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Microeconomics test
test questions
| Question | Answer |
|---|---|
| The demand for a particular good depends on variables such as: | all of the above |
| Recall the application "Smoking, Drinking, and Elasticity." If the elasticity of demand for cigarettes by teenagers is 1.5, then to reduce teen smoking by 60 percent, tobacco companies would need to raise their prices by: | 40% |
| In the case of perfectly inelastic demand, the demand curve is: | vertical |
| The price elasticity of demand for a good is relatively elastic if | all of the above |
| The market demand curve | shows the relationship between the price of a good and the quantity that all consumers together are willing to buy |
| Figure 4.5 illustrates a set of supply and demand curves for hamburgers. A decrease in demand and a decrease in quantity supplied are represented by a movement from | point b to point c |
| A change in quantity supplies of a product is the result of a change in | the price of the product |
| Figure 4.2 illustrates the supply and demand for t-shirts. If the actual price of t-shirts is $7, we would expect that | price will increase until quantity demanded equals quantity supplied |
| Refer to Table 5.3. After calculating the price elasticity of demand for computers, we can say the demand for computers is | elastic |
| Inferior goods are substandard | false |
| The law of supply states that there is a positive relationship between price and quantity supplies, ceteris paribus | true |
| Refer to table 4.1, which shows Flo's and Rita's individual supply schedules for frozen latte-on-a-stick. Assuming Flo and Rita are the only suppliers in the market, what is the market quantity supplied at a price of $2 | 3 |
| Technological advancement in oil exploration will, ceteris paribus, ___ the supply of oild, shifting the supply curve ___ | increase, down and to the right |
| When there is a change in the qunatity demanded it means that | the quantity a consumer is willing to buy changes when the price changes |
| If the price elasticity of demand is 0.5, this means that a __ increase in price causes a __ decrease in quantity demanded | 30%;15% |
| Governments like to know the price elasticity of deman because it helps them determine how changes in sales tax rates will affect | tax revenues |
| If a product is a necessity and has no substitutes at all, demand for the product is most likely to be | very inelastic |
| The quantity sold of pencils is 1000 at the unit price $0.5. Suppose the price elasticity of demand for pencils by the initial value method is two, and you would like to increase the quantity sold to 1200. Then the new price for pencils must be | $0.45 |
| If a 10% increase in price decreases the quantity demanded by 12%, the price elasticity of demand is 1.2 | True |
| The price elasticity of supply is a measure of the responsiveness of | the quantity supplied to the changes in price |
| As we move upward along a linear demand curve, the price elasticity of the demand | increases |
| If the equilibrium price of a good decreases and the equilibrium quantity of the good decreases, we can conclude that | demand decreased |
| The demand for a product tends to be less elastic as the product accounts for a larger fraction of a consumer's budget | false |
| If the equilibrium price of a good increases and the equilibrium quantity of the good decreases, we can conclude that | supply decreased |
| Figure 4.3 illustrates the demand for tacos. Assume that tacos and beer are complements. An increase in the price of beer would bring about a movement from | D1 to D0 |
| In figure 5.1 the demand curve along which price elasticity of demand changes as you move along it is on graph | c |
| In figure 5.1 the demand curve that has a zero elasticity is show in graph | a |
| As the price of a product rises, the quantity supplied decreases | false |
| Figure 4.4 illustrates the supply of tacos. An increase in the price of ground beef, which is used to make tacos, would most likely cause a movement from | S1 to S0 |
| Refer to figure 4.1, which shows Molly's and Ryan's individual demand curves for compact discs per month. Assuming Molly and Ryan are the only consumers in the market, if the market quantity demanded is 10, the price must be | $9 |
| A good for which demand decreases when income decreases is known as a __ good | normal |
| If supply of a product increases and demand for the product decreases, equilibrium will definitely change | false |
| Figure 4.5 illustrates a set of supply and demand curves for hamburgers. An increase in supply and an increase in quantity demanded are represented by a movement from | point a to point b |
| In Figure 5.3 the most inelastic supply curve | is supply1 |
| Suppose that the elasticity of demand for a product is 2.0. What will happen to total revenue as a firm increases the price | total revenue will decrease |
| Recall the application regarding the elasticity of demand for gasoline varying over time, the demand for gasoline is | more elastic in the long run because consumers have time to respond to changes in price |
| Suppose that in a month the price of pizza increases from $4 to $5. At the same time, the quantity of pizzas demanded decreased from 200 to 190. The price elasticity of demand for pizza is | 0.23 |
| Figure 4.3 illustrates the demand for tacos. Assume that tacos and burritos are substitutes. A decrease in the price of burritos would bring about a movement from | D1 to D0 |
| If a product has several good substitutes, demand for the product is most likely to be | elastic |
| Figure 4.4 illustrates the supply of tacos. A decrease in the supply of tacos is represented by a movement from | S1 to S0 |
| Recall the application "An Import Ban and Shoe Prices." If shoes imports are cut by 24% the demand elasticity for shoes is 2.5 and the supply elasticity for shoes is 3.5, then you would expect the price of shoes to rise by | 4% |
| The cross elasticity between good X and good Y is positive. Other things being equal, the price of X rises | quantity of Y demanded increases |
| Refer to Table 5.1. A change in the price of hamburgers caused by the change in quantity demanded shoen in the table. The price elasticity of demand for hamburgers is | 1.75 |
| The price of oranges has risen dramatically. Which of the following is likely to happen | The quantity of oranges supplied will increase |
| Suppose that in a month the price of a cup of coffee increases from $1 to $1.50. At the same time, the quantity of cups of coffee demanded decreases from 200 to 190. The price elasticity of demand for cups of coffee is | inelastic |
| Demand for items people do not really need for their survival, such as cars, is generally __ than demand for items such as water | more elastic |
| If the price elasticity of demand is 2, this means that a __ increase in price causes a __ decrease in quantity demanded | 20%; 40% |
| Governments sometimes create an excess demand for a product by setting a maximum price that is less than the equilibrium price, resulting in a permanent excess demand for the product. This is known as a price floor | false |
| Figure 4.5 illustrates a set of supply and demand curves for hamburgers. A decrease in supply and an increase in demand are represented by a movement from | point c to point a |
| There are three consumers of a product. At a price of $4 per unit, the first consumer would buy 4 units of the product, the second consumer would buy 3 units, and the third consumer would buy 5 units of the product. Quantity demanded at $4 is | 12 units |
| Assume that coffee and tea are substitutes. When the price of coffee increases | the demand for tea increases |
| Figure 4.2 illustrates the supply and demand for t-shirts. If the actual price of t-shirts is $10, we would expect that | there will be no change since the market is in equilibrium |
| The ratio of the percentage change in quantity demanded to the percentage change in price is known as the | price elasticity of demand |
| Refer to figure 4.1, which shows Molly's and Ryan's individual demand curves for compact discs per month. Assuming Molly and Ryan are the only consumers in the market, what is the market quantity demanded at a price of $12 | 5 |
| Figure 4.3 illustrates the demand for tacos. Assume tacos are a normal good. An increase in income would bring about a movement from | D1 to D2 |
| What is the total revenue of a shoe company equal to? | price of shoes times quantity sold |
| If a technological advance makes it possible to produce computers at a lower cost | the supply of computers increases |
| If the population increases, the market demand for most products will | increase |
| A decrease in supply will cause the equilibrium price and quantity of a good to fall, ceteris paribus | false |
| Suppose that the elasticity of demand for a product is 4.0 and quantity demanded increases by 20%. What must the percentage decrease in price have been | 5% |
| If we are on the upper portion of the market demand curve and the price increases by 10%, the quantity demanded will decrease by more than 10% | true |
| Suppose that in a month the price of a cup of coffee increases from $1 to $1.50. At the same time, the quantity of cups of coffee demanded decreases from 200 to 190. The price elasticity of demand for cups of coffee is approximately | 0.13 |
| If, regardless of price, the quantity demanded is a constant amount, then the demand curve is | vertical |
| Refer to table 5.3. A change in the price of computers causes the change in quantity demanded shown in the table. The price elasticity of demand is | 4 |
| Suppose that when a particular firm decreases its total revenue decreases. What kind of demand does this particular firm face | demand is price inelastic |
| In the case of perfectly elastic demand, the demand curve is | horizontal |
| Suppose that in a month the price of milk increases from $2 to $3 a gallon. At the same time, the quantity of gallons of milk demanded decreases from 200 to 190. The price elasticity of demand for milk is | 0.1 |
| Figure 4.2 illustrates the supply and demand for t-shirts. If the actual price of t-shirts is $15, there is | excess demand for 10 t-shirts |
| Which of the following factors would indicate more elastic demand? | demand is measured over a longer period of time |
| Emilio demands more prime rib as his income increases. From this, we can conclude that, for Emilio | prime rib is a normal good |
| Which of the following goods is likely to have the most inelastic demand | cigarettes |
| The quantity demanded of a product increases as | the price of the product falls |
| If the quantity demanded of peanut butter falls by 12% when income rises by 10%, then peanut butter is | an inferior good |
| Government sometimes creates an excess supply of a product by setting a minimum price that is greater than the equilibrium price, resulting is a permanent excess supply of the product. This is known as a price ceiling | false |
| If a firm suffers an economic loos, its | price is less than its average total cost |
| Table 8.4 presents the cost schedule for David's Figs. If David produces four figs, David's average total costs are | $100 |
| Table 8.4 presents the cost schedule for David's Figs. If David produces two figs, David's average variable costs are | $85 |
| In a perfectly competitive industry, in the long run | firms earn zero economic profit |
| Long-run equilibrium for a perfectly competitive industry occurs when | P=MC=ATC |
| Which of the following is true about a perfectly competitive firm in the long run and in the short run | the supply curve in the short run is usually steeper than the supply curve in the long run |
| __ are costs that do not require a monetary payment | Implicit costs |
| A firm will not shut down in the long run as long as the firms revenue | is larger than the firm's variable cost |
| If a firm is a price taker, the demand curve faced by the firm is | horizontal |
| Refer to Table 8.5. The total fixed cost of producing two units is | $15 |
| Figure 8.3 shows a firm's marginal cost, average total cost, and average variable cost curves. At Q=100, the total cost is | $7000 |
| In a perfectly competitive market, if price is less than average total cost, but greater than average variable cost at the level of output where marginal cost equals marginal revenue | the firm is earning negative economic profit |
| Which of the following is an example of an indivisible input | train tracks between two cities |
| A firm will not shut down in the short run as long as price exceeds | average variable cost at the level of output where marginal revenue equals marginal cost |
| __ is a cost that independent of the quantity produced by the firm and its incurred by the firm in the short run | fixed cost |
| Figure 9.1 shows the cost structure of a firm in a perfectly competitive market. If the market price is $40 and the firm is currently producing the profit maximizing output level, its total variable cost is | $19800 |
| If the price a firm charges in a perfectly competitive industry is greater than average total cost | the firm is earning an economic profit greater than zero |
| If average totals cost > average variable cost>price, a profit maximizing firm in a perfectly competitive market should | shut down in the short run |
| If the demand for a product in an increasing cost perfectly competitive industry increases, we would expect that price in the long-run would __ and the number of firms in the market would __ | increase; increase |
| Which of the following are included in calculating economic costs | all of the above are correct |
| Refer to table 8.5. The total variable cost of producing five units of output is | $43 |
| Figure 8.2 presents a firm's marginal, average total, average fixed, and average variable cost curves. The firm minimizes average total costs by producing __ units | 150 |
| Figure 9.1 shows the cost structure of a firm in a perfectly competitive market. If the market price is $40, the firm's profit maximizing output level is | 900 |
| Figure 9.1 shows the cost structure of a firm in a perfectly competitive market. If the market price is $40 and the firm is currently producing the profit maximizing output level, its total fixed cost is | $7200 |
| Table 8.4 presents the cost schedule for David's figs. If David produces three figs, David's total variable costs are | #240 |
| Suppose that Gigantic Company is increasing in size. As Gigantic Company grows, coordination of work teams is becoming more difficult because of increased bureaucracy. It is likely that continued growth will result in | diseconomies of scale |
| A price taker is a buyer or a seller who | takes the market price as given |
| If the market demand increases for a good sold in a perfectly competitive market, individual firms in the market | will be able to charge a higher price for their product |
| One difference between the short run and the long run is that perfectly competitive firms | can earn positive, negative, or zero economic profit in the short run, but will earn zero economic profit in the long run |
| Which of the following is NOT true when the firm experiences diminishing marginal product | the total product is decreasing |
| Figure 8.3 shows a firm's marginal cost, average total cost, and average variable cost curves. The firm's total fixed cost is | $3000 |
| Figure 8.2 presents a firm's marginal, average total, average fixed, and average variable cost curves. The firm minimizes average variable costs by producing __ units | 100 |
| If a firm has already paid or has agreed to pay for something we call it | a sunk cost |
| Figure 8.3 shows a firm's marginal cost, average total cost, and average variable cost curves. At Q=100, the average fixed cost is | |
| Jane is a student. She pays $10,000 per year in tuition, $4000 per year living expenses, and $800 for books. Were she not in school she could earn $20000. What is her economic cost for a year in college? | $30800 |
| In short-run equilibrium for a competitive firm economic profits | may be positive, negative, or zero |
| If the marginal cost of producing the next unit of output exceeds the average total cost, then | the average total cost curve is increasing |
| Refer to table 8.5. The firm experiences diminishing returns beginning with the __ unit | fourth |
| Figure 8.3 shows a firm's marginal cost, average total cost, and average variable cost curves. At Q=100, the total variable cost is | $4000 |
| If a firm is a perfectly competitive market is currently producing the output where price=marginal cost=average total cost, the firm is | earning a zero economic profit |
| The minimum efficient scale is | the output level beyond which the firm will not experience scale economies |
| Refer to table 8.5. The marginal cost of the third unit is | $7 |
| If individual firms face a horizontal demand curve at a given market price, | price is equal to marginal revenue |
| Figure 8.2 presents a firm's marginal, average total, average fixed, and average variable cost curve. The firm faces fixed costs of | $4000 |
| The firm's short-run supply curve shows the relationship between the price of a good and the | quantity supplied of that good |
| A firm's marginal cost curve above the minimum of the average variable cost curve is also | the firm's short-run supply curve |
| If a perfectly competitive firm charges a price that is equal to its average total cost | the firm is earning an economic profit equal to zero |
| Figure 9.1 shows the cost structure of a firm in a perfectly competitive market. If the market price is $40 and the firm is currently producing the profit maximizing output level, the firm's profit is | $9000 |
| Suppose that 100 firms operate in a perfectly competitive industry and each firm has the same technology and cost structure. If each firm maximizes profits by selling 20 units of output at $5 then the quantity supplied in the market at $5 is | 2000 |
| Who are the price takers in a perfectly competitive market | both the buyers and the sellers |
| If the demand curve faced by a firm is horizontal, then the firm is __ and a __ | perfectly competitive; price taker |
| Figure 8.3 shows a firm's marginal cost, average total cost, and average variable cost curves. At Q=50, the average fixed cost is | $60 |
| A firm will not shut down in the short run as long as the point where MR=MC | P>AVC |
| Figure 8.3 shows a firm's marginal cost, average total cost, and average variable cost curves. At Q=50, the total cost is | $4500 |
| Average total cost equals | average fixed cost plus average variable cost |
| Table 8.4 presents the cost schedule for David's Figs. If David produces two figs, David's marginal costs are | $80 |
| Which of the following is NOT a characteristic of a perfectly competitive market | substantial barriers to entry |
| In long-run equilibrium for a competitive firm economic profits | will be zero |
| Table 8.4 presents the cost schedule for David's Figs. If David produces zero figs, David's total costs are | $100 |
| The marginal cost curve intersects the short-run average total cost curve where | average total costs are minimized in the short run |
| If price is less than average variable cost at a level of output where marginal revenue is equal to marginal cost, then in the short run the firm | should shut down |
| You sell your good in a perfectly competitive market where the market price is $33. When you sell 100 units your totals revenue is $3300. When you sell 101 units | total revenue increases by exactly $33 |
| In the short run | some factors of production are variable, while at least one factor of production is fixed |
| __ is a cost that changes with the quantity produced by the firm and is incurred by the firm in the short run | variable cost |
| Refer to Table 8.5. The average variable cost of producing five units of output is | $8.60 |
| Figure 8.3 shows a firm's marginal cost, average total cost, and average variable cost curve. At Q=50, the total variable cost is | |
| Which of the following is a long-run adjustment | the number of professional baseball teams increases by two |
| In the long run | all factors of production are variable |
| A perfectly competitive industry is in long-run equilibrium. If demand for the product increases, we can expect | firms to enter the market |
| Marginal cost is defined as | the change in total variable cost resulting form a one-unit increase in the change in quantity |
| When a second firm enters a market, the original firm's profit decline because | all of the above are correct |
| Under the conditions of monopolistic competition | none of the above are correct |
| The word "competition" in the label "monopolistic competition" refers to the fact that | firms vie against each other to get customers to buy their version of the product |
| A market in which there are many firms each selling differentiated products is most likely a __ market | monopolistically competitive |
| In order to practice price discrimination a firm must | be able to divide consumers into groups with different demands for their product |
| The firm in figure 10.3 will charge | P3 |
| After the U.S. government deregulated the trucking industry | freight prices fell |
| Recall the Application on "Name Brands Versus Store Brands". The introduction of store brands is a form of | market entry |
| If a firm that makes $100 profit per pair of shoes pays Lebron James $2,000,000 to endorse their basketball shoes, then to make the endorsement pay off they must sell at least | 20,000 more pairs of shoes |
| In general, the market price in an oligopoly market is | higher than in perfect competition |
| If a firm engages in guaranteed price matching, that firm picks a | higher price but instantly switches to a low price if its competitors choose a low price |
| Which of the following is true in the long run for both monopoly and perfectly competitive industries | firms will go out of business if they cannot charge a price that is at least equal to average total cost |
| Which of the following characteristics of the monopolistically competitive and the perfectly competitive market will cause the firm to earn zero profits in the long run | no barriers to entry |
| Monopolistically competitive markets are like monopoly markets because in both markets firms | have some control over price |
| A monopolist maximizes profits by setting the quantity where | marginal revenue equal to marginal cost |
| Which of the following is most accurate | in all cases, competitive markets yield more consumer surplus than would be enjoyed in a monopoly market with the same cost structure |
| Oligopoly differs from monopoly and perfect competition in that | all of the above |
| Price discrimination is when a firm charges | different prices for the same goods to different consumers |
| Consumers benefit from monopolistically competitive markets because | in this type of market, producers supply goods in a variety of locations or with a variety of characteristics |
| A firm announces that it will refund the difference between its price and any price of a competitor that is lower. This is an example of | guaranteed price matching |
| When a firm is awarded a patent, it is given monopoly rights to the production of that product for __ years | 20 |
| Monopolistically competitive firms do NOT differentiate their products by | charging different prices to different groups of consumers |
| Society gains from a patent, if the product would not otherwise be developed | true |
| Under the conditions of monopolistic competition | economic profit is zero in the long run |
| The Nash Equilibrium in the game shown in table 12.2 is the cell in which | both firms choose a low price |
| When a monopolists sells two units of output its total revenues are $100. When sells 3 units total revenue $120. Sells 3, the price per unit is | $40 |
| Where it wants to produce the firm in figure 10.3 will | make a positive economic profit |
| How do monopoly prices and quantities produced differ from perfectly competitive outcomes, all other things equal | monopoly prices are higher than competitive prices but monopoly quantities are lower than competitive quantities |
| Suppose you operate in a monopolistically competitive market. If you sell your goods at a price of $10 and your average cost of production is $8 | we can expect firms to enter your market and sell a similar good in the long run |
| Oligopolists that follow the price leadership model | are engaging in implicit but not explicit price fixing |
| When firms compete with each other rather than cooperate | consumers will end up better off |
| Hiring a more expensive celebrity endorser will always result in higher firm profits | false |
| Which of the following is NOT a barrier to entry for monopoly | a large number of existing firms in a market |
| Price fixing tends to fail in an oligopoly because | each firm has an incentive to underprice the other firms |
| A Nash Equilibrium in a game is that outcome in which | each player is doing the best he or she can given the other player's action |
| Which of the following is NOT a characteristic of a monopolistically competitive market | firms must take the market price as given |
| A monopoly faced with the possibility that another firm may enter is an | insecure monopoly |
| The word "monopolistic" in the label "monopolistic competition" refers to the fact that | each firm produces a slightly different version of the product |
| The main purpose of hiring the celebrity endorser is to | make the customer try the product for the first time |
| Which of the following is NOT a characteristic of a monopoly | a monopolist is a price-taker |
| A special case of an oligopoly where there are only two firms is called | a duopoly |
| In general, the quantity of output in an oligopoly market is | lower than in perfect competition |
| The rational outcome of a guaranteed price matching or "meet-the-competition" policy is that | both firms will sell at the high price |
| Firms in a cartel usually charge | the same price |
| When governments grant patents | both A and B are correct |
| In a kinked demand model, that part of the demand curve below the kink is | less elastic that the region above the kink |
| The four-firm concentration ration for the cigarette market is 93%. This means that | all of the above |
| Nike has used Michael Jordan to create the impression that Air Jordan basketball shoes are superior to nay other basketball shoe. Nike is attempting to | differentiate Air Jordan basketball shoes from other types of basketball shoe |
| Suppose that a monopolistically competitive market is in its long-run equilibrium. If the market demand curve shift to the right due to changes in consumer preferences | firms will earn positive economic profits in the short-run |
| Recall the application "advertising and movie buzz" Distributors of movies advertise some new release, but not others. The movies they advertise are those they expect to | be appealing and generate a lot of buzz or word of mouth advertising |
| Recall the application on "name brand versus store brand". In stores that introduce brands at a lower price, usually the price of the name brand | fell, but stayed above the price of the store brand |
| An arrangement under which a number of firms acts as a single firm and coordinate their pricing decisions is | price fixing |
| Why do pharmaceutical firms benefit most from patent protection? | because research and development of drugs require large expenditures that need to be recouped while the patent is still valid |
| Price discrimination always benefits | the firm and may benefit or harm the consumer |
| Market power is the power to | control prices |
| A contestable market is one where | there is a threat of entry |
| In a kinked demand model, that part of the demand curve above the kink is | more elastic that the region below the kink |
| Monopolistically competitive firms differentiate their products by | all of the above |
| When a second firm enters a monopolist's market | market price will drop |
| A market served by only one firm is called a | monopoly |
| A dominant strategy is one that | is the best choice under all conditions |
| At a price of $10, the marginal revenue of a monopolist is $6. If the marginal cost of production is $8, what should the monopolist do in order to maximize profits | increase is price |
| The merits of a patent system is | all of the above |
| Which of the following firms are examples of price discrimination | United Airlines charges customers who book 14 days ahead a lower price than those who don't |
| A market is called monopolistically competitive if each firm ahs the same product but consumers can choose to purchase the product from any firm | false |
| Monopolistically competitive markets are like perfectly competitive markets because in both markets firms | face a large number of competitors |
| The demand curve that a monopolist faces is | the market demand curve |
| The advertising dilemma is that advertising may add more to industry costs than to industry revenues, but a firm may lose market share if ti does not advertise | true |
| Price discrimination is related to elasticity because | the firm can increase revenues by charging customers with elastic demands lower prices and charging customers with inelastic demands higher prices |
| A firm that has market power has the ability | to affect the price of its own product |
| When a few firms sell similar products in a market, the market structure is most likely to be | an oligopoly |
| __is a monopoly that exists in an industry where the large economies of scale acts as its barriers to entry | a natural monopoly |
| As firms enter a monopolistically competitive market in the long run | price decreases, the market quantity demanded increases, and the quantity supplied by an individual decreases |
| Which of the following is an example of the tie-in sale | in order to buy microsoft windows you must also purchase Internet Explorer |
| The self-interest model of government | all of the above are correct |
| Figure 13.1 shows a demand and cost of an unregulated monopoly. At the output level of 22000units | all of the above are correct |
| Economies of scale in the generation of electricity | at one time meant that electricity generation was a natural monopoly but that is no longer true |
| A trust is | an arrangement between firms whereby decision making is controlled by a board of trustees |
| A public utility is a classic example of | a natural monopoly |
| When economists say that a good is non-excludable, they mean | there is no practical way to stop a person from enjoying the good |
| Which of the following is an example of natural monopoly | a market for cable tv services |
| Because a monopolist has no incentive to control costs under a policy of average-cost pricing we can expect | prices to increase over time as costs rise |
| State and local governments receive more money from __ than from any other source | grants from higher levels of government |
| Two government organizations that are responsible for initiating action against possible antitrust cases are | the Department of Justice and the Federal Trade Commission |
| A likely consequence over time of an average-cost pricing policy for a natural monopoly is | an increase in the average cost curve |
| Government deregulation is used to | reverse regulations that inhibit competition |
| Figure 13.1 shows a demand and costs of an unregulated monopoly. At the profit maximization output, the firm earn a profit of | $10000 |
| A firm charges a price below its average total cost so that it drives out its competition. This is an example of | predatory pricing |
| In the case of United States v. Microsoft | Microsoft was found to have stifled competition |
| What is the largest category in state government spending | education |
| The Act which outlawed price discrimination for the purpose of reducing competition was the | Clayton Act |
| The purpose of antitrust policy is to | promote competition among firms |
| Under a policy of average-cost pricing, a monopolist must charge the price which its __ cost curve intersects its __ curve | average; demand |
| An example of a private good is | a bottle of perfume |
| Consider a cable TV company which is subject to an average-cost pricing regulation. If the number of subscribers decreases | the company will charge more per customer as its average cost increases |
| A good that is available for everyone to consume, regardless of who pays and who doesn't is called a | public good |
| California's deregulation of its electricity markets led to | all of the above |
| An external benefit is the benefit experienced by people who | do not decide how much of the good to produce or consume |
| The idea that voters tell the government what to do | is the basic idea of democracy |
| One challenge in deregulating local phone services arises because | the wires and cables serving residences had been controlled by local Baby Bells |
| After the airlines were deregulated, prices for airline travel | fell for most routes, but rose for some routes |
| Suppose two firms produce close substitutes such that reducing th price of one product reduces the quantity demanded of the other. If those two firms merge | they can earn higher profits by continuing to sell both products in the profit gained from increased sales of one product are greater than the lost profits from reduced sales of the other product |
| A natural monopoly arises when | economies of scale are so great that only one firm can exist in a market |
| Firms in a trust | act as a single firm |
| A distinguishing feature of a public good is that it | is not possible to exclude people who don't pay for the public good |
| Examples of spillover benefits associated with a college education include | both workplace and civic externalities |
| A public good is a good that | is available for everyone to consume, regardless of who pays |
| One of the forces behind the pressure to deregulate the electricity market was | the development of alternative technology reduced the economies of scale in electricity generation |
| The special-interest groups model of government explains why | all of the above could be explained by this model |
| Suppose that a state installs a toll booth on a highway and requires drivers to pay $1 before entering the highway. Installation of the toll booth changes | a nonexcludable good into an excludable good |
| The Federal Trade Commission Act | was passed to establish a body to enforce antitrust laws |
| A regulatory policy under which the government picks the point on the demand curve at which price equals average cost is known as | average-cost pricing |
| The barrier to entry that sustains a natural monopoly is | economies of scale |
| Under an average-cost pricing policy | a regulatory agency picks a price at which a natural monopoly's demand curve intersects its average cost curve |
| According to the special-interest theory of government, government officials and policymakers | tend to listen to small groups of people who contribute money to their political campaigns |
| An example of a good that is rival in consumption is | a copy of an economic textbook |
| When private goods have external benefits | marginal social benefit is greater than marginal private benefit |
| The first antitrust legislation was the | Sherman Act |
| In the Staples/Office Depot Case, the government | blocked a merger |
| Which of the following companies was NOT broken up by the government | Office Depot |
| To maximize profit, an unregulated natural monopoly will produce at a level where | marginal revenue is equal to marginal cost |
| The Act which outlawed tying contracts was the | Clayton Act |
| The median voter rule says that | government decisions will reflect the preferences of the median voter |
| When economists say that a good is non-rival in consumption they mean that | more than one person can enjoy the good at the same time |
| The Act which prohibited selling products at unreasonable low prices was the | Robinson-Patman Act |
| The free-rider problem arises because | once provided, a public good is available to all regardless of whether they paid for it |
| Prior to 1978, the Civil Aeronautics Board | regulated interstate air travel by limiting entry into the market and regulating prices |
| Deregulation of local telephone service is predicted to | reduce prices for local phone service |
| The government is likely to block a merger if | it can be established that the merger would substantially reduce competition |
| The Celler-Kefauver Act of 1950 | outlawed asset-purchase mergers that would substantially reduce competition |
| Which of the following is an example of predatory pricing | prices are set low enough to drive other firms out of the market |
| Under traditional electricity regulations, state and local governments | all of the above |
| When compared to the profit maximizing price and quantity supplied, an average-cost pricing policy for a natural monopoly causes the price the monopolist charges to __ and the quantity it sells to __ | decrease; increase |
| When two firms in an industry become one firm, they are engaged in | a merger |
| After deregulation in the airline industry | competition increases due to new airlines entering the industry |
| The Airline Deregulation Act of 1978 | eliminated most entry restrictions and price controls in the airline industry |
| application "Heinz and Beech" government blocked merger because | the smaller the number of firms in an industry the easier price coordination |
| A private good is a good that | is consumed by a single person or household |
| Which of the following is NOT a form of antitrust policy | a price control |
| The federal government receives more money from __ than from any other source | individual income taxes |
| The Act that extended antitrust legislation to proprietorships and partnerships was the | Hart-Scott-Redino Act |
| An appeal to people's sense of civic or moral responsibility will __ the free-rider problem and lead to a __ level o contribution to the public good | reduce; larger |
| An example of a good that is non-rival in consumption is | the Lincoln Memorial in Washington, D.C. |
| What is the largest category in federal government spending | Social Security |
| One of the forces behind the pressure to deregulate the electricity market was | there was substantial variation in electricity prices across regions and states |
| When a monopoly is inevitable, the government often | sets a maximum price for the monopolist |
| Application Heinz and Beech-Nut. the government blocked merger because | the smaller the number of firms in an industry the easier price coordination |
| An example of a public good is | national defense |
| The benefit from a good experienced by people who do not decide how much of the good to produce or consume is called | external benefit |
| What is the largest category in local government spending | education |
| If a private good generates external benefits | the social benefits will be greater than the private benefits |
| In which stage of producing electricity have recent technological innovations led to reduced economies of scale | generation of power plants |
| Which of the following is NOT a viewpoint of the self-interest theory | Government officials are assumed to align their interest with public interests |
| Antitrust laws are enforced by | the Federal Trade Commission |
| Microsoft requires persons who purchase its operating system to also purchase its web browser. This is an example of | a tie-in sale |
| Relative to the federal government, state and local governments spend larger share of their funds on | education |
| The social cost of production is | the private cost of production plus the external cost generated by production |
| The marginal revenue product of labor is | change in revenue resulting from adding an additional unit of labor |
| College students who increase their human capital by acquiring the skills required for certain occupations typically earn higher incomes than high school graduates. This is called | the learning effect of a college education |
| If a pollution tax imposed on a firm is greater than its external costs | the firm will be producing too little from society's point of view |
| The marginal product of labor is the | change in output resulting from adding an additional unit of labor |
| A means tested government program is one that | provides assistance to those below a certain income level |
| Which of the following is the most important reason for growing inequality in the income distribution in the U.S. | an increase in demand for highly educated workers |
| Firm are likely to prefer a pollution tax to a command-and-control policy because the command and control policy will | all of the above |
| As compared to a pollution tax, a command and control policy will | shift the supply curve to the left by a larger amount |
| The Temporary Aid to Needy Families program | requires that recipients participate in work activities |
| When a firm hires a worker for one hour, the marginal benefit to that firm equals the | dollar value of the goods produced by that worker in one hour |
| The change in the quantity of labor demanded resulting from a change in the quantity produced of the product is known as the __ effect | output |
| A command and control policy is one in which | both A and C are correct answers |
| In which of the following situations should a firm reduce its efforts to abate pollution | the marginal benefit of abatement is less than its marginal cost |
| A command and control policy | decreases the incentive for firms to develop efficient abatement technologies |
| According to the substitution effect of labor supply, when the wage rate goes up | it becomes more costly to consume leisure, so people will work more |
| The optimal level of pollution abatement is where | the marginal benefit of abatement is equal to its marginal cost |
| Which of the following is NOT an advantage of a pollution tax | it allows us to predict the total volume of pollution that will be discharged |
| In the short run, the marginal revenue product curve is __ because of | downward sloping; diminishing returns |
| Lower wages for women relative to those for men constitute wage discrimination if women earn lower wages | but are equally productive |
| The market demand curve for labor is the relationship between the wage and the quantity of labor that | all firms are willing to employ |
| If the majority of new immigrants are low skill workers, | high skill native workers benefit from low product prices |
| When the wage increases | some workers will work more hours and some workers will work fewer hours, but we don't know whether average hours will increase or decrease |
| The marginal principle __ to the determination of the optimal level of pollution abatement because | applies; there are trade offs in terms of the costs and benefits of pollution abatement |
| Because pollution taxes raise production costs, the __ curve __ | supply; shifts to the left |
| An advantage offered by pollution taxes that is NOT offered by command and control policies is that | under pollution taxes, the government receives tax revenues that may be used to clean up pollution |
| If the price of output increases the labor __ curve shifts to the __ | demand; right |
| Under a system of marketable pollution permits | firms may trade the right to pollute a certain amount |
| Another name for a system of marketable permits is | cap and trade |
| Labor costs account for approximately __ of total production costs | three fourths |
| When a firm hires a worker for one hour, the marginal cost of that firm equals the | hourly wage of that worker |
| Command and control policies usually | reduce the production of a polluting good less than do pollution taxes |
| If the equilibrium wage is below the actual wage | the wage rate will fall |
| Because pollution taxes raise the costs of production for firms, firms | must receive a higher price at every level of output |
| A pollution tax | increases the price of the good taxed |
| In order to achieve an efficient result a pollution taxt must | be equal to the external cost generated |
| We expect firms with __ to sell marketable pollution permits to firms with __ | low abatement costs; high abatement costs |
| When wages increase, the income effect __ the supply of labor and the substitution effect __ the supply of labor | decreases; increases |
| Government taxes and transfers | increase the wealth of the poorest Americans and reduce the wealth of the richest Americans |
| Under a system of marketable pollution permits the government | all of the above |
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june6honey