Micro: Econ 202 Ch. 1 - 13 : Ole Miss
Suppose at the current price, the demand for copper is estimated at -3.14. What happens to sales revenue if the government imposes a price ceiling slightly below the free market equilibrium price in the copper market?
Sales revenue rises
In January, buyers of gold expect that the price of gold will rise in February. What happens in the gold market in January, holding all else constant?
The demand curve shifts to the right.
Perfect competition is characterized by all of the following except
heavy advertising by individual sellers
Generally with bond ratings, the lower the rating, the ________ the interest rate an investor will receive and the ________ the risk that the issuer of the bond will default.
higher; higher
A corporation's board of directors
hire the managers of the corporation
Figure 9-1 shows the U.S. demand and supply for leather footwear. Refer to Figure 9-1. Under autarky, the producer surplus is
$105
Jake sells Star Wars memorabilia on eBay. His annual revenue is $42,000 per year, the explicit costs of his business are $10,000, and the opportunity costs of his business are $18,000 per year. What is his economic profit?
$14,000
A perfectly elastic demand curve is
horizontal
Figure 15-4 shows the demand and cost curves for a monopolist. Refer to Figure 15-4. What is the amount of the monopoly's profit?
$2,700
Figure 5-13 illustrates the market for gasoline before the government imposes a tax to bring about the efficient level of gasoline production. Refer to Figure 5-13. If the government wanted to bring about the efficient level of gasoline production by imposing a tax, the amount of the gasoline tax would be ________ per gallon.
$2.00
Figure 4-1 shows Arnold's demand curve for burritos. Refer to Figure 4-1. If the market price is $3.00, what is the maximum number of burritos that Arnold will buy?
0
Refer to Figure 2-6. If the economy is currently producing at point D, what is the opportunity cost of moving to point B?
0 hammers
A newspaper story on the effect of higher milk prices on the market for ice cream contained the following: "As a result [of the increase in milk prices], retail prices for ice cream are up 4 percent from last year. . . . And ice cream consumption is down 3 percent." Source: John Curran, "Ice Cream, They Scream: Milk Fat Costs Drive Up Ice Cream Prices," Associated Press, July 23, 2001. Based on the information given, what is the price elasticity of demand for ice cream?
0.75 (in absolute value)
Price elasticity of demand measures
how responsive quantity demanded is to a change in price
Because of the positive externality of vaccinations, economic efficiency would be improved
if more people were vaccinated.
Refer to Figure 13-11. The diagram depicts a firm
in long-run equilibrium.
At a price of $100, Beachside Canoe Rentals rented 11 canoes. When it increased its rental price to $125, 9 canoes were rented. Calculate the absolute value of the price elasticity of demand for canoe rentals using the midpoint formula.
0.9
The demand for most farm products is relatively inelastic. All else constant, what is the effect on farm revenues as a result of the introduction of new and better farm equipment which increases productivity?
Farm revenues decrease
Measures of poverty (for example, the poverty line) and the distribution of income (for example, the Lorenz curve and the Gini coefficient) are misleading for which of the following two reasons?
First, these measures do not take into account income mobility over time. Second, these measures ignore the effects of government programs meant to reduce poverty.
Which of the following is not an advantage of risk pooling?
Individuals who are insured and therefore do not have to pay the full cost of health care services may be inclined to over-use those services.
Which of the following is not a characteristic of monopolistic competition?
The products sold by all firms are identical.
Which of the following is a source of market failure?
incomplete property rights or inability to enforce property rights
Before its IPO, Facebook was an example of a private firm. As a private firm, Facebook was
run by its founder, Mark Zuckerberg
Monopolistically competitive firms can differentiate their products
through marketing.
Refer to Figure 12-2. The firm breaks even at an output level of
Q4 units
The cross-price elasticity of demand between Coca-Cola and Pepsi-Cola is calculated by dividing
Correct the percentage change in the quantity demanded of Coca-Cola by the percentage change in the price of Pepsi-Cola
Consider a chemical plant that discharges toxic fumes over a nearby community. To reduce the emissions of toxic fumes the firm can install pollution abatement devices. Figure 5-8 shows the marginal benefit and the marginal cost from reducing the toxic fumes emissions. Refer to Figure 5-8. What is the economically efficient level of pollution reduction?
9 million tons
In the United States in 2016, the percentage of people without any form of health insurance was about
9%
Which of the following would result in a higher absolute value of the price elasticity of demand for a product?
A wide variety of substitutes are available for the good
Candles Soap Bryce 150 450 Tina 200 450Bryce and Tina are artisans who produce homemade candles and soap. Table 9-3 lists the number of candles and bars of soap Bryce and Tina can each produce in one month. Refer to Table 9-3. Select the statement that accurately interprets the data in the table.
Bryce has a comparative advantage in making soap.
Plato Playhouse, a theatre company in the university town of Wegg, caters to two groups of customers: students and the non-student population. Figure 16-2 shows the demand curves for the two groups of customers. Refer to Figure 16-2. Suppose Plato Playhouse price discriminates. Which of the following statements is true?
By charging two different prices, the theatre company essentially allows those willing to pay higher prices to subsidize those who are not.
Suppose the U.S. government imposes a $0.40 per pound tariff on rice imports. Figure 9-2 shows the impact of this tariff. Refer to Figure 9-2. The increase in domestic producer surplus as a result of the tariff is equal to the area
C
As a percentage of GDP, exports are greater than imports for which of the following countries?
China
If the demand for a steak is unit elastic, then
Correct the percentage change in quantity demanded is equal to the percentage change in price
Refer to the Article Summary. The additional tax of $2 per pack of cigarettes will have which of the following effects on the market for cigarettes in California?
Deadweight loss will increase
Refer to the Article Summary. Assume that more global tourist destinations begin to offer and publicize sustainable tourism to American tourists and, due to the growing number of millennials attracted to sustainability, more Americans choose to embrace sustainable tourism. All else equal, what will happen in the market for sustainable tourism as a result of these two factors?
Demand and supply will both increase
Which of the following statements about the price elasticity of demand is correct?
Demand is more elastic in the long run than it is in the short run.
Refer to Figure 16-5. Suppose the firm represented in the diagram decides to act as a monopolist and charge a single price. What is the profit-maximizing quantity produced and what is the price charged?
Q = 320 units; P = $24
One Motorcycle One Guitar Ireland 20 hours 4 hours Scotland 8 hours 2 hours Table 2-11 shows the number of labor hours required to produce a motorcycle and a guitar in Ireland and Scotland. Refer to Table 2-11. If the two countries specialize and trade, who should export motorcycles?
Scotland
Which of the following is a characteristic of an oligopolistic market structure?
There are few dominant sellers
Which of the following statements is true about monopolistically competitive firms?
Unlike perfectly competitive firms, monopolistically competitive firms are able to raise their prices without losing all of their customers.
Which of the following statements is true?
When a firm lowers its price its total revenue may either increase or decrease
Figure 2-4 shows various points on three different production possibilities frontiers for a nation. Refer to Figure 2-4. Consider the following events: a. an increase in the patent protection period to 30 years b. an increase of a nation's capital stock c. an improved property rights system Which of the events listed above could cause a movement from V to W?
a and c only
If the price of grapefruit rises, the substitution effect due to the price change will cause
a decrease in the quantity of grapefruit demanded
If a 5 percent increase in income leads to a 10 percent increase in quantity demanded for airline travel, then airline travel is
a luxury
Figure 2-4 shows various points on three different production possibilities frontiers for a nation. Refer to Figure 2-4. Consider the following events: a. an increase in the unemployment rate b. general technological advancement c. a decrease in consumer wealth Which of the events listed above could cause a movement from X to V?
a only
Perfectly competitive firms produce up to the point where the price of the good equals the marginal cost of producing the last unit. This condition is referred to as
allocative efficiency
Refer to Figure 16-5. Consider the following two pricing strategies: a. a fixed fee and a per-unit price equal to the monopoly price b. a fixed fee and a per-unit price equal to the competitive price The firm represented in the diagram earns a higher profit under strategy ________ and deadweight loss is eliminated under ________.
b; b
Economists estimated that the cross-price elasticity of demand for beer and wine is -0.83 and the income elasticity of wine is 5.03. This means that
beer and wine are complements and wine is a luxury good
Which of the following is not a common mistake made by consumers?
being overly pessimistic about their future behavior
The long-run equilibrium in a monopolistically competitive market is similar to the long-run equilibrium in a perfectly competitive market in that in both markets, firms
break even
As a form of business, a partnership
cannot issue stock
Which of the following products comes closest to having a perfectly inelastic demand?
cholesterol medication in general
Cost-plus pricing typically does not result in profit-maximization. As a result, economists have two views of cost-plus pricing. One of these views is
cost-plus pricing is a good way to approximate the profit-maximizing price when marginal revenue or marginal cost is difficult to determine.
A CBO study estimated that the excess burden from the corporate income tax ________ of the revenues raised by the tax. This estimate would make the corporate income tax ________ imposed by the federal government.
could equal more than half; one of the most inefficient taxes
Economists assume that rational behavior is useful in explaining choices people make
even though people may not behave rationally all the time.
Assume that you set up a sole proprietorship and your lawyer tells you that as the owner, you could stand to lose your personal wealth if the business goes bankrupt. This means that a sole proprietorship
faces unlimited liability
Refer to Figure 3-5. At a price of $5, the quantity sold
is 2 units.
A horizontal merger
is a merger between firms in the same industry.
A perfectly competitive firm's marginal revenue
is equal to its price
Economic surplus
is equal to the sum of consumer surplus and producer surplus.
If a firm faces a downward-sloping demand curve,
it must reduce its price to sell more units.
If, for a given percentage increase in price, quantity demanded falls by a proportionately smaller percentage, then demand is
relatively inelastic.
In September 2006, the Food and Drug Administration recommended that Americans avoid eating bagged raw spinach in the wake of an outbreak of E. coli bacteria. Following this recommendation, the food industry looked at alternatives and many turned to arugula. One Chicago distributor claimed, "The sale of the stuff has gone through the roof." Based on this information
the cross-price elasticity between arugula and spinach is positive
Figure 18-2 shows a demand curve and two sets of supply curves, one set more elastic than the other. Refer to Figure 18-2. If the government imposes an excise tax of $1.00 on every unit sold,
the deadweight loss is greater under the supply curve S0
Figure 5-5 shows a market with an externality. The current market equilibrium output of Q 1 is not the economically efficient output. The economically efficient output is Q 2. Refer to Figure 5-5. If, because of an externality, the economically efficient output is Q 2 and not the current equilibrium output of Q 1, what does D 2 represent?
the demand curve reflecting social benefits
If the absolute value of the price elasticity of demand for aspirin equals 0.8 then
the demand for aspirin is inelastic
During an economic expansion as consumer incomes rise, holding everything else constant,
the demand for luxuries will rise while the demand for inferior goods will fall.
Conceptually, the efficient level of carbon emissions is the level for which
the marginal benefit of reducing carbon emissions is equal to the marginal cost of reducing carbon emissions
The price elasticity of demand is equal to
the percentage change in quantity demanded divided by the percentage change in price
Which of the following is the best example of an oligopolistic industry?
the pharmaceutical industry
If the percentage change in the quantity of teapots demanded is greater than the percentage change in the price of teapots, then
the price elasticity of demand for teapots is greater than 1 in absolute value.
Chicken pox vaccinations for toddlers benefit society by protecting young children and by preventing an epidemic of the disease. Thus, the marginal social benefits of chicken pox vaccinations exceed the marginal private benefit for any quantity of vaccinations as illustrated in Figure 5-10. Refer to Figure 5-10. What is the value of the net gain to society as a result of subsidizing chicken pox vaccinations?
value equal to the area of EFH
A merger between U.S. Steel and General Motors would be an example of a
vertical merger.
If the slope of a demand curve is equal to -0.1 then
we don't know whether the demand is elastic or inelastic.
Making optimal decisions "at the margin" requires
weighing the costs and benefits of a decision before deciding if it should be pursued.
A successful market economy requires
well-defined property rights and an independent court system to adjudicate disputes based on the law
Which of the following characterizes the market that Panera Bread competes in?
Barriers to entry are low.
Figure 4-1 shows Arnold's demand curve for burritos. Refer to Figure 4-1. If the market price is $2.00, what is the consumer surplus on the second burrito?
$0
Refer to Figure 4-1. If the market price is $1.00, what is the consumer surplus on the third burrito?
$0.50
In 2011, Standard & Poor's (S&P) changed its rating on U.S. Treasury bonds from ________ based on the state of the federal government's budget deficit.
"AAA" to "AA+"
Figure 4-1 shows Arnold's demand curve for burritos. Refer to Figure 4-1. If the market price is $1.00, what is the consumer surplus on the fourth burrito?
$0
DeShawn's Detailing is a service that details cars at the customers' homes or places of work. DeShawn's cost for a basic detailing package is $40, and he charges $75 for this service. For a total price of $90, DeShawn will also detail the car's engine, a service that adds an additional $20 to the total cost of the package. What is the marginal cost of adding the engine detailing to the basic detailing package?
$20
Extra Hours Open Total Revenue (dollars) 1 $50 2 75 3 95 4 110 5 120 6 125 Lydia runs a small nail salon in the town of New Hope. She is debating whether she should extend her hours of operation. Lydia figures that her sales revenue will depend on the number of extra hours the nail salon is open as shown in the table above. She would have to hire a worker for those extra hours at a wage rate of $10 per hour. Refer to Table 1-1. What is Lydia's marginal benefit if she decides to stay open for an extra two hours instead of one hour?
$25
Figure 4-1 shows Arnold's demand curve for burritos. Refer to Figure 4-1. If the market price is $1.00, what is Arnold's consumer surplus?
$3.00
Figure 5-13 illustrates the market for gasoline before the government imposes a tax to bring about the efficient level of gasoline production. Refer to Figure 5-13. The market equilibrium price of gasoline is ________ per gallon.
$3.75
Figure 15-12 shows the cost and demand curves for a monopolist. Refer to Figure 15-12. What is the amount of consumer surplus if, instead of monopoly, the industry was organized as a perfectly competitive industry?
$332
Donnie's Donuts incurs $450,000 per year in explicit costs and $200,000 in implicit costs. The bakery earns $800,000 in revenues and has $2 million in net worth. Based on this information, what is the accounting profit for Donnie's Donuts?
$350,000
Figure 9-1 shows the U.S. demand and supply for leather footwear. Refer to Figure 9-1. Suppose the government allows imports of leather footwear into the United States. The market price falls to $18. What is the value of domestic producer surplus?
$40
Refer to Figure 6-2. The absolute value of the price elasticity of demand at points a and b is 1. What is the value of P b?
$40
If a corporate bond with face value of $1,000 has an interest rate of eight percent paid once a year for a term of 30 years, what is the size of the annual coupon payment?
$80
The U.S. Bureau of Labor Statistics forecasts that ________ fastest-growing occupations over the next 10 years will be in health care.
13 of the 20
Since 1953 the United States has imposed a quota to limit the imports of peanuts. Figure 9-3 illustrates the impact of the quota. Refer to Figure 9-3. With a quota in place, what is the quantity supplied by domestic producers?
18 million pounds
Figure 12-4 shows the cost and demand curves for a profit-maximizing firm in a perfectly competitive market. Refer to Figure 12-4. If the market price is $30, the firm's profit-maximizing output level is
180
For the top 1 percent of income distribution, the share of total income earned by households in this group was about ________ percent in 2016.
19
Figure 2-9 shows the production possibilities frontiers for Pakistan and Indonesia. Each country produces two goods, cotton and cashews. Refer to Figure 2-9. What is the opportunity cost of producing 1 pound of cashews in Indonesia?
2 2/3 bolts of cotton
A United States government patent lasts
20 years
Refer to Figure 3-4. At a price of $10, how many units will be sold?
200
Figure 13-8 shows cost and demand curves for a monopolistically competitive producer of iced tea. Refer to Figure 13-8. What is the profit-maximizing output level?
22 cases
Figure 2-2 above shows the production possibilities frontier for Mendonca, an agrarian nation that produces two goods, meat and vegetables. Refer to Figure 2-2. What is the opportunity cost of one pound of vegetables?
3/4 pound of meat
Elegant Settings manufactures stainless steel cutlery. Table 11-8 shows the company's cost data. Refer to Table 11-8. What is the minimum efficient scale of production?
300 units
Suppose the U.S. government imposes a $0.40 per pound tariff on rice imports. Figure 9-2 shows the impact of this tariff. Refer to Figure 9-2. With the tariff in place, the United States consumes
31 million pounds of rice
Since 1953 the United States has imposed a quota to limit the imports of peanuts. Figure 9-3 illustrates the impact of the quota. Refer to Figure 9-3. If there was no quota, how many pounds of peanuts would domestic consumers purchase?
40 million
Sarita can bake either a combination of 25 cakes and 15 pies or a combination of 10 cakes and 20 pies. If she now bakes 10 cakes and 20 pies, what is the opportunity cost of baking an additional 15 cakes?
5 pies
Figure 2-8 above shows the production possibilities frontier for Vidalia, a nation that produces two goods, roses and orchids. Refer to Figure 2-8. Suppose Vidalia is currently producing 60 dozen orchids per period. How many roses is it also producing, assuming that resources are fully utilized?
50 dozen roses
Figure 7-2 represents the market for medical services with and without insurance, and the effect of a third-party payer system on the demand for medical services. Refer to Figure 7-2. The efficient quantity of medical services is
500
Economists working for Uber, along with economists from the University of Oxford and the University of Chicago, estimated the consumer surplus attributed to Uber. For the entire United States, these economists estimated that the total consumer surplus from Uber in 2015 was
6.76 billion
In the United States in 2016, the percentage of people that directly purchased an individual or family health insurance policy from an insurance company was about
7%
Figure 4-6 shows the demand and supply curves for the almond market. The government believes that the equilibrium price is too low and tries to help almond growers by setting a price floor at P f. Refer to Figure 4-6. What area represents consumer surplus after the imposition of the price floor?
A
Refer to Figure 4-2. What area represents the increase in producer surplus when the market price rises from P1 to P2?
A + B
Figure 15-12 shows the cost and demand curves for a monopolist. Refer to Figure 15-12. If the firm maximizes its profits, the deadweight loss to society due to this monopoly is equal to the area
ACE.
Refer to Figure 13-17. In the long run, why will the firm produce Qf units and not Q g units, which has a lower average cost of production?
Although its average cost of production is lower when the firm produces Q g units, to be able to sell its output the firm will have to charge a price below average cost, resulting in a loss.
Since 1953 the United States has imposed a quota to limit the imports of peanuts. Figure 9-3 illustrates the impact of the quota. Refer to Figure 9-3. What is the area of domestic producer surplus after the imposition of a quota?
B + C
Refer to Figure 3-2. A decrease in the price of the product would be represented by a movement from
B to A
How are corporate profits taxed in the United States?
Earnings are taxed first as corporate profits then as personal income after dividends are paid
Figure 2-9 shows the production possibilities frontiers for Pakistan and Indonesia. Each country produces two goods, cotton and cashews. Refer to Figure 2-9. If the two countries have the same amount of resources and the same technological knowledge, which country has an absolute advantage in the production of cotton?
Indonesia
Which of the following statements about the price elasticity of demand along a downward-sloping linear demand curve is true?
It is elastic at the highest prices and inelastic at the lowest prices.
Jenna runs a small boutique in Capitola. She tells one of her suppliers that she is willing to pay $6 for a pair of wool hand warmers and not a dime more. On the basis of this information, what can you conclude about her price elasticity of demand for wool hand warmers?
It is perfectly elastic
What is moral hazard?
It refers to the actions people take after they have entered into a transaction that makes the other party to the transaction worse off.
Eco Energy is a monopolistically competitive producer of a sports beverage called Power On. Table 13-2 shows the firm's demand and cost schedules. Refer to Table 13-2. What is likely to happen to the product's price in the long run?
It will fall
Which of the following is true for a monopolistically competitive firm in long-run equilibrium?
P = ATC and MR = MC
Watanabe Sensei operates the only martial arts school in Hartfield. For simplicity, assume that consumers have identical demand curves and that Sensei knows what this demand curve is. Figure 16-6 shows this demand curve. Refer to Figure 16-6. Suppose instead of charging the monopoly price for his classes, Sensei charges the competitive price. What is the competitive price and what is the quantity demanded at this price?
P0, Q0
Watanabe Sensei operates the only martial arts school in Hartfield. For simplicity, assume that consumers have identical demand curves and that Sensei knows what this demand curve is. Figure 16-6 shows this demand curve. Refer to Figure 16-6. If Sensei acts as a single-price monopolist, his profit-maximizing price is ________ and the number of classes sold is ________.
P1; Q1
Refer to Figure 13-13. What is the output price?
P4
Refer to Figure 3-7. Assume that the graphs in this figure represent the demand and supply curves for almonds. Which panel best describes what happens in this market when there is an increase in the productivity of almond harvesters?
Panel (a)
Refer to Figure 3-7. Assume that the graphs in this figure represent the demand and supply curves for women's clothing. Which panel best describes what happens in this market when the wages of seamstresses rise?
Panel (b)
Refer to Figure 6-1. The demand curve on which elasticity changes at every point is given in
Panel C
One reason some manufacturing companies have moved production from overseas locations back to the United States is rising foreign labor costs. Assuming that managers at these companies used all available information, including the rising cost of foreign labor, when making the decision to move production back to the United States exemplifies which key economic idea?
People are rational.
Ford assembles some cars in Mexico because the lower wages the company pays to Mexican workers and the lower prices it pays for auto parts in Mexico reduces Ford's costs. This is an example of Ford reacting to which of the three key economic ideas?
People respond to economic incentives.
Which of the following is not a characteristic of long-run equilibrium in a monopolistically competitive market?
Production is at minimum average total cost.
Companies producing toilet paper bleach the paper to make it white. The bleach is discharged into rivers and lakes and causes substantial environmental damage. Figure 5-9 illustrates the situation in the toilet paper market. Refer to Figure 5-9. The efficient output is
Q 2
Refer to Figure 13-17. What is the allocatively efficient output for the firm represented in the diagram?
Qh units
Vaccinating people against a communicable disease such as influenza not only reduces the chances that the person vaccinated will catch the disease but also reduces the probability that an epidemic of the disease will occur. Which of the following statements is true?
Reducing the chances that the person vaccinated will catch the disease is a private benefit while reducing the probability of an influenza epidemic is a social benefit.
Suppose the demand for milk is relatively inelastic. What happens to sales revenue if the government imposes a price floor above the free-market equilibrium price in the market for milk?
Sales revenue rises
Bathing Grooming Linda 60 20 Sandy 50 25 Linda and Sandy own The Preppy Puppy, a dog grooming business. Table 9-1 lists the number of dogs Linda and Sandy can each bathe and groom in one week. Refer to Table 9-1. Select the statement that accurately interprets the data in the table.
Sandy's opportunity cost for dog grooming is less than Linda's
Pies Cakes Sarita 15 25 Gabriel 12 16 Sarita and Gabriel own S&G Bakery. Table 9-2 lists the number of pies and cakes Sarita and Gabriel can each bake in one day. Refer to Table 9-2. Select the statement that accurately interprets the data in the table.
Sarita has an absolute advantage in baking pies and cakes
Jill Borts believes that the price elasticity of demand for her economics textbook is relatively inelastic. She argues "I was told I had to purchase a book written by Hubbard and O'Brien that is required by my instructor. If I wanted to buy a mystery novel I would have many authors to choose from. Therefore, the demand for mystery novels is more elastic than the demand for my textbook." Is Jill correct?
She is correct
Figure 13-12 shows short-run cost and demand curves for a monopolistically competitive firm in the market for designer watches. Refer to Figure 13-12. If the diagram represents a typical firm in the designer watch market, what is likely to happen in the long run?
Some firms will exit the market causing the demand to increase for firms remaining in the market.
Daniel Hamermesh and Stephen Donald studied the determinants of the earnings of college graduates years after they graduated. Which of the following is one result of their study?
Students who had taken 15 credits of upper-division science and mathematics courses and earned high grades in these courses earned about 10 percent more than students who took no upper-division classes in these subjects
Plato Playhouse, a theatre company in the university town of Wegg, caters to two groups of customers: students and the non-student population. Figure 16-2 shows the demand curves for the two groups of customers. Refer to Figure 16-2. Suppose Plato Playhouse charges a single price of P d for each performance. Which of the following statements is true?
The company is selling more than the profit-maximizing quantity in the non-student market and less than the profit-maximizing quantity in the student market
Suppose the California Nurses Union successfully secured a 12 percent increase in the wages of registered nurses. If a hospital responds by reducing the quantity of registered nurses hired and increasing the quantity of physician's assistants hired, what conclusion can you draw?
The cross-price elasticity of demand between registered nurses and physician's assistants is positive.
Refer to Figure 3-8. The graph in this figure illustrates an initial competitive equilibrium in the market for sugar at the intersection of D 1 and S 1 (point A). If there is an increase in the price of fertilizer used on sugar cane and there is a decrease in tastes for sugar-sweetened soft drinks, how will the equilibrium point change?
The equilibrium point will move from A to E
Assume that the market for cage-free eggs is perfectly competitive. All else equal, as more farmers choose to produce and sell cage-free eggs, what is likely to happen to the equilibrium price of the eggs and profits of these farmers in the long run?
The equilibrium price is likely to decrease and profits are likely to decrease
Figure 13-7 shows short-run cost and demand curves for a monopolistically competitive firm in the footwear market. Refer to Figure 13-7. Which of the following statements describes the best course of action for the firm depicted in the diagram?
The firm should minimize its losses by producing Qy units and charging a price of P1.
Refer to Figure 12-8. Suppose the market price is $120. Which of the following is true?
The firm suffers a loss equal to the area A
Figure 15-16 shows the market demand and cost curves facing a natural monopoly. Refer to Figure 15-16. Which of the following would be true if government regulators require the natural monopoly to produce at the economically efficient output level?
The firm will sustain persistent losses and will not continue in business in the long run.
The U.S. government has frequently used a "command-and-control" approach in dealing with pollution. Which of the following describes this approach?
The government imposes quantitative limits on the amount of pollution firms are allowed to generate
How does the construction of a market demand curve for a private good differ from that for a public good?
The market demand curve for a private good is determined by adding up the quantities demanded by each consumer at each price but the market demand curve for a public good is determined by adding up the price each consumer is willing to pay for each quantity of the good.
Which of the following statements is true?
The more narrowly we define a market, the more elastic the demand for a product will be.
Refer to Figure 5-7. Which of the following statements is true?
The optimal quantity of pollution reduction is Q B
The price of wheat has fallen since 1950. Which of the following explains this price decline?
The price elasticity of demand is less than 1 (in absolute value) and the income elasticity of demand for wheat is low
The publisher of a magazine gives his staff the following information: Current price $2.00 per issue Current sales 150,000 copies per month Current revenue $300,000 per month Current total costs $450,000 per monthHe tells the staff, "Our costs are currently $150,000 more than our revenues each month. I propose to eliminate this problem by raising the price of the magazine to $3.00 per issue. This will result in our revenue being exactly equal to our cost." Refer to Table 6-4. Which of the following statements is correct?
The publisher's analysis is correct only if the demand is perfectly inelastic
Assume that the demand curve for sunblock is linear and downward sloping. Which of the following statements about the slope of the demand curve for sunblock and the price elasticity of demand for sunblock are true?
The slope is constant, but the price elasticity of demand is not constant at all points along the demand curve for sunblock.
Table 12-2 lists the various pounds (lbs.) of apples that Margie Stattler can sell. Assume that Margie operates in a perfectly competitive market. Refer to Table 12-2. How many pounds of apples should Margie sell to maximize her profit?
This cannot be determined without knowing Margie's total or marginal production costs.
Figure 2-4 shows various points on three different production possibilities frontiers for a nation. Refer to Figure 2-4. A movement from ________ could occur because of an influx of immigrant labor.
W to Z
Suppose OPEC has only two producers, Saudi Arabia and Ecuador. Saudi Arabia has far more oil reserves and is the lower-cost producer compared to Ecuador. The payoff matrix in Table 14-3 shows the profits earned per day by each country. "Low output" corresponds to producing the OPEC assigned quota and "high output" corresponds to producing the maximum capacity beyond the assigned quota. Refer to Table 14-3. Is there a dominant strategy for Ecuador and, if so, what is it?
Yes, the dominant strategy is to produce a high output
Consider the following types of demand curves: a. a vertical demand curve b. a horizontal demand curve c. a linear downward-sloping demand curve Which of the demand curves listed exhibits a price elasticity of demand coefficient that remains constant along the demand curve?
a and b only
Refer to Figure 3-4. If the current market price is $10, the market will achieve equilibrium through
a price increase, increasing the quantity supplied and decreasing the quantity demanded.
Refer to Figure 16-1. What is the price charged under perfect price discrimination?
a range of prices corresponding to the demand curve from P3 and above
Consider the following items: a. the novel "A Gentleman in Moscow" by Amor Towles b. the "The Spirited Shipper," an innovative wine shipping box c. a Swiss chef's award-winning recipe d. an original fabric design, for example, the fabric used for "Coach" bags and luggage Which of the items listed is an example of intellectual property?
all of the items listed
Mr. Peabody chooses to invest in companies that produce goods and services based on consumer preferences. Mr. Peabody is investing in companies that are attempting to be
allocatively efficient.
Collusion is
an agreement among firms to charge the same price or otherwise not to compete.
Suppose a negative externality exists in a market. If transactions costs are low and parties are willing to bargain, then, according to the Coase theorem,
an efficient solution can be reached regardless of the initial assignment of property rights.
If, in response to a decrease in the price of grapes, the quantity of grapes demanded increases, then economists would describe this as
an increase in quantity demanded
Holding everything else constant, a decrease in the price of bicycles will result in
an increase in the quantity of bicycles demanded
Uninsured patients receiving treatments at hospital emergency rooms that could have been provided less expensively at doctors' offices account for ________ of health care costs in the United States.
approximately 25 percent
Firms that are price takers
are able to sell all their output at the market price
Consider the following actions undertaken by a firm: a. charging a higher price for products of higher quality b. charging different prices to different consumers for the same product when the variation cannot be explained by cost differences c. charging different prices for products of different qualities d. charging a lower price to match a competitor's price Which of the above will be considered price discrimination?
b only
Assume that the demand curve for MP3 players shifts to the right and the supply curve for MP3 players shift to the left, but the supply curve shifts less than the demand curve. As a result
both the equilibrium price and quantity of MP3 players will increase
Consider the following pairs of items: a. shampoo and conditioner b. iPhones and earbuds c. a laptop computer and a desktop computer d. beef and pork e. air-travel and weed killer Which of the pairs listed will have a positive cross-price elasticity?
c and d only
Basic supply and demand analysis indicates that having firms rather than the government provide health insurance to workers
changes the composition of the compensation that firms pay, but does not change its level
The Brooks Appliance Store and the Lefingwell Appliance Store (both are located in the same city) each sell an identical washer-dryer pair. The owner of each store considered offering the washer-dryer pair for $700, but decided on a price of $500. If this is a Nash equilibrium we can conclude that
charging $500 was the most profitable strategy for each store, regardless of what price was charged by the other store
Economists studying the effect of the China shock on the U.S. economy point out that the firms most hurt by Chinese imports have been
concentrated in certain states, particularly in the Midwest and Southeast
Stockholders are the owners of which type of business?
corporations
The paradox of American farming is
food has become cheaper and more abundant as the number of farms has decreased
If a state requires all drivers to purchase auto insurance, insurance companies still face the problem of
correctly pricing their insurance
A linear downward-sloping demand curve has price elasticities (in absolute values) that
decrease as price decreases.
If a demand curve shifts to the right, then
demand has increased.
Making "how much" decisions involves
determining the additional benefits and the additional costs of that activity.
When Carvana sold stock to the public in its IPO, it did so through the New York Stock Exchange. This is an example of Carvana using ________ to raise funds.
direct finance
Most employees ________ pay taxes on the value of health insurance provided by employers, and most people ________ get a tax break when buying individual health insurance policies.
do not; do not
Consider the following pairs of items: a. shampoo and conditioner b. iPhones and earbuds c. a laptop computer and a desktop computer d. beef and pork e. air-travel and weed killer Which of the pairs listed will have cross-price elasticity of zero?
e only
Consumers who will pay high prices to be among the first to own certain new products are called
early adopters.
Figure 13-8 shows cost and demand curves for a monopolistically competitive producer of iced tea. Refer to Figure 13-8. At the profit-maximizing output level the firm will
earn a profit of $88
Figure 7-1 represents the market for vaccinations. Vaccinations are considered a benefit to society, and the figure shows both the marginal private benefit and the marginal social benefit from vaccinations. Refer to Figure 7-1. At the efficient equilibrium,
economic surplus is maximized
A local electricity-generating company has a monopoly that is protected by an entry barrier that takes the form of
economies of scale.
Some markets have many buyers and sellers but fall into the category of monopolistic competition rather than perfect competition. The most common reason for this is
firms in these markets do not sell identical products
Being the first to sell a particular good can give a firm advantages over other firms that sell similar products. What is the name given to these advantages?
first-mover
A profit-maximizing monopoly's price is
greater than the price that would prevail if the industry was perfectly competitive.
Compared to other high-income countries, health care spending per person in the United States has been
growing at a faster rate
Refer to the Article Summary. By marketing to recreational marijuana users, Joel Schneider is trying to set his business apart from competing hotels and lodging establishments. All else equal, if his concept remains successful, in the long run we would expect Schneider to experience
increased competition and lower economic profits.
The Congressional Budget Office estimates that most of the increase in federal spending on Medicare and Medicaid will be due to
increases in the cost of providing health care
Refer to the Article Summary. Based on the difference between the face value of 'Hamilton' tickets sold by the Pantages Theater and Ticketmaster, and the prices being charged in the resellers like StubHub and SeatGeek, the demand at the face value of the tickets is
inelastic
The demand for gasoline in the short run is
inelastic because there are very few good substitutes for gasoline
Suppose you are considering buying stock in the stock market, and your objective is to maximize your net worth. Furthermore, your study of the market reveals that the economy will be slowing down over the next several months. Under these conditions, it would be best to purchase stock in companies that produce
inferior goods
"A competitive market achieves economic efficiency by maximizing the sum of consumer surplus and producer surplus." This statement
is true only if there are no positive or negative externalities in the market
Refer to Figure 12-1. If the firm is producing 500 units,
it should maintain its output to maximize profit
If a soda tax is implemented and demand for soda is price elastic, the effect on discouraging soda consumption would be ________ and ________ tax revenue would be collected than if demand were inelastic.
larger; less
The demand for all carbonated beverages as a whole is likely to be ________ the demand for Dr. Pepper.
less elastic than
Refer to Figure 6-9. The data in the diagram indicates that DVDs are
luxury goods
Economists reason that the optimal decision is to continue any activity up to the point where the
marginal benefit equals the marginal cost.
Suppose a cell phone manufacturer currently sells 20,000 cell phones per week and makes a profit of $5,000 per week. A manager at the plant observes, "Although the last 3,000 cell phones we produced and sold increased our revenue by $6,000 and our costs by $6,700, we are still making an overall profit of $5,000 per week so I think we're on the right track. We are producing the optimal number of cell phones." Refer to Scenario 1-1. Using marginal analysis terminology, what is another economic term for the incremental cost of producing the last 3,000 cell phones?
marginal cost
Cost-plus pricing may be a reasonable way to determine price when
marginal cost and average cost are about the same.
The efficient level of paper production will occur where the
marginal private benefit from consuming paper is equal to the marginal social cost of production.
A market supply curve reflects the
marginal private costs of producing a good or service
A restaurant sells a large soft drink at a fixed price of $1.79. A term used by economists to describe the money received from the sale of an additional large soft drink is
marginal revenue.
If total revenue exceeds fixed cost, a firm
may or may not produce in the short run, depending on whether total revenue covers variable cost
The larger the share of a good in a consumer's budget, holding everything else constant, the
more price elastic is a consumer's demand
Refer to Figure 5-3. The deadweight loss due to the externality is represented by the area
msn.
Figure 12-6 shows the demand, marginal cost ( MC) and average total cost ( ATC) curves for Jason's House of Apples. Refer to Figure 12-6. Jason is currently producing 20 thousand pounds of apples. To maximize his profit Jason should
ncrease production to the output level indicated by point d
Last year, Sefton purchased 60 pounds of potatoes to feed his family of five when his household income was $30,000. This year, his household income fell to $20,000 and Sefton purchased 80 pounds of potatoes. All else constant, Sefton's income elasticity of demand for potatoes is
negative, so Sefton considers potatoes to be an inferior good
A firm's accounting profit is also its
net income
Private producers have no incentive to provide public goods because
once produced, it will not be possible to exclude those who do not pay for the good
Securities dealers that trade stocks and bonds outside exchanges comprise the
over-the-counter market
Suppose that some investors have decided that economic and financial uncertainty have made the prospect of investing in domestic stock markets more risky than investing in foreign stock markets, and therefore choose to invest in foreign markets. By using all available information as they act to achieve their goals, these investors are exemplifying the economic idea that
people are rational.
The "tragedy of the commons" refers to the phenomenon where
people overuse a common resource.
Refer to the Article Summary. The pricing method described in the article is referred to as first-degree price discrimination. First-degree price discrimination is also known as
perfect price discrimination.
Firms disclose financial statements in ________ and in ________.
periodic filings to the federal government; annual reports to shareholders
Refer to the Article Summary. Assuming the findings are correct and all else equal, higher increases in home values which result from close proximity to a Whole Foods or Trader Joe's are an example of a ________ due to the location of these stores.
positive externality
The cross-price elasticity of demand between an unlimited texting option and an unlimited call minutes option offered from a cell phone provider would be
positive if subscribers consider the services substitutes for each other
Bubba's Hula Shack Bar and Bistro has begun giving customers who can show proof that they arrived at the establishment by public transportation a 10 percent discount on their total bill. This is an example of
price discrimination
By drawing a demand curve with ________ on the vertical axis and ________ on the horizontal axis, economists assume that the most important determinant of the demand for a good is the ________ of the good.
price; quantity; price
Refer to the Article Summary. By marketing to recreational marijuana users, Joel Schneider is trying to set his business apart from competing hotels and lodging establishments. This is an example of
product differentiation.
Households ________ final goods and services in the ________ market.
purchase; product
A tragedy of the commons occurs when a resource is
rival and nonexcludable
Goods can be classified on the basis of whether their consumption is
rival and excludable
A firm using a two-part tariff can produce the economically efficient outcome by
setting the per-unit portion of the price equal to the marginal cost of production.
Of the following, which has most likely contributed the most to the rapid rise in health care costs in the United States?
slow growth in labor productivity in health care
When new firms are encouraged to enter a monopolistically competitive market,
some existing firms must be earning economic profits.
Assuming that the total market size remains constant, a monopolistically competitive firm earning profits in the short run will find the demand for its product decreasing in the long run because
some of its customers have switched to purchasing the products of new entrants in the market.
Which of the following reforms could potentially reduce spending on health care without reducing the effectiveness of health care received?
standardize the tax treatment of employer-based health insurance benefits and private spending on health care
Scarcity
stems from the incompatibility between limited resources and unlimited wants
A corporation is owned by its
stockholders
Figure 15-2 above shows the demand and cost curves facing a monopolist. Refer to Figure 15-2. If the firm's average total cost curve is ATC 3, the firm will
suffer a loss.
The increase in the number of surgeries performed outside hospitals will tend to shift the ________ curve for medical services to the ________.
supply; right
Which of the following is an example of a factor that a firm's owners and managers can control in making the firm successful?
the ability to produce the product at a lower cost
Between 1950 and 2017 the productivity of wheat farmers in the United States more than doubled. This means that
the amount of wheat produced by the average farmer more than doubled
Figure 5-1 shows a market with an externality. The current market equilibrium output of Q 1 is not the economically efficient output. The economically efficient output is Q 2. Refer to Figure 5-1. Suppose the current market equilibrium output of Q 1 is not the economically efficient output because of an externality. The economically efficient output is Q 2. In that case, the diagram shows
the effect of a negative externality in the production of a good
For a perfectly competitive firm, average revenue is equal to
the market price.
Figure 5-1 shows a market with an externality. The current market equilibrium output of Q 1 is not the economically efficient output. The economically efficient output is Q 2. Refer to Figure 5-1. If, because of an externality, the economically efficient output is Q 2 and not the current equilibrium output of Q 1, what does S 1 represent?
the market supply curve reflecting marginal private cost
Refer to Figure 5-7. The marginal cost of reducing pollution curve is the same curve as
the supply of pollution reduction curve.
Alan Krueger conducted a survey of fans at the 2001 Super Bowl who purchased tickets to the game for $325 or $400. Krueger found that (a) 94 percent of those surveyed would not have paid $3,000 for their tickets, and (b) 92 percent of those surveyed would not have sold their tickets for $3,000. These results are an example of
the tendency of people to be unwilling to sell a good they already own even if they are offered a price that is greater than the price they would be willing to pay if they did not already own it
In both monopolistically competitive and perfectly competitive industries
there are many buyers and sellers.
The midpoint formula is used to measure the elasticity of demand between two points on a demand curve
to ensure that we have only one value of the price elasticity of demand between two points on a demand curve.
Suppose the U.S. government imposes a $0.40 per pound tariff on rice imports. Figure 9-2 shows the impact of this tariff. Refer to Figure 9-2. The tariff causes domestic consumption of rice
to fall by 11 million pounds
Producing where marginal revenue equals marginal cost is equivalent to producing where
total profit is maximized
Producing where marginal revenue equals marginal cost is equivalent to producing where
total profit is maximized.
Private solutions to the problem of externalities are most likely when
transactions costs are low and the number of bargaining parties is small
Figure 12-7 illustrates the cost curves of a perfectly competitive firm. Refer to Figure 12-7. If the market price is P 2, the firm
will break even and produce a quantity of Q2.
If the demand curve for a firm is downward-sloping, its marginal revenue curve
will lie below the demand curve.
