Final 3

The largest portion of federal government revenues comes from ________. A) the individual income tax B) excise taxes C) social insurance payroll taxes D) corporate income taxes

A) the individual income tax

Resources are allocated efficiently when A) the market produces what people want. B) economic profits are zero. C) output is distributed in an equitable fashion. D) output is produced in a sustainable fashion.

A) the market produces what people want.

In a monopoly, the market demand curve is A) the same as the demand curve facing the firm. B) the summation of all the individual firmʹs cost curves. C) nonexistent. D) the marginal cost curve above minimum average variable cost.

A) the same as the demand curve facing the firm.

Refer to Figure 14.7. Firms form a cartel that maximizes profits. The profits are A) $0. B) $1,080. C) $1,800. D) indeterminate from this information.

B) $1,080.

Refer to Figure 14.7. Six firms that produce chewing gum form a cartel. The cartel faces the market demand curve given by D. To maximize profits, the cartel should produce ________ packs of chewing gum and the price should be ________. A) 12,000; $.25 B) 12,000; $.40 C) 14,000; $.30 D) 16,000; $.35

B) 12,000; $.40

In perfect competition, the condition that ensures that the right things are produced is A) MUX = PX. B) P = MC. C) P = ATC. D) MRPL = ATC.

B) P = MC.

If society will gain by producing more X, then it must be the case that currently A) PX = MCX. B) PX>MCX. C) PX<MCX. D) eitherPX>MCX or PX<MCX.

B) PX>MCX.

Refer to Figure 13.1. The demand curve facing an individual producer of wheat is most likely represented by A) Panel A. B) Panel B. C) Panel C. D) Panel D.

B) Panel B.

Air pollution generated by a steel mill is an example of A) a positive production externality. B) a negative production externality. C) a public good. D) the free-rider problem.

B) a negative production externality.

A tax whose burden, expressed as a percentage of income, increases as income increases is A) a regressive tax. B) a progressive tax. C) a proportional tax. D) an ability-to-pay tax.

B) a progressive tax.

In an imperfectly competitive industry A) a single firm has no control over the price of its output. B) a single firm has some control over the price of its output. C) a single firm will be able to sell all of its output at whatever price it wants to charge. D) the government will always regulate the output price.

B) a single firm has some control over the price of its output.

Second hand cigarette smoke is an example of a(n) ________. A) economy of scale B) externality C) public good D) government failure

B) externality

In well functioning markets, all of the following reflect the degree of product variety EXCEPT: A) differences in consumers' tastes. B) cost economies from standardization. C) gains from network externalities. D) gains from coordination.

C) gains from network externalities.

Product differentiation that makes the product better for some consumers and worse for others is A) always welfare decreasing. B) vertical differentiation. C) horizontal differentiation. D) never undertaken by firms.

C) horizontal differentiation.

Tacit collusion A) is legal under the U.S. antitrust laws. B) occurs when firms engage in formal agreements to reduce output and increase prices in their industry. C) is more likely to be successful in increasing industry profits when there are a few, similar firms in the industry. D) is more likely to effectively raise prices in the industry when demand is elastic.

C) is more likely to be successful in increasing industry profits when there are a few, similar firms in the industry

The case for advertising includes the fact that A) it wastes society's scarce resources. B) firms spend large sums of money to create meaningless differences among products. C) it provides consumers with valuable information about product availability, quality, and price. D) it creates wants that otherwise would not have existed.

C) it provides consumers with valuable information about product availability, quality, and price.

The restaurant industry is an example of a(n) ________ industry. A) perfectly competitive B) monopolistic C) monopolistically competitive D) oligopolistic

C) monopolistically competitive

An important distinction between perfect competition and monopoly is that in A) perfect competition there is no distinction between the firm and the industry. B) perfect competition the firm is the industry. C) monopoly the firm faces the market demand curve. D) monopoly the firm produces less than the total quantity supplied.

C) monopoly the firm faces the market demand curve.

The demand facing a monopolistically competitive firm is ________ a monopolistic firm and ________ a perfectly competitive firm. A) as elastic as; less elastic than B) less elastic than; more elastic than C) more elastic than; less elastic than D) more elastic than; as elastic as

C) more elastic than; less elastic than

In general, oligopolists compete A) on price alone. B) on many dimensions except for price. C) on price, R&D, and marketing and advertising. D) None of the above. There is no competition in oligopolistic industries.

C) on price, R&D, and marketing and advertising.

Suppose a policy change will generate $180,000 of benefits for low-income families and $150,000 of costs for high-income and middle-class families. This change can best be described as A) inefficient. B) Pareto efficient. C) potentially efficient. D) equitable.

C) potentially efficient.

Refer to Table 19.2. The tax rate structure in this example is A) proportional. B) progressive. C) regressive. D) marginal.

C) regressive.

In order to achieve market power, monopolistically competitive firms use ________. A) their size B) product differentiation C) strategic behavior D) predatory pricing

C) strategic behavior

A voluntary exchange between Mike (the purchaser) and Wayne (the seller) occurs because A) Mike stands to gain and Wayne to lose. B) Mike stands to lose and Wayne to gain. C) they both gain from the transaction. D) they had no choice.

C) they both gain from the transaction.

Which of the following questions is NOT answered by general equilibrium analysis? A) Are equilibria in different markets compatible with one another? B) Can all markets simultaneously be in equilibrium? C) How will a change in one market affect another market? D) What outcome is most desirable for the whole society?

D) What outcome is most desirable for the whole society?

The oligopolistic model in which firms produce exactly the same results as would exist if a monopolist controlled the entire industry is called the ________ model. A) Cournot B) price leadership C) maximin strategy D) collusion

D) collusion

A weakness of the Cournot model is that A) it assumes that firmsʹ actions are not interdependent. B) it cannot explain how firms initially set price and quantity. C) the pricing strategies that firms use are too complex. D) it assumes that firms do not anticipate the moves of their rivals.

D) it assumes that firms do not anticipate the moves of their rivals.

A firm must be able to ________ competition if it is to exercise control over the price of its product. A) maximize B) increase C) not change D) limit

D) limit

A(n) ________ industry is characterized by strategic behavior. A) perfectly competitive B) monopolistic C) monopolistically competitive D) oligopolistic

D) oligopolistic

The airline industry is an example of a(n) ________ industry. A) perfectly competitive B) monopolistic C) monopolistically competitive D) oligopolistic

D) oligopolistic

In an oligopolistic industry, the price firms charge and the quantity they produce would be the same as if the industry was a monopoly if A) the market is contestable. B) theoligopolists behave as Cournot assumed. C) one of the oligopolists acts as a dominant firm price leader. D) theoligopolists collude.

D) theoligopolists collude.

An activity that makes some people better off and nobody worse off is a A) government transfer program such as Social Security. B) reduction in interest rates. C) price floor that increases income to suppliers. D) voluntary exchange.

D) voluntary exchange.

________ occurs when price- and quantity-fixing agreements among producers are implicit. A) Tacit collusion B) A Cournot model C) A price-leadership model D) A monopoly

A) Tacit collusion

Refer to Table 19.3. The tax rate structure in this example is A) proportional. B) progressive. C) regressive. D) marginal.

A) proportional

A tax whose burden, expressed as a percentage of income, falls as income increases is a A) regressive tax. B) progressive tax. C) proportional tax. D) benefits-received tax.

A) regressive tax.

Efficiency occurs when A) the economy is producing what people want at least possible cost. B) the economy has a fair and just distribution of income. C) all markets are in equilibrium. D) unemployment is low and prices are stable.

A) the economy is producing what people want at least possible cost.

When a monopolist sells two units of output its total revenue is $600. When a monopolist sells three units of output its total revenue is $630. When the monopolist sells three units of output, the price per unit is A) $210. B) $230. C) $300. D) $630.

A) $210.

Refer to Figure 14.7. Six chewing gum producing firms form a cartel. The firms have identical cost structures. If the cartel produces the profit maximizing output level, each firm should produce A) 2,000 packs of chewing gum. B) 6,000 packs of chewing gum. C) 12,000 packs of chewing gum. D) indeterminate output levels from this information.

A) 2,000 packs of chewing gum.

Refer to Figure 13.1. The demand curve facing Microsoft is most likely represented by A) Panel A. B) Panel B. C) Panel C. D) Panel D.

A) Panel A.

Refer to Figure 13.1. The demand curve facing an electric company is most likely represented by A) Panel A. B) Panel B. C) Panel C. D) Panel D.

A) Panel A.

The U.S. individual income tax is designed to be ________. A) progressive B) regressive C) proportional D) an ability-to-pay tax

A) progressive

An externality is A) a cost or benefit resulting from some activity or transaction that is imposed or bestowed on parties outside the activity or transaction. B) the total cost to society of producing an additional unit of a good or service. C) the amount a consumer pays to consume an additional amount of a particular good. D) a problem intrinsic to public goods: The good or service is so costly that its provision generally does not depend on whether or not any single person pays.

A) a cost or benefit resulting from some activity or transaction that is imposed or bestowed on parties outside the activity or transaction.

A well-maintained house and yard is an example of A) a positive externality. B) a negative externality. C) a public good. D) logrolling.

A) a positive externality.

It is essential to establish specific criteria to judge the performance of any economic system. Two such criteria are A) efficiency and equity. B) profit opportunities and technological progress. C) efficiency and profit opportunities. D) technological progress and achieving general equilibrium.

A) efficiency and equity.

The field of environmental economics is concerned with ________. A) externalities B) public goods C) government inefficiency D) economies of scale

A) externalities

Monopolistic competition differs from perfect competition primarily because in A) monopolistic competition, firms can differentiate their products. B) perfect competition, firms can differentiate their products. C) monopolistic competition, entry into the industry is blocked. D) monopolistic competition, there are relatively few barriers to entry.

A) monopolistic competition, firms can differentiate their products.

You read that 25 firms that grow and export peanuts to the United States decide to form a cartel. The cartel aims to raise the price of peanuts and reduce output to increase profits for the peanut growers. You predict that this cartel will probably A) not be successful because the number of firms is unmanageable and there are a number of good substitutes for peanuts. B) not be successful because there are too few firms that are trying to organize the cartel. C) be successful because the demand for peanuts is very elastic. D) be successful because it will be very easy to enforce the rules among only 25 firms.

A) not be successful because the number of firms is unmanageable and there are a number of good substitutes for peanuts.

For a monopoly, the marginal revenue curve has ________ point(s) in common with the firm's linear demand curve. A) one B) no C) all D) Indeterminate from the given information.

A) one

Examining the equilibrium conditions of individual markets and for households and firms separately is referred to as A) partial equilibrium analysis. B) general equilibrium analysis. C) comparative statics. D) efficiency analysis.

A) partial equilibrium analysis.

There is easy entry into the ________ and ________ industries. A) perfectly competitive; monopolistically competitive B) monopolistically competitive; oligopolistic C) oligopolistic; monopolistic D) monopolistic; perfectly competitive

A) perfectly competitive; monopolistically competitive

A(n) ________ industry does NOT have price as a decision variable. A) perfectly competitively B) monopolistic C) monopolistically competitive D) oligopolistic

A) perfectly competitively

Vaccinations convey ________ to third parties. A) positive externalities B) negative externalities C) economies of scale D) public goods

A) positive externalities

If some gain and some lose as the result of a change, and it can be demonstrated that the value of the gains exceeds the value of the losses, then the change is said to be A) potentially efficient. B) inefficient. C) unequivocally Pareto optimal. D) technically efficient.

A) potentially efficient.

If at the current output of X the PX>MCX, then society gains by A) producing more X. B) producing less X. C) raising the price of X. D) increasing the cost of producing X.

A) producing more X.

Monopolies, oligopolies, and monopolistic competitive industries all A) earn positive profits in the long run. B) have market power. C) are completely unconstrained in their pricing. D) raise price and quantity over what would occur in perfect competition in order to maximize their profits.

B) have market power.

Product differentiation that makes the product better than a rival's product from everyone's perspective A) always increases welfare. B) is known as vertical differentiation. C) is known as horizontal differentiation. D) makes the rival's product obsolete.

B) is known as vertical differentiation.

A household will buy a good as long as the A) goodʹs price is greater than the maximum a consumer would be willing to pay for it. B) marginal utility from its consumption is greater than or equal to its market price. C) good still provides the consumer with average utility. D) goodʹs use value is less than the price being charged for the good.

B) marginal utility from its consumption is greater than or equal to its market price.

If at the current output of X the PX<MCX, then society gains by A) producing more X. B) producing less X. C) lowering the price of X. D) increasing the cost of producing X.

B) producing less X.

The excise tax is ________. A) progressive B) regressive C) proportional D) an ability-to-pay tax

B) regressive

Imperfect competition A) means there is no competition in the market. B) results in less efficient market outcomes. C) should always be regulated by the government D) is a major cause of externalities in the market.

B) results in less efficient market outcomes.

In imperfectly competitive markets, A) there is no competition in the markets. B) some competition may exist in the markets. C) some competition may exist but only on price and not in other ways. D) some competition may exist but only in other ways and not on price.

B) some competition may exist in the markets.

A monopolistically competitive industry has all of the following characteristics EXCEPT: A) there are no barriers to entry. B) strategic behavior. C) product differentiation. D) a large number of firms.

B) strategic behavior.

For a monopolist to sell more units of output, A) the price must be increased. B) the price must be reduced. C) demand must become more elastic. D) the other competing firms must sell fewer units.

B) the price must be reduced.

________ is a group of firms colluding to make price and output decisions. A) A concentrated industry B) An oligopoly C) A cartel D) Price leadership

C) A cartel

Refer to Figure 13.1. The demand curve for insulin is most likely represented by A) Panel A. B) Panel B. C) Panel C. D) Panel D.

C) Panel C.

A tax whose burden is the same proportion of income for all households is A) a regressive tax. B) a progressive tax. C) a proportional tax. D) an equal tax.

C) a proportional tax.

In which of the four oligopolistic markets below is there considerable price competition? A) music production industry B) stent industry C) airline industry D) high-definition DVD industry

C) airline industry

For a perfectly competitive firm, the marginal revenue curve has ________ point(s) in common with the firm's demand curve. A) one B) no C) all D) Indeterminate from the given information.

C) all

Oligopolists must ________ to their strategy in order to determine their optimal strategy. A) anticipate the reaction of their customers B) anticipate the reaction of their rivals C) both A and B are correct. D) None of the above.

C) both A and B are correct.

Under perfect competition the person that ends up with the marginal unit is the person that values it A) at an amount above its price. B) at an amount lower than its price. C) exactly at its price. D) above its marginal cost.

C) exactly at its price.