Final Exam - Econ 120

Assume that in the short run a firm that produces 100 units of output has average total cost of $200 and average variable cost of $150. The firm's total fixed cost is

$5,000.

Suppose a cafe's daily total fixed cost is $100, its variable cost is $1 per cup of coffee, and it sells an average of 200 cups of coffee per day at an average price of $4 per cup. On a typical day, the firm's total accounting profit is

$500 Total fixed cost = $100 Total variable cost = $1 x 100 cups = $200Total explicit / accounting cost = TFC + TVC = $300 Total revenue = P x Q = $4 x 200 = $800Total accounting profit = TR - TC = $800 - $300 = $500

Suppose a cafe's daily total fixed cost is $100, its variable cost is $1 per cup of coffee, and it sells an average of 200 cups of coffee per day at an average price of $4 per cup. If the cafe is closed today due to a water main break on the street outside, the cafe's total accounting profit today will be

- $100

Given our current production and consumption trends, humanity is on track to use the equivalent of ___ earths' resources by 2050.

3

Suppose you have a 30-year mortgage at a fixed rate of 7 percent. At the time you signed, your lender's analysts anticipate inflation of 2 percent over the 30-year life of your loan. At the end of your loan, the actual inflation rate was 4 percent. What was the real interest rate earned by your lender?

3 percent

According to the research cited in the video, businesses that have implemented principles of circular economy into their models or practices have experienced ________ better performance compared to those that have not.

30 - 40 percent

Which of the following is an example of second-degree price discrimination?

A bakery charging $1 per doughnut or $10 for 1 dozen of the same doughnut.

Why are there only a few dominant firms in an oligopolistic industry?

A. Because horizontal and vertical integration result in reduced competition from fewer rivals. B. Because there are very high barriers to entry, such as a large minimum efficient scale, patent or license requirement, or access to a key resource or material input. C. Because even if barriers to entry are overcome, new firms to the market face the very costly challenge to acquire and build market share when dominant firms have strong brand loyalty and big advertising expenditures. D. All of the above. (D)

Why are the establishment and enforcement of property rights so integral in a market system?

A. Because individuals will have confidence that any profits earned from the productive use of their privately-owned resources can be accumulated and will be protected

Which of the following statements about price regulations is true?

A. If the government wanted to impose price regulations in the market for housing, they would most likely impose a price ceiling. B. A binding price ceiling must be imposed below the equilibrium price in the market. C. The government would only impose a price floor or a price ceiling in the case of a necessity good. D. If the government wanted to impose a price floor in the market for milk and the equilibrium price of milk is $5 per gallon, then a price floor set at $6 per gallon would be binding.

Which of the following is a way in which waste can be converted into a resource input?

A. Implementing packaging standardization within industries B. Cycling materials so that they are useful beyond the shelf-life of an individual product C. Designing products for disassembly and regeneration D. All of the above are ways in which waste can be converted into a resource input. (D)

What is the impact on the market for plant-based meat resulting from the shock in Question 5 above?

A. Increase in equilibrium quantity and increase in equilibrium price of plant-based meat A positive supply shock, ceteris paribus, would cause a shortage at the initial equilibrium price. The shortage would put upward pressure on the price in order to alleviate the inefficiency. As the price rises, the shortage decreases

An example of indigenization would be

A. Ma'o Farms designing their business model to prioritize two measures that ensured the health of ahupua'a in pre-western contact Hawai'i. Recall the definition of "indigenization": taking modern tools and structure and repurposing them to be vehicles for ancestral practices in a 21st century context.

Which of the following statements about the outcomes in economic systems is FALSE?

A. Planned economies are typically more efficient at addressing the economic problem because decision-making is centralized with a single entity. Feedback:Planned economies are highly inefficient at addressing the economic problem of scarcity because the decision-making body lacks the information necessary to best use limited resources in satisfying people's needs. Further, the decision-making body often lacks the care to use resources efficiently, since government leaders typically benefit most from the goods that are produced.

Consider the market for electric vehicles (EVs). Assuming the EVs are charged using solar energy, compared to gas-powered cars, select the option that best describes market activity.

A. The consumption activity in the EV market causes a positive external impact. The use (consumption) of the EV - not the production process by which the EV is manufactured - is the market activity that reduces carbon emissions compared to gas-powered cars, thereby creating a positive externality. You may have heard that the manufacturing of EVs - namely, the battery - is "damaging" to the environment through carbon emissions from the lithium-ion compound. Note that compared to production of gas-powered cars, the negative impact caused by lithium-ion battery production is still relatively smaller.

A monopolistically competitive firm is currently producing at an output level where average total cost is $4.50, price is $4.00, marginal revenue is $2.50, and marginal cost is $2.50. Which of the following statements is true about the firm's short-run performance?

A. The firm is at the short-run break-even point of production. B. The firm is generating positive profit in the short run. C. The firm has achieved production efficiency in the short run. D. The firm is suffering a loss in the short run.

Which of the following is an example of a monopolistically competitive industry?

A. The restaurant industry B. The fashion industry C. The toothpaste industry D. All of the above are examples of monopolistically competitive industries. (D)

Gardening World is a manufacturer of gardening soil. Assume that the market for gardening soil is perfectly competitive and the market price of a five-pound bag of soil is $10. Which of the following statements is true?

A. To maximize profit, Gardening World would produce the number of bags at which its marginal cost of production is $10. B. Gardening World's marginal revenue is $10 per bag. C. Gardening World cannot earn higher revenue by selling their soil for $11 per bag. D. All of the statements above are true. (D)

Monopolies that are allowed to exist are regulated by the government via

A. average cost-pricing. B. imposition of price ceilings. C. a commission of appointed or elected individuals from the general public. D. all of the above. (D)

Although the common English correlate (1:1 translation) for hana is usually given as "work," a more appropriate translation is

A. employment to earn necessary supplies and nourishment.

In the price leader model of oligopoly, when the price leader increases its price,

A. it does so in order to cover rising production costs. B. the other firms often copy the price increase, as their production costs have also increased. C. the other firms can leave their price unchanged or drop their prices to increase their marketshare, but any gains are not typically long-lasting. D. all of the statements above are true. (D)

All of the following are costs of inflation EXCEPT

A. loss of purchasing power. B. increased income taxes. C. arbitrary reallocation of wealth between lenders and borrowers. D. uncertainty and confusion. (B)

Market economies

A. produce goods and services valued most by consumers. B. are promoted as the economic system resulting in the most efficient use of resources, but actually result in waste due to the linear economic design and a lack of futures-oriented decision-making. C. hinge on the pursuit of self-interested as an incentive in most decision-making processes. D. are characterized by all of the above. (D)

Opportunity cost is

A. the highest-valued forgone alternative sacrificed when a decision is made. B. measured in terms of what is given up. C. reflects a necessary tradeoff resulting from scarcity. D. all of the above. (D)

Expansionary fiscal policy is best implemented when

A. there are many underemployed resources in the economy. B. the government is able to identify and target underemployed resources. C. the source of the recession and decline in spending is a decrease in demand. D. all of the above. (D)

If there is an advancement in agriculture harvesting methodologies through development of new capital, ceteris paribus, how would the PPC above be affected?

Advancement in agriculture harvesting methods and development of new capital would increase production capacity of coffee beans, but not honey. Therefore, the PPC would expand on only the axis of the quantity of coffee beans produced.

Which of the following statements is FALSE about an ahupua'a?

Ahupua'a were divided into equal sizes to ensure equal distribution of resources. Feedback:Ahupua'a were divided in a way so that each region had a sufficient amount of the variety of resources needed for all people who lived in the region to thrive.

If the shocks from the news articles in Question 5 and Question 7 happened simultaneously, what would be the impact on the equilibrium in the market for plant-based meat?

Ambiguous impact on equilibrium price and increase in equilibrium quantity

Which of the following is an example of third-degree price discrimination?

An airline charging business passengers in coach and vacation passengers in coach different prices.

Which of the following statements is true?

At least one resource is fixed in the short run, but all resources are variable in the long run.

All of the following are potential solutions to achieve the socially optimal outcome in the event of a negative externality EXCEPT

B. a subsidy given to producers of the good that imposes an external cost. Feedback: The solution for the market failure must reduce the current over-production of the good that imposes an external cost on others. Therefore, producers must be either disincentivized from producing the good, or mandated to decrease their supply of the good. Providing a subsidy would offset some of the production cost of the good, and this incentive would encourage increased supply of the good

In Hawaiian genealogy,

B. ancestors and gods make their presence known through natural elements to guide you on your life path. C. kalo (taro) - the staple food source - is the older sibling of humans. D. humans have a responsibility to care for all living things.

Think about the expenditure categories of GDP.If consumption expenditures rise by $300 billion and imports increase by $300 billion, then, ceteris paribus, GDP

B. does not change. GDP = Consumption spending + Investment spending + Government spending + (value of exports - value of imports)

You own a company that produces #2 pencils. If your firm experiences an increase in production cost due to a natural disaster that damaged your manufacturing plant,

B. if you want to stay in business, once you are able to rebuild and restart operations, you will likely need to suffer a temporary loss and cannot raise the price of your pencils to cover the increased fixed cost you incurred.

Why does opportunity cost increase as more units of a good are produced?

Because resources are often specialized and are not equally productive in all activities.

Which of the following is NOT true about a functional circular economy?

Businesses will have less profit opportunity, as products will be redesigned to remain in use for longer periods before replacement. (There will likely be increasing profit opportunity, as businesses will be able to expand their markets by adding remanufactured product lines and by charging licensing/leasing fees for their longer-lasting products.)

An outward shift of an economy's PPC indicates that

C. the economy's production capacity has increased.

Which of the following is an example of vertical integration?

Carnegie Steel company's acquisition of iron ore mines and cargo ships. Vertical integration involves the merging of two firms at different stages of the supply chain, giving the resulting entity increased control over the entire production process and reducing its production costs through elimination of profit-seeking firms.

Which of the following would be considered economic capital at a coffee shop?

Espresso machine

Which of the following is true for a firm in a perfectly competitive industry?

D. It can choose the quantity of output it produces, but not its price. The only decision a perfectly competitive firm can make in the short run to maximize profit is the level of output it will produce.

"Plant-Based alternative have absolutely gone mainstream and are gaining much more acceptance among consumers" Which of the following most accurately describes the impact on the market for plant-based meat?

D. Positive demand shock due to changing consumer preferences When any good or service goes "mainstream," this means that preferences have grown stronger for it, resulting in a positive demand shock. Consumers either like it more, perceive more benefit from it, or feel that it is desirable based on social trends and therefore want it for themselves.

Suppose the price per bushel of corn is $2.25. If corn costs Zoe $2.50 per bushel to produce, of which his average fixed cost is $0.75, then Zoe should

D. continue to produce in the short run but exit the industry in the long run. P = MR = $2.25 ATC = $2.50Per-unit profit = - $0.25 --> Zoe suffers negative profit in the short run, but should he shut down? It depends AFC = $0.75AVC = ATC - AFC = $1.75

Which of the following statements about business cycles is true?

Economies spend majority of time in an output gap, striving to restore full employment.

Which of the following is NOT a characteristic of a perfectly competitive market?

Firms differentiate their product to stand apart from the competition

Which of the following statements about monopolistically competitive industries is true?

Firms that compete in monopolistically competitive industries are not desirable targets for investors looking to buy equity (ownership share) in a business.

Suppose that when the price of Good A increases by 10 percent, the quantity of Good B demanded increases by 5 percent. It can be inferred that

Goods A and B are substitute goods. Normality and inferiority cannot be inferred because we are not given any information about the change in consumers' income. Based on the law of demand, if the price of Good A increases, the quantity of Good A demanded will decrease. We know that the quantity of Good B demanded will increase at the same time, so it can be inferred that Goods A and B are substitutes.

Which of the following are part of a person's 'ohana?

Forests, oceans, teachers, coral, birds, farmers. Feedback: According to the Hawaiian creation chant (the Kumulipo), every other living creature is a relative of humankind, and came before humans.

In which of the following industries is a natural monopoly MOST likely to exist?

Freight (barge) shipping (think of the boats that carry the Matson containers)

When Charlie worked full time, he paid a cleaning service to have his house cleaned twice a month. Now that he is retired, he pays his grandson $20 to come over twice a month to help him with his cleaning. As a result,

GDP falls even though the productive activity continues to take place. Without a formal market transaction (paying the cleaning service), the cleaning activity has no market value and is not reflected in GDP. This is an example of a reduction in formal market activity. The house cleaning service is now both produced and consumed within the home, making it part of the informal market.

A firm maximizes total profit at the level of output where MR = MC. If MR > MC, then per-unit profit is positive, and the firm could add to its total profit by increasing production. If MR < MC, then per-unit profit is negative, and the firm could increase its total profit by reducing production.

GOOD

The dominant strategy is the strategy that, no matter what rivals do, yields the highest benefit for the decision maker. The dominant strategy for each of the two firms is to advertise. This is a prisoner's dilemma because both companies would be better off (have higher earnings) if they chose NOT to advertise and incur the large fixed cost of doing so. However, because both companies have an incentive to cheat, and the non-cheating company would lose large market share, they both end up advertising.

GOOD

The monopolist will produce the quantity at which MR = MC --> this occurs at quantity Q2. The monopolist will then let the market determine the price by charging the maximum price consumers are willing to pay for that specific quantity of the good. Follow the Q = Q2 line up until it intersects the demand curve. Then follow the horizontal curve to the y-axis to identify the price --> P3.

GOOD

Which of the following is NOT a characteristic of a market economy?

Government ownership of resources Feedback:In a market system, individuals have the economic freedom to own resources and use (or sell) those resources in ways that serve their self-interested goals. In contrast, most productive resources in a command system are owned by the government and allocated based on the values of the key decision-maker(s).

A. Taking modern tools and structure and repurposing them to be vehicles for ancestral practices to be relevant in a 21st century context. B. Family as a unit of education, employment, and spirituality C. Sciences and technologies of integrated big systems management

Hana - C 'Ohana - B Indigenization - A

Which of the following is NOT an example of an oligopolistic industry?

High-end fashion & apparel industry While many consumers of high-end fashion have strong brand loyalty, the barriers to entry are relatively low. It does take time and often some endorsement for a new designer to break out and gain traction in the market, but the number of designers/companies in the industry are indicative of low barriers.

Economics is the study of

How people make decisions to allocate scarce resources given unlimited wants.

"5 More companies tackle plant-based meat alternatives" What impact does this shock cause on the equilibrium in the market for plant-based meat?

Increase in equilibrium quantity and decrease in equilibrium price of plant-based meat. This event would cause a positive supply shock, as it indicates an increase in the number of sellers in this market. A positive supply shock would cause a surplus of plant-based meat at the initial equilibrium price, ceteris paribus, which would put downward pressure on the price to eliminate the inefficiency.

What is the leading cause of inflation in most economies?

Increases in the money supply

Which market is least likely to produce external benefits for society?

Manufacturing Manufacturing (e.g., car assembly, mobile phone production), on the other hand, only benefits the producer (who earns profit) and the consumer (who benefits from the ability to consume the product). No third-parties are positively affected by the manufacturing process. If anything, there may be a negative externality imposed.

Which of the following statements is FALSE?

Monopolists always earn positive economic profit; perfectly competitive firms may incur losses. All profit-maximizing firms produce the level of output where MR = MC. Because perfectly competitive firms are price takers, their MR is equal to the market price determined by the collective decisions made by all producers and all consumers. Therefore, for a perfectly competitive firm, P = MR = MC. However, as the sole producer, the monopolist has market power and can charge a price higher than MC and still sell all of the output that maximizes its profit.

Which of the following is true about monopolies?

Monopolists charge a marked-up price over their marginal cost of production.

Which statement about pre-western contact Hawai'i is FALSE?

Native Hawaiians were 85% self-sufficient. Native Hawaiians in pre-western contact Hawai'i were 100% self sufficient and imported zero goods to supplement living from abroad (with the exception of some voyages when navigators brought items they were gifted).

Which sequence describes the long-run adjustment process in perfectly competitive market when firms are earning positive short-run economic profit?

New firms enter, market supply increases, equilibrium price falls Feedback:As new firms enter the market, a positive supply shock occurs.

In which measure of social or environmental governance is humanity headed in a positive direction?

None of the above Our collective decision-making has an increasingly negative impact in all of the areas above, pushing systems past their tipping point (meaning, causing irreversible changes).

Rank the elasticity of the demand curve facing a firm in each market type from HIGHEST to LOWEST:

Perfect competition, Monopolistic competition, Oligopoly, Monopoly (unregulated)

Suppose Starbucks expands its Farmer Support Center, which was established in countries like Costa Rica, Colombia, and Tanzania to provide coffee farmers with resources and expertise. What kind of shock is this most likely to cause in the market for Starbucks coffee?

Positive supply shock Feedback: The transfer of knowledge and the increased availability of physical capital are likely to increase the productivity of coffee farmers in these regions, increasing coffee bean output and reducing coffee bean prices over time. Lower production costs allows Starbucks to produce more coffee.

Which of the following most likely has the HIGHEST price elasticity of demand?

Private college education

Which of the following statements about scarcity today is true?

Scarcity can never be eliminated or overcome.

Which of the following is an example of a final (finished) good?

Shoes purchased by a teacher

Which of the following is a normative statement?

The Honolulu rail project is a waste of taxpayer dollars.

Which of the following would be considered an investment purchase in calculating GDP?

The construction of the new Amazon headquarters.

What does it mean for a firm to earn normal profit?

The firm earns positive accounting profit that covers implicit costs, keeping investors just satisfied so that they don't seek other investment opportunities.

Which statement about monopolistic competition is FALSE?

The firm faces a horizontal demand curve. Because monopolistically competitive firms have price-setting power resulting from product differentiation, they face downward-sloping (albeit relatively highly elastic) demand curves. This implies that their marginal revenue curve is also downward-sloping. Assuming they are profit-maximizing, they will choose to produce the level of output where MR = MC.

What does the PPC show?

The maximum combinations of goods and services that an economy can produce.

What is an economic system?

The method by which a country coordinates the allocation of resources and the distribution of goods in response to scarcity.

Which of the following is NOT a determinant of demand for Subway sandwiches at KCC?

The price of bread The price of bread does not directly affect consumers' demand for Subway sandwiches (the price paid by consumers already reflects the price of bread and all other material inputs).

Consider the externality generated by the market for 20-oz plastic beverage bottles (e.g., soda or water sold in vending machines or grocery stores). Which of the following statements is true for this market?

The social cost of production exceeds the private cost of production. The plastic used to manufacture the bottle is made from fossil fuels, thereby contributing to carbon emissions. Further, once the beverage is consumed, the plastic bottles end up in landfills, are burned for energy, or escape the waste stream and typically end up in the ocean (through storm drains). Therefore, the external impact caused by this market activity is negative.

How is the invisible hand demonstrated in a market?

Through pressure on the price to adjust in response to imbalances in the market that reflect inefficient resource allocation

Which of the following BEST characterizes the goal of a circular economy?

To extract maximum value from resources and keep them in use through recovery and regeneration for as long as possible.

What is the purpose of making assumptions in economic modeling?

To simplify reality and isolate specific events for analysis.

Which of the following items is likely to have the LOWEST price elasticity of demand?

Toothpaste

Production function data for an average 10-minute period between 4:00pm and 6:00pm at a small grocery store is provided in the table below. # checkout workers # customers served 1 - 4 2 - 9 3 - 16 4 - 26 5 - 34 6 - 39 7 - 41 8 - 40 When do diminishing returns set in?

With the addition of the 5th worker

A recession is defined as

a fall in real GDP that lasts six months or longer.

In the collusion model of oligopoly behavior,

all producers jointly act as a single firm, restricting output through imposition of production quotas and maximizing group revenue.

All of the following are factors that contribute to an economy's growth EXCEPT

an increase in its money supply. Growth in real GDP is made possible through a more productive labor force or a larger labor force. Productivity is improved through tech advancement and complementary infrastructure.

Goods in a market economy

are produced efficiently and at lowest cost, but only with regard to the current time period, as self-interest drives up the future costs of resources and goods.

All of these groups are considered losers when unanticipated inflation occurs EXCEPT

borrowers. When unanticipated inflation occurs: Purchasing power fallsReal income fallsThe real interest rate is lower than expected, and the buying power of lenders' nominal interest falls

The collusion model of oligopoly behavior works best when

cartel members produce a homogeneous product.

Firms in monopolistically competitive firms are most likely to

imperfectly price discriminate. Imperfect price discrimination = 2nd degree and 3rd degree price discrimination

The price elasticity of demand measures

consumers' responsiveness to a change in price.

All of the following were agricultural technologies applied within the ahupua'a system EXCEPT

creating plant hybrids from native species to strengthen features that help combat extreme weather conditions. Feedback:Agricultural technologies applied with ahupua'a aligned with natural cycles and native ecosystems. They did not "fight" against the natural ecology, as this would have been disrespectful to their elder relatives.

At full-employment, there is no

cyclical unemployment.

As more and more Mexican restaurants open in a town, ceteris paribus,

demand for Mexican food becomes more price elastic.

Suppose that the Hawai'i State Legislature votes to allocate $20 million to repair roads while traffic is reduced during the COVID-19 crisis. This would be an example of

discretionary fiscal policy.

A monopolist's marginal revenue curve is ___________, while the marginal revenue curve for a firm in a perfectly competitive market is ___________.

downward-sloping.....perfectly elastic As a price taker, a perfectly competitive firm earns the same amount of additional revenue from each additional unit sold - the market price at which it sells the good. Therefore, the firm's marginal revenue is constant at the market price - it is a horizontal line with perfect price elasticity.

Once developed and available to the public, a COVID-19 vaccine will be

excludable and non-rival.

A non-excludable good is a good

from which even non-payers can benefit.

Income elasticity of demand is likely positive for all of the following goods EXCEPT

frozen pizza.

Transitioning from a linear to a circular economy will require all of the following EXCEPT

government ownership of key productive resources to coordinate their usage. (While governments will likely need to lead areas of change (either by offering incentives or financing infrastructure development/redevelopment), transition to a circular economy does NOT require government ownership of resources and reduction of profit opportunities for private entities.)

Accounting profits are

greater than economic profits because accounting profits do not account for opportunity costs.

Max, the owner of a boba (bubble tea) shop, is considering scaling his business by opening a second location on the other side of town. This long-run decision would produce economies of scale for Max's business

if the company's increased production capacity causes its average total cost per boba drink to fall.

A natural monopoly arises in an industry where a firm

has very large fixed costs.

Think about a company that continues to expand its scale of operation. For example, consider Starbucks. Its headquarters is in Seattle, Washington, but they operate 30,600 stores worldwide (as of September 2019). As the company continues to scale its operation, diseconomies of scale would arise due to

higher resource and material costs due to supplying an increasing number of locations.

The largest expenditure share of the CPI basket is

housing.

Which of the following describes an automatic stabilizer? As real GDP decreases,

income tax revenues decrease and transfer payments through social welfare programs increase.

You are the manager for a restaurant and based on your data analysis, you find that the price elasticity of demand for your most popular dish is less than one. To increase your restaurant's total revenue, you should

increase the price of the dish.

If the economy is in a recession and prices are relatively stable, then the fiscal policy or policies that would most likely stabilize the business cycle is/are

increased government spending or decreased taxation, or a combination of the two actions.

The crowding-out effect suggests that

increases in government spending may raise the interest rate and thereby reduce private consumption and investment.

Western worldview reinforces ________, while indigenous worldview is ________.

individualism.....collective.

GDP includes output produced ________ but does not include output produced ________.

inside the United States by foreign citizens.....outside the United States by U.S. citizens

Inflation and the value of money are

inversely related.

If the unemployment rate is greater than the natural rate of unemployment, then real GDP

is less than potential GDP. The economy produces at potential GDPThere is only frictional, structural, and seasonal unemployment The economy is at its natural rate of unemployment If the economy is at a negative output gap: Real GDP falls below potential GDP (but is not necessarily at a trough) There is cyclical unemploymentThe unemployment rate exceeds the natural rate of unemployment If the economy is at a positive output gap: Real GDP exceeds potential GDP (but is not necessarily at a peak)There is cyclical employment, which offsets some of the natural unemployment for frictional, structural and seasonal reasons The unemployment rate falls below the natural rate of unemployment

Think about the macroeconomic indicators discussed in this topic and what purposes they are used for. One key reason why economists track investment purchases is because

it is a good predictor of future GDP.

If a monopolist engages in price discrimination,

it will charge a higher price to consumers whose demand is relatively price inelastic and a lower price to consumers whose demand is relatively price elastic.

A. A physical manifestation of a deity B. A deep appreciation and love for all the features of the land, such that you realize that you are not whole without your place, and that the fate and health of your place is your own fate, your own health C. Sacred restrictions on behavior that preserved essential ecological services D. Ancestor gods that took the form of native plants and animals

kapu - C aumakua - D kinolau - A aloha 'āina - B

Planned economies have failed because they

lack the information and incentives necessary to use their limited resources efficiently.

Assume that there is no price leader in an oligopoly. If one firm increases its price, the most likely reaction of the other firms will be to

leave their price unchanged in order to increase market share and revenue. When one firm in an oligopoly raises its price, the other firms don't have to take any action in changing their price because their product is now relatively cheaper, necessarily attracting some consumers. The firm that raised its price will likely experience a decrease in market share, and therefore, no firm wants to be the first to raise its price without other changes to the product itself.

The goal of each ahupua'a was to

maximize abundance of the land and fitness of the people.

If the economy is at a recessionary gap,

members of Congress who believe in Keynesian economics would push for a discretionary fiscal policy response to counter the business cycle.

All of the following are challenges to fiscal policy EXCEPT

monetary lag.

Individual firms selling in a perfectly competitive market are price takers because each producer has a

negligible fraction of total market share for a homogeneous good.

A monopolistically competitive industry is like a purely competitive industry in that

neither industry has significant barriers to entry. The products produced by firms in a monopolistically competitive industry are differentiated - this is what gives each firm price-setting power. Firms in a perfectly competitive market can only compete on price, as their product is homogeneous.

The Waikiki Shell is an outdoor, open-air concert venue surrounded by a park and a residential area. If a band is giving a concert at the Shell, the concert is

non-excludable and eventually becomes rival.

In competing with rivals, oligopolistic firms tend to use

non-price competition because it is less easily duplicated and has larger and longer-lasting impact on profits than price cuts.

A Netflix subscription is

non-rival and excludable.

Because sea level rise mitigation strategies (like oyster beds and rain gardens) are ________, allowing for people to simultaneously benefit from them without reducing benefit to any one individual, these projects would be ________ if they were provided by profit-seeking firms.

non-rival.....underproduced

A monopolistically competitive firm earns _______ profit in the long run because _______.

normal.....there are low barriers to entry into the market. Although firms can differentiate their product and do have some price-setting power, the fact that there are no barriers to entry into the market mean that new firms can easily enter, thereby creating more competition from close substitutes, and eroding price-setting power.

The main reason why firms in a perfectly competitive market earn zero economic profit in the long run is because

of easy entry into and exit from the market in response to short-run profits, which affects the market price.

In the circular flow model, the factors of production are

owned by households.

Upon graduation from college, you start a new job with an annual salary of $65,000. With this increase above your current hourly wage rate, your demand for peanut butter and jelly sandwiches decreases and your demand for Spam increases. It can be inferred that

peanut butter and jelly sandwiches are an inferior good and Spam is a normal good for you.

An economy has historically grown at a rate of 2.25%. Currently, this economy is growing at a rate of 3%, and the unemployment rate is low by historical standards. The economy is expected to continue to grow in the near future, and analysts are concerned that inflation may increase. This economy is most likely at a _____________ and in the _____________ stage of the business cycle.

positive output gap.....expansion

If a 5 percent fall in the price of a product causes the quantity demanded of the product to increase by 10 percent, demand for that product is

price elastic.

According to Keynesian theory, the economy is not always self-correcting and may require government intervention because

prices - particularly wages - are sometimes slow to adjust, and government spending may be needed when private spending is insufficient.

In a linear economy, profit and economic prosperity are coupled with (inherently linked to)

producing and selling an increasing quantity of products.

In a market system, the primary concern of business owners and entrepreneurs is

profit maximization.

If the government uses money from the Social Security fund to finance its current budget deficit, then

public debt is unchanged. Public debt can be held internally by domestic households and businesses, or externally by foreign households, businesses, or governments. If the government borrows from the Social Security fund, this is a government agency, so this borrowing would NOT be added to debt held by the public.

The consumer price index measures the value of the basket of goods

purchased by the typical urban family.

Rosco's Tacos competes with eight other Mexican restaurants in the same part of town. If two of competitors exit the market, then the demand curve facing Rosco's will

shift to the right and become relatively less elastic. With the exit of two competitors, there market share of the remaining restaurants will increase. Further, because there are fewer (likely less-differentiated) options available, consumers will become less price sensitive, making Rosco's (and the other firms') demand curve relatively more inelastic (steeper).

Suppose the price per dozen glazed doughnuts is $5. If it costs Kevin $8.50 per dozen to produce, of which his average fixed cost is $3.00, then Kevin should

shut down immediately. P = MR = $5 ATC = $8.50Per-unit profit = - $3.50 --> Kevin suffers negative profit in the short run, but should he shut down? It depends AFC = $3AVC = ATC - AFC = $5.50

A "true north" version of capitalism (a market system) provides the prosperity, growth, and economic development we strive for today, but without

social injustices and environmental degradation.

If firms in a monopolistically competitive market earn negative economic profit in the short run, it can be expected that

some existing firms will exit the industry in the long run, resulting in smaller losses and remaining firms earning normal profit.

In an oligopoly, firms

strategize based on how they think their rivals will behave and respond to their own actions. Collusion violates the Sherman Act and is illegal.. Firms have strong price-setting power due to product differentiation, brand loyalty, and barriers to entry. All firms prioritize cost minimization to more efficiently use their limited resources.

The exchange of goods and services in a sharing economy is facilitated by

technology and peer-to-peer applications.

If the price of hot dogs increases,

the demand for hot dog buns will decrease.

A study of mass-transit systems in American cities revealed that in the long run, revenues generally decline after substantial fare increases. This would suggest that

the demand for mass transit is price elastic.

Suppose the economy is currently at a negative output gap. A Keynesian economist would advise

the government to increase spending on public infrastructure and social programs to help offset the decline in spending by households and firms.

Market economies rely on ________ to direct the allocation of scarce resources.

the invisible hand

Ceteris paribus, the smaller the share of income spent on a good,

the lower the price elasticity of demand. The smaller the percentage of total income/budget spent on a good, ceteris paribus, the less price sensitive an individual is to a price change, since the impact on the total budget is relatively small.

The national debt is

the sum of all previous budget deficits minus the sum of all previous budget surpluses of the federal government. The national debt is the sum of all previous years' budget balances. The accumulated deficits are only partially offset by accumulated surpluses, resulting in a very large amount of debt.

In the aggregate, gross domestic product is an economic performance indicator that represents all of the following EXCEPT

the total size of the domestic labor force. In the aggregate (throughout the entire economy), there is a triple equivalence.

In the market for electric vehicles (EVs),

there is underproduction of vehicles compared to the socially optimal quantity.

Automatic stabilizers are often more effective than discretionary fiscal policy because

they happen more timely and are necessarily directed toward the individuals who need assistance the most.

Classical economic theory is most applicable

when the economy is near full-employment.

If two countries are identical in every way except that there is significant air and water pollution in one country and relatively little pollution in the other, then, ceteris paribus, the level of GDP

will be the same in both countries.

In the short run, as firms hire more and more labor, diminishing marginal productivity of labor eventually sets in because

workers have fixed plant size to work in and physical capital to work with.