Micro Econ

(p. 369) Which of the following is NOT a reason why firms experience economies of scale?

As a firm expands its production, its profit margin per unit of output increases.

When the price of textbooks increases from $90 to $100, the quantity of textbooks purchased falls from 1,000 to 900. What is the price elasticity of demand?

-1.

When the price of Good Y increases from $3 to $5, the quantity demanded for good X decreases from 3 to 1. The cross-price elasticity of demand for X with respect to the price of Y is ___ and Good X and Good Y are _____.

-2; complements

(p. 239) How do a sole proprietorship and a corporation differ?

-The only difference is proprietorships have unlimited liability while corporations have limited liability. -The only difference is corporations can issue stocks and bonds, while proprietorships cannot. -The only difference is corporations face more taxes than do proprietorships. All of the above.

(p. 240) In a typical year, ________ of new jobs are created by small firms?

40%.

(pp. 363, 366, Notes) Refer to Table 8.1. How much is the marginal cost of producing the 2nd unit of the good?

50

An efficient tax is

A tax that imposes a small excess burden relative to the tax revenue that it raises.

(pp. 213-214) A key difficulty facing insurance companies is that people know more about their health than do insurance companies. What is this phenomenon called?

Asymmetric information.

(p. 215) Why might a third-party payer health care system lead to an inefficient outcome?

Consumers have an incentive to over-consume health care services because they pay prices well below the cost of providing these services.

(p. 243) You have a bond that pays $60 per year in coupon payments. Which of the following would result in an increase in the price of your bond?

Coupon payments on newly-issued bonds fall to $50 per year.

The Delta Café sells pizza for $2 per slice. If the price elasticity of demand for pizza is -2.3, which of the following statements is true?

Demand is very price responsive so if the Café raises the price of pizza, total revenue will decrease.

(p. 243) Which of the following does NOT take place in the direct finance market?

Deposits from savers are accumulated and loans made to borrowers.

(p. 372) What's the difference between "diminishing marginal returns" and "diseconomies of scale"?

Diminishing marginal returns, which applies only in the short run when at least one factor is fixed, explains why marginal cost increases, while diseconomies of scale, which applies in the long run when all factors are variable, explains why average cost increases.

(notes) How are corporate profits taxed in the United States?

Earnings are taxed first as corporate profits then as personal income after dividends are paid.

(pp. 250, 356-357) Economic cost of production differs from accounting cost in that

Economic cost adds the opportunity cost of a firm using its own resources while accounting cost does not.

When the price of oranges increases by 4%, the quantity demanded of oranges falls by 8%. Which of the following statements is true?

Elasticity = -2 and demand for oranges is elastic.

(pp. 366-367) Which of the following statements is FALSE?

If the average variable cost curve is above the marginal cost curve, marginal cost must be increasing.

(pp. 245-246) If a corporation retains all its profits and distributes none of the profit to owners, how can owners benefit?

If the retained earnings are expected to create future profits, the market price of the firm's stock will increase and create a capital gain for stockholders if the stock is sold.

(pp. 226-227) How do current tax laws in the U.S. favor employee-based health care insurance?

Individuals who receive health insurance benefits from their employers do not pay taxes on the value of these benefits.

(p. 355) Which of the following statements best describes the economic short run?

It is a period during which at least one of the firm's inputs is fixed.

(p. 241) What can be done to deal with the principal-agent problem?

Link top manager salaries to the profits of the firm or the price of the firm's stock.

(p. 214) Suppose that in a market for used cars, there are good used cars and bad used cars (lemons). Consumers are willing to pay as much as $6,000 for a good used car but only $1,000 for a lemon. Sellers of good used cars value their cars at $5,000 each and sellers of lemons value their cars at $800 each. Buyers cannot tell if a used car is reliable or is a lemon. Based on this information, what is the likely outcome in the market for used cars?

Most sellers of good used cars will drop out of the market.

Which of the following factors have contributed to the disappearing of family farms in the U.S. during the period from 1950 to 2006?

Rapid growth in farm productivity and low income and price elasticities of demand for food products.

(pp. 222-223) 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.

(notes) A positive technological change which decreases the prices of all inputs used to produce Sony's OLED television panels will cause

Sony's average total cost curve and marginal cost curve to shift downward.

When a corporation goes bankrupt, which of the following has first claim on the firm's assets?

The bondholders.

Which of the following statements concerning legalizing cocaine is correct?

The more elastic the demand for cocaine, the greater the increase in cocaine use that would result from legalization.

(pp. 250, 356) Which of the following is an example of an implicit cost a firm might incur?

The rental value of the office space the company owns and uses for itself.

An investor is more likely to buy a firm's stock if the firm's income statement shows _________ and if its balance sheet shows _________.

a large after-tax profit; a large net worth

Economists estimated that the price elasticity of beer is -0.23 and the income elasticity of beer is -0.09. This means that

an increase in the price of beer will lead to an increase in revenue for beer sellers and beer is an inferior good.

(p. 369) The president of Toyota's Georgetown plant was quoted as saying, "Demand for high volumes saps your energy. Over a period of time, it eroded our focus [and] thinned out the expertise and knowledge we painstakingly built up over the years." This quote suggests that

as Toyota expanded its capacity, it experienced diseconomies of scale.

(pp. 251-252) In addition to requiring that CEOs personally certify the accuracy of financial statements, the Sarbanes-Oxley Act of 2002 also requires that

auditors disclose any potential conflicts of interest.

(p. 371) Ford Motor Company started producing the Model A at plants scattered around the United States

because diseconomies of scale at its initial River Rouge plant resulted in high production costs.

Shifts in the supply of oil have caused large changes in price since the 1970s because

both the supply of oil and the demand for oil are inelastic over short periods of time.

In order to prove that Motrin and Ibuprofen are substitutes, one should measure the ______________ and get a _____________.

cross price elasticity; positive number

Price elasticity of demand for public transit is -0.4. Then if the price of public transit increases by 5%. What happens to price?

decrease by 2%.

(pp. 225-227) Economists who support market-based reforms for health care believe that increased competition among providers of health care would _________ costs and __________ economic efficiency.

decrease; increase

(p. 356) The salaries of editors, designers and marketing managers hired by Academic book publishers will be included in the

fixed cost and total cost but not variable cost of the publishers.

Suppose demand is downward sloping and supply is upward sloping. If the demand is more elastic than supply and sellers are responsible for paying a per-unit sales tax, consumers can expect that price will

increase, but producers wind up paying most of the sales tax.

(pp. 228-229) Some economists believe that by making health care coverage mandatory for all individuals, the demand for medical services will likely _______, which will _________ the price of health care.

increase; increase

(p. 223) 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.

A company can increase total revenue by increasing the price of the product they sell only if the elasticity of demand is

inelastic

If consumers buy 9 pizzas at a price of $9 and 10 pizzas at a price of $8, then demand is

inelastic.

In July 2008, the average price of gasoline in the United States was $4.09 per gallon, and consumers purchased nearly 6 percent less gasoline than they had during July 2007, when the average price of gasoline was $2.96 per gallon. Based on these figures, from July 2007 to July 2008, the demand for gasoline was

inelastic.

The demand for all carbonated beverages is likely to be ________ the demand for Dr. Pepper.

less elastic than

(p. 224) All of the following are part of the "regulation of health insurance" provision of the Patient Protection and Affordable Care Act (PPACA) except

limits on the size of deductibles and on waiting periods before coverage takes effect will be eliminated.

driving less and using public transportation more. Over time, causes the demand curve for gasoline to become ________ and the quantity of gasoline demanded to ________.

more elastic; fall

(p. 227) Cogan, Hubbard and Kessler have estimated that repealing the tax preferences for employer-provided health insurance would

reduce spending by people enrolled in these programs by 33%.

Traditionally, Wall Street investment banks had been organized as partnerships, but by 2000 they had converted to being publicly traded corporations. As partnerships, the principal-agent problem is _____, but as publicly traded corporations, the principal-agent problem is often _____.

reduced; more severe

(pp. 220-221) In the United States, total health care spending per person has been _________, and out-of-pocket spending on health care per person has been __________.

rising; falling

(pp. 211-212) In the United States, health care spending per person based on income per person is ________ the average for most other countries.

significantly higher than

(p. 215) The cost of group health insurance is lower than if an individual buys a policy on his own because

the problem of adverse selection is reduced.

If a 10% increase in the price of corn results in a farmer's supplying an additional 10% of corn, then the farmer's elasticity of supply for corn is

unit elastic.

The demand for a good will be more elastic if

we are talking about a long time period like years instead of days.

(pp. 243-245) A difference between a bond and a stock is

with a bond there is a promise the firm will repay the money but with a stock there is no promise.