Economics Final Exam

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The above figure shows the situation of a monopolistic competitor in the short run. The maximum economic profits of the firm equal

$30,000

An example of a regressive tax is the

Social Security tax

In the production of goods and services, trade-offs exist because

Society had only a limited amount of productive resources

If two goods are complements, their cross elasticity of demand will normally be

a negative number

Suppose an individual experiences a permanent increase in income. As a result of this increased income, further assume that the individual eats dinner at restaurants more frequently each month. This information suggests that dinners are restaurants for this individual are

a normal good

A firms that faces a downward sloping demand curve is

a price searcher

A monopolist is defined as

a single supplier of a good or service for which there is no close substitue

Fred and Ann both decide to see the same movie when they are given free movies tickets. We know that

both bear an opportunity cost since they could have done other things instead of see the movie.

The Wall Street Journal reports that "hard times aid poultry companies as people eat cheaper fowl." In the language of economists, this means

chicken is an inferior good

All points inside the production possibilities curve indicate

inefficiency in production

A monopolist

is constrained in its pricing decisions by the demand curve it faces.

Scarcity

is not a shortage

If a commodity is inexpensive and its total utility great,

it is plentiful

If a monopolist wishes to increase its output and quantity sold,

it must reduce its price, so its marginal revenue is less than its price.

One reason why critics argue that large firms should not be broken up is that in some cases

large firms have a concentration of economic power

Compared to perfectly competitive firms, the demand curve for a monopolist will be

less elastic

Generally, if a nation produces more consumer goods than capital goods

less of all goods may be produced in the future.

If there are no barriers to entry into an industry,

long-run economic profits must be zero

In the above figure, the profit-maximizing monopolistically competitive firm will

make a profit of $30,000

Scarcity implies that people must

make choices

The value of the best alternative sacrificed to obtain something you want is referred to as

opportunity cost

Along the inelastic portion of a demand curve, the

percentage change in price will be more than the percentage change in quantity demanded

To be able to engage in profit-maximizing price searching, a monopoly firm must be able to

prevent the entry of other firms into the market for its product

Market failures

prevent the price system from attaining economic efficiency

According to the law of demand

price and quantity demanded move in opposite directions

The marginal tax rate and the average tax rate are the same under a

proportional income tax system

The marginal tax rate and the average tax rate are the same under a

proportional income tax system.

The only variable considered when we move along the demand curve is

the price of the good itself

If a demand curve shifts, we know that

the price of the good itself is not a factor.

In table 7-1, the marginal physical product begins to diminish with the addition of the

third worker

When an Australian citizen enjoys military protection in Australia without contributing to the cost of Australia's defense budget, then

this citizen is a free rider

The main objective of advertising for a monopolistically competitive firm is

to differentiation the product and boost demand

Total utility can be thought of as the

total satisfaction derived from a bundle of goods

To avoid an increase in the local property tax, Sullivan County, New York, proposed a 2 percent hotel tax, which presumably would be passed on to tourists. The hotel industry argued that the tax would hurt local hotel business. They are really arguing that

tourist and convention demand is very elastic, so hotel bookings will decline.

In figure 7-7 at 100 units, FC equals

1,000

In the long run, in a monopolistically competitive market, price will be

equal to ATC

In the above figure, total revenue for this profit-maximizing monopolistically competitive firm is

$100,000

In the above figure, total cost for this profit-maximizing monopolistically competitive firm is

$70,000

If a firm sells 10 unites of output at $100 per unit and 11 units of output when price is reduced to to $99, its marginal revenue for the last unit sold is

$89

At $6 per steak, consumers are willing to buy two steaks. At a price of $2, consumers are willing to buy six steaks. The elasticity of the market demand curve between P=$6 and P=$2 (dropping all minus signs is)

1

In figure 7-7 at 100 units, AFC equals

10

The above figure shows the situations of a monopolistic competitor in the short run. To maxamize profits, the firm should produce

10,000 units

In the above figure, the profit-maximizing output and price for this monopolistically competitive firm are

10,000 units at a price of $10 per unit

Between points "b" and "c" in the above figure, the opportunity cost of 250 more bushels of corn is

200 yard of cloth

An article in the Wall Street Journal reports that "most cable TV operators are aware that cable is price sensitive, and there comes a point where people won't pay the price." Which demand curve in Figure 6-6 best illustrates this situation?

3

The purchase of premium cable channels is an "all or nothing" choice. Which graph in figure 6-6 best illustrates the cable market demand curve?

4

Suppose the income tax rate is 0 percent on the first $10,000; 10 percent on the next $20,000; and 40 percent on all income above $70,000. Family A has income of $100,000 while Family B has income of $40,000. The marginal tax rates faced by the two families are

40 percent on A and 20 percent on B

If the elasticity of demand for cigarettes is 0.4, then an increase in the price of a pack of cigarettes from $5.00 to $6.00 would reduce quantities demanded by about

7 percent

In figure 7-7 at 100 units, AVC equals

8

In table 7-1, the marginal physical product of labor after the addition of the fourth worker is

8

In the above figure, which of the following points indicates the efficient use of resources?

A

Which of the following is an example of the law of demand?

An increase in the price of gasoline is followed by a reduction in the amount of gasoline consumed

Which of the following is NOT a characteristic of monopolistic competition?

Barriers to entry into the market

Which one of the following is NOT a determinant of demand?

Cost of inputs in production

In figure 6-1

D2 is less elastic than D1 at all prices

Which of the following conditions is true for a monopolist

MR < P

In the short run, the profit-maximizing monopolistically competitive firm will produce the rate of output at which

MR=MC

Which of the following is a characteristic of oligopoly?

Strategic dependence

Figure 7-11 shows an average cost curve with points on it that correspond to three quantity levels. Which of the following statements must be wrong?

The firm's average fixed cost may rise as production increases from B to C.

The monopolist's marginal revenue is less than price since

additional units can only be sold if the price is lowered on all units sold

Assume that coffee and tea are substitutes. Given a downward sloping demand curve for tea, an increase in the price of tea will cause

an increase in the demand for coffee.

Market failure occurs when

an unrestrained market economy leads to too few or too many resources going to a specific economic activity.

If both matches and automobile prices increase by 10, consumers will likely buy

approximately the same quantity of matches and fewer automobiles

The law of demand states that

at lower relative prices, a larger quantity of a good will be purchased than at higher relative prices.

A monopolist can earn economic profits in the long run because

barriers to entry prevent new firms from entering the industry

In order for a firm to receive monopoly profits, there must be

barriers to market entry

If all resources were perfectly adaptable for alternative uses, the production possibilities curve would

be a straight line

A bottle of wine costs $8 and a quiche costs $5. At Robert's present levels of consumption, he spends all his income and receives marginal utility of $10 from the last bottle of wine and marginal utility of $4 from the last quiche. To maximize his total utility, Robert should

buy more wine and less quiche

Marginal cost is the

change in total cost resulting from the production of one more unit of output

The price of an airline ticket rises as the amount of time between purchase and flight departure gets smaller. The airlines base the policy on the assumption that

consumer demand becomes less elastic as departure time approaches

The principle feature of private good is that

consumption by one person reduces the quantity available to others

A 10 percent increase in the cost of restaurant meals, which are a luxury, will most likely

decrease the purchase of meals by more than 10 percent

A schedule of amounts of a good that people will purchase at various prices during a specific time period holding other factors constant is

demand

If the price of gasoline rises by 20 percent and consumption of gasoline falls 5 percent,

demand is inelastic

The demand curve for the product of a monopolistic competitor is

downward sloping

Market failures occur when

externalities exist

In economic terminology, an inferior good is a good

for which demand increases as income decreases.

Jason considers a crystal bowl, a silver dish, and a pewter figurine, each priced $45 at the local gift shop. He chooses the silver dish because, according to the economic theory

his marginal utility per dollar is greatest

Which of the following experiments will yield observations that would allow one to calculate the marginal physical product of labor?

increase the number of workers on an assembly line and record the change in output

A relatively large increase in the cost of electricity would likely

increase the use of gas and decrease the use of electricity after a time lapse

A recent study on enrollment at a liberal arts college concluded that demand elasticity is 0.91. The administration is considering a tuition increase to help balance the budget. The revenue-maximizing decision is to

increase tuition, which would bring in more revenue

Where marginal cost is less than average cost,

marginal cost may be rising, falling, or constant

When the price of a commodity falls, we can expect

marginal utility of the last unit purchased will fall

A fundamental principle in demand analysis is that a change in price leads to

movement along the demand curve

The concept of opportunity cost exists because

of scarcity

When economies of scale exist,

production costs per unit decline as output expands.

The shape of the production possibilities curve in the above figure indicates that

production of both corn and cloth is characterized by increasing costs

Assume a family that earns $20,000 pays $1500 in income taxes, while a family that earns $40,000 pays $3500 in income taxes. In this situation, the income tax system is

progressive

In general, the demand for the product of a monopolistic competitor is

relatively elastic

Scarcity arises because

resources are finite and are inadequate to meet all human wants and needs

Suppose that the XYZ industry produces a product that results in negative external costs to society. This information suggests that

resources are over-allocated to the industry.

Elasticity provides a guide to both

responsiveness of quantity demanded to a change in price and change in revenue as price changes.

The difference between scarcity and shortage is that

scarcity always is a part of human life while shortages usually are temporary

An increase in demand is shown graphically by

shift of the demand curve to the right

If more buyers came into the market for a good, we would expect to see the market demand curve

shift outward and to the right

A demand curve

slopes down because of the inverse relationship between price and quantity demanded

As we move down a straight-line demand curve, the price elasticity become

smaller.

In figure 6-2 the price elasticity of demand (dropping all minus signs) is ______ between P=4 and P=6 than between P=10 and P=12 because between the lower set of prices the percentage change in price is

smaller;greater

A movement along the production possibilities curve would imply that

society has chosen a different set of outputs

The free rider problem is encountered when

someone benefits from the consumption of a public good without paying his or her full share

The law of diminish returns is also referred to as

the "law" of diminishing returns to scale.

The marginal income tax rate is equal to

the change in the tax payment divided by the change in income.

The marginal tax rate shows

the extra tax due on an extra dollar of income

In economics, "demand" refers to

the quantities of a good that people will buy at various prices.

In an attempt to raise sales, Hannah cut prices in her bookstore by 20 percent. If the dollar value of her sales remained constant, that indicates

the quantity of books sold increased 20 percent

Market demand is

the total quantities demanded of all consumers of a particular item at various prices

A natural monopoly usually arises when

there are large economies of scale relative to the industry's demand

A firm can be the sole supplier of a good and is still not a monopolist if

there are very close substitutes for the good

A country operates inside its production possibilities curve; this may be caused by

unemployment

A merger between firms that are in the same industry is called a

vertical merger

The "law" of diminishing returns

was constructed as the basis of observation during experiments on the impact of fertilizer on output in the 1930s

In the short run, a monopolistically competitive firm can earn

zero, positive or negative profits

Within a game theory model, if a change in decision-making rises corporation A's profits by $50 and lowers corporation B's profits by $50, the game is a

zero-sum game


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