicine is perfectly inelastic, then a reduction in supply will cause the equilibrium price to
rise and the equilibrium quantity to stay the same.
Cathy can take either of two separate roads to drive to work. The first is a lightly used new toll road that is rarely congested. The second road is a local road with no tolls, but it is often congested and has many potholes. In this instance, the toll road is
rivalrous and nonexcludable
The ________________ arises when a price changes because consumers have an incentive to consume less of the good with a relatively higher price and more of the good with a relatively lower price.
substitution effect
The marginal utility of two goods changes ______________.
with the quantities consumed
If you are highly asthmatic, then having high levels of industrial air pollutants waft over your house every day
would be a negative externality.
