question

Economists would describe the U.S. automobile industry as:

answer

An oligopoly

question

Which of the following industries most closely approximates pure competition?

answer

Agriculture

question

In which of the following industry structures is the entry of new firms the most difficult?

answer

Monopoly

question

An industry comprised of 40 firms, none of which has more than 3% of the total market for a differentiated product is an example of?

answer

Monopolistic competition

question

Monopoly:

answer

1.) Only one seller 2.) Product can't be compared 3.) Price maker 4.) No exit/entry

question

Pure Competition:

answer

1.) 1000's of other sellers 2.) Homogeneous product-ever product is the same 3.) Price taker 4.) Easy entry/exit

question

Oligopoly:

answer

1.) Few sellers(3-5) 2.) Exactly the same of different product 3.) High degree of price control 4.) High barrier to enter

question

Monopolistic Competition-90% of all businesses:

answer

1.) Many sellers(30-40) 2.) Differentiated product 3.) Same price control-slightly 4.) Fairly easy entrance/exit

question

Pure Competition and Average Revenue:

answer

Price=Average Revenue

question

Total Revenue:

answer

Found by multiplying price by the corresponding quantity the firm can sell.

question

Marginal Revenue:

answer

Change in total revenue that results from selling 1 more unit of output.

question

MR, P, AR, D:

answer

MR=P=AR=D

question

Market failure is said to occur whenever:

answer

Private markets do not allocate resources in the most economically desirable way

question

Demand-side market failures occur when:

answer

the demand and supply curves don't reflect consumers' full willingness to pay for a good or service

question

People enjoy outdoor holiday lighting displays, and would be willing to pay to see these displays, but can't be made to pay. Because those who put up lights are unable to charge others to view them, they don't put up as many lights as people would like. This is an example of a:

answer

demand-side market failure

question

Supply-side market failures occur when:

answer

the demand and supply curves don't reflect the full cost of producing a good or service

question

From soceity's perspective, in the presence of a supply-side market failure, the last unit of a good produced typically:

answer

costs more to produce than it provides in benefits

question

the trains of the transcontinental railway company, when shipping goods, sometimes emit sparks that start fies along the tracks and damage the property of others. If transcontinental does not pay for the damage it causes, what has occurred?

answer

supply-side market failure

question

What two conditions must hold for a competitive market to produce efficient outcomes?

answer

Supply curves must reflect all costs of production, and demand curves must reflect consumers' full willingness to pay

question

If the demand curve reflects consumers' full willingess to pay, and the supply curve reflects all costs of production, then which of the following is true?

answer

the benefit surpluses shared between consumers and producers will be maximized

question

Consumer surplus:

answer

is the difference between the maximum prices consumers are willing to pay for a product and the lower equilibrium price

question

Producer surplus:

answer

is the difference between he minimum prices producers are willng to accept for a product and the higher equilibrium price

question

Graphically, if the supply and demand curves are linear, consumer surplus is measured as the triangle:

answer

under the demand curve and above the actual price

question

Graphically, producer surplus is measured as the area:

answer

above the supply curve and below the actual price

question

A producer's minimum acceptable price for a particular unit fo a good:

answer

equals the marginal cost of producing that particular unit

question

allocative efficiency occurs only at that output where:

answer

the combined amounts of consumer surplus and produceer surplus are maximized

question

At the output level defining allocative efficiency:

answer

the maximum willingnes to pay for the last unit of output equals the minimum acceptable price of that unit of output

question

At the output where the combined amounts of consumer and producer surplus are largest:

answer

the maximum willingness to pay for the last unit of output equals the minimum acceptable price of that unit of output

question

An efficiency loss (or deadweight loss):

answer

is measured as the combined loss of consumer surplus and producer surplus

question

An efficiency loss (or deadweight loss) declines in size when a unit of output is produced for which:

answer

maximum willingness to pay exceeds minimum acceptable price

question

The two main characteristics of a public good are:

answer

nonrivalry and nonexcludability

question

Nonrivalry and nonexcludability are the main characteristics of:

answer

public goods

question

Unlike a private good, a public good:

answer

has benefits available to all, including nonpayers

question

A public good:

answer

is available to all and cannot be denied to anyone

question

The market system does not produce public because:

answer

private firms cannot stop consumers who are unwilling to pay for such goods from benefiting from them

question

Public goods are those for which there:

answer

is nonrivalry and nonexcludability

question

If one person's consumption of a good does not preclude another's consumption, the good is said to be:

answer

nonrival in consumption

question

Nonexcludability describes a condition where:

answer

there is no effective way to keep people from using a good once it comes into being

question

Because of the free-rider problem:

answer

the market demand for a public good is nonexistent or understated

question

At the optimal quantity of a public good:

answer

marginal benefit equals marginal cost

question

A demand curve for a public good is determined by:

answer

summing vertically the individual demand curves for the public good

question

Suppose that Mick and Cher are the only two members of society and are willing to pay $10 and $8, respectively, for the 3rd unit of a public good. Also, assume that the marginal cost of the 3rd unit is $17. We can conclude that:

answer

the 3rd unit should be produced

question

Cost-benefit analysis attempts to:

answer

compare the benefits and costs associated with any economic project or activity

question

accoding to the marginal-cost-marginal-benefit rule:

answer

the optimal project size is the one for which MB = MC

question

Economists consider governments to be "wasteful:"

answer

whenever they over-or underallocate resources to a project

question

A positive externality or spillover benefit occurs when:

answer

the benefits associated with a product exceed those accruing to people who consume it

question

A negaitve externality or spilloveer cost occurs when:

answer

the total cost of producing a good exceeds the cost borne by the producer

question

If a good that generates positive externalities were produced and priced to take into account these spillover benefits, then its:

answer

price and output would increase

question

Suppose that the anytown city government asks private citizens to donate money to support the town's annual holiday lighting display. Assuming that the citizens of Anytown enjoy the lighting display, the request for donations suggests that:

answer

resources and currently underallocated to the provision of holiday lighting in Anytown

question

The socially optimal amount of pollution abatement occurs where society's marginal:

answer

benefit of abatemnt equals its marginal cost of abatement

question

The marginal benefit to society of reducing pollution declines with increases in pollution abatement because of the law of:

answer

diminishing marginal utility

question

The marginal cost to society of reducing pollution rises with increases in pollution abatement because of the law of:

answer

diminishing returns

question

The MC curves in the above diagram slope upward because of the law of:

answer

diminishing returns

question

Suppose that Susie creates a work of art and displays it in a public place. Economists would expect:

answer

those enjoying the art to "free ride" since they cannot be made to bear any of the cost

question

Brinley puts on an art show in a public space, asking for donations based on how much people enjoy his work. Economists would expect that:

answer

people will understate their enjoyment of the art in order to "free ride"

question

According to the Coase Theorem:

answer

private individuals can often negotiate their own resolution of externality problems

question

Darcy and Rachel live down the hal from each other in the same dorm. Darcy like to play her music loudly down the hall, and Rachel finds the music annoying. A coase theorem solution for this problem would be for:

answer

Darcy and Rachel to negotiate a mutually agreeable level of volume and/or selection of music

question

Suppose that a large tree on Betty's property is blocking Chuck's view of the lake below. Betty accepts Chuck's offer to pay Betty $100 for the right to cut down the tree. This situation describes:

answer

the coase theorem

question

In a cap-and-trade program:

answer

government fixes the maximum amount of a pollutant that firms can discharge and issues permits that firms can buy from and sell to each other

question

A cap-and-trade program:

answer

assigns a property right to polluting the atmosphere

question

Because there are so many sources of carbon dioxide, making monitoring difficult and costly, many economists:

answer

prefer a carbon tax to cap-and-trade for reducing carbon dioxide emissions

question

The utility of a good or service:

answer

is the satisfaction or pleasure one gets from consuming it

question

Marginal utility can be:

answer

positive, negative, or zero

question

Mary says, "You would have to pay me $50 to attend that pro wrestling event." For Mary, the marginal utility of that event is:

answer

negative

question

The ability of a good or service to satisfy wants is called:

answer

utility

question

A product has utility if it:

answer

satisfies consumer wants

question

The law of diminishing marginal utility states that:

answer

beyond some point additional units of a product will yield less and less extra satisifacion to a consumer

question

If the price of product X rises, then the resulting decline in the amount purchased will:

answer

increase the marginal utility of the last unit consumed of this good

question

Marginal utility is the:

answer

change in total utility obtained by consuming one more unit of a good

question

Utility refers to the:

answer

satisfaction that a consumer derives from a good or service

question

Total utility may be detrmined by:

answer

summing the marginal utilities of each unit consumed

question

If total utility is increasing, marginal utility:

answer

is positive, but may be either increasing or decreasing

question

Where total utility is at a maximum, marginal utility is:

answer

zero

question

The law of diminishing marginal utility explains why:

answer

demand curves slope downward

question

While eating at Alex's "Pizza by the slice" restaurant., Kara experiences diminishing marginal utility. She gained 10 units of satisfaction from her first slice pizza consumed, and would only recieve 5 units of satisfaction from consuing a second slice. Based on this information we can conclude that:

answer

Alex may have to lower the price to convince Kara to buy a second slice

question

The theory of consumer behavior assumes that:

answer

consumers behave rationally, attempting to maximize their satisfaction

question

To maximize utility a consumer should allocate money income so that the:

answer

marginal utility obtained from the last dollar spent on each product is the same

question

Suppose that MUx/Px exceeds MUy/Py. To maximize utility the consumer who is spending all her money income should buy:

answer

more of X and less of Y

question

Ben is exhausting his money income consuming products A and B in such quantities that MUa/Pa = 5 and MUb/Pb = 8. Ben should purchase:

answer

more of B and less of A

question

Suppose you have a limited money income and you are purchasing products products A and B whose prices happen to be the same. To maximize your utility you should purchase A and B in such amounts that:

answer

their marginal utilities are the same

question

A consumer is maximizing her utility with a particular money income when:

answer

MUa/Pa = MUb/Pb = MUc/Pc ... = MUn/Pn

question

Suppose that Ms. Thomson is currently exhausting her money income by purchasing 10 units of A and 8 units of B at prices of $2 and $4 respectively. The marginal utility of hte last units of A and B are 16 and 24 respectively. These data suggest that Ms. Thomson:

answer

should buy less B and more A

question

If a rational consumer is in equilibrium, which of the following conditions will hold true?

answer

the marginal utility of the last dollar spent on each good purchased will be the same

question

A consumer who has a limited budget will maximize utility or satisfaction when the:

answer

ratios of the marginal utility of each product purchased divided by its price are equal

question

An increase in the price of product A will:

answer

decrease the marginal utility per dollar spend on A

question

The theory of consumer behavior assumes that consumers attempt to maximize:

answer

total utility

question

When a consumer shifts purchases from product X to product Y the marginal utility of:

answer

X rises and the marginal utility of Y falls

question

Prashanth decides to buy a $75 ticket to a particular New York professional hockey game rather than $50 ticket for a particular Broadway play. We can conclude that Prashanth:

answer

has a higher "marginal utility to price ratio" for the hockey game than for the play

question

Diminishing marginal utility explains why:

answer

demand curves are downsloping

question

What do the income effect, the substitution effect, and diminishing marginal utility have in common?

answer

they all help explain the downsloping demand curve

question

A consumer's demand curve for a product is downsloping because

answer

marginal utility diminishes as more of a product is consumed

question

In introducing the opportunity cost of time into the theory of consumer we find that, all else equal:

answer

one should consume less of time-intensive goods

question

How did Apple overcome consumers' diminishing marginal utility for iPods?

answer

Apple introduced new features to entice previous buyers to purchase new models

question

The diamond-water paradox arises because:

answer

essential goods may be cheap while nonessential goods may be expensive

question

The diamond-water paradox occurs because:

answer

the price of a product is related to its marginal utility, not its total utility

question

"Essential" water is cheaper than "nonessential" diamonds because:

answer

the supply of water is great relative to demand and the supply of diamonds is small relative to demand

question

The fact that most medical purchases are financed through insurance:

answer

increases the amount of health care consumed by reducing the price of additional units of care

question

who do people tend to eat more at all-you-can-eat buffet restaurants than at restaurants where each item is purchased separately?

answer

once the all-you-can-eat meal is purchased, consumers view additional trips back to the buffet as having a price of zero

question

Most economists contend that:

answer

noncash transfers are less efficient than cash transfers

question

Noncash gifts:

answer

reduce recipient utility to a cash gift because noncash gifts often fail to match recipient preferences

question

If you recieve a gift whose market price is $20, but you consider it to be worth only $10, then:

answer

there is a $10 or 50% value loss

question

According to economists, gift registries, returning gifts for cash refunds, and "recycling gifts."

answer

increase the efficiency of gift-giving because they allow the recipient to consume goods

question

According to behavioral economics:

answer

each successive unit of loss hurts, but less than the previous unit

question

Last month Laura saw the value of her stock portfolio rise by $20,000. this month, she saw the value of her portfolio decline by $20,000. According to behavioral economics:

answer

the positive utility Laua received from seeing her portfoli value rise was less than the disutility she felt when its value declined

question

According to prospect theory, what strategy will firms typically employ with regard to pricing and packaging their goods, when faced with rising production costs

answer

Firms will reduce package sizes, but keep prices the same, thus increasing the per unit price of the good

question

According to prospect theory, firms are more likely to shrink packages than raise prices because:

answer

consumers feels the loss of a price increase more than they feel the loss of buying a smaller package for their money

question

According to the concept of framing effects:

answer

whether a new situation is viewed as a gain or a loss depends on one's starting position

question

Suppose that dairy barn foods produces a regular sour cream with 10 grams of fat per serving, and a "low fat" sour cream with only 5 grams of fat per serving (assume that this still considered a lot of fat to consume per serving). According to prospect theory, how should Dairy Barn promote its "low fat" sour cream.

answer

it should advertise that the "low fat" sour cream has only "half the fat" of the regular sour cream

question

Josh will recieve a salary of $300,000 next year. According to prospect theory:

answer

Josh's satisfaction with that salary depends on how much he made in the past

question

Who do credit card companies typically require small minimum payment amounts on their customers' monthly credit card statements?

answer

Credit card companies want to increase profits by promoting slower repayment, and actual customer payments will be anchored by the smaller payment requirements

question

Anchoring:

answer

Can influence decision-making with irrelevant information

question

Because of "mental accounting"

answer

people isolate purchases and sometimes make irrational decisions

question

The process by which people isolate purchases and fail to consider all consumption options simultaneously is known as

answer

mental accounting

question

According to the "endowment effect:"

answer

people assign higher values to things they own than things they don't

question

Newspaper dispensing devices seemingly "trust" people to take only a single paper but the devices actually rely on the law of:

answer

diminishing marginal utility

question

Unlike newspaper dispensing devices, soft drink dispensing machines do not permit people to take more than one can or bottle with each payment. The reason is that the:

answer

marginal utility of extra soft drink cans or bottles declines slowly, particularly because they are storable and can be consumed later

question

The hedonic trendmill refers to a phenomenon where:

answer

increasing our level of consumption doesn't make us any happier in the long term

question

participation in company retirement saving programs has increased dramatically because:

answer

enrollment in these programs was set as the default option and workers had to request to be unenrolled

question

"Nudges" refer to:

answer

subtle changes in policies or practices that result in large behavioral changes

question

The budget line shows:

answer

all possible combinations of two goods that can be purchased, given money income and the prices of the goods

question

In moving along a given budget line:

answer

the prices of both products and money income are assumed to be constant

question

Increases in product prices shift the consume's:

answer

budget line to the left

question

A change in the slope of a budget line is solely the result of a change in:

answer

the price of one good relative to the other

question

Any combination of goods lying outside of the budget line

answer

is unattainable, given the consumer's income

question

if money income increases and the prices of products A and B both increase, then the budget line:

answer

may shift either to the right or the left, or not at all

question

a budget line shows the:

answer

alternative combinations of two goods that a consumer can purchase with a given money income

question

The slope of a budget line reflects the:

answer

price ratio of the two products

question

Edith is buying products X and Y with her money income. Suppose her budget line shifts rightward (outward). This might be the result of:

answer

her money income increasing more than proportionately to increases in the prices of X and Y

question

An indifference curve shows all:

answer

combinations of two products yielding the same total utility to a consumer

question

An indifference curve:

answer

is downsloping and convex to the origin

question

An indifference map implies that:

answer

curves farther from the origin yield higher levels of total utility

question

The marginal rate of substitution measures the:

answer

consumer's willingnes to substitute one product for another so that total utility will remain constant

question

The marginal rate of substitution

answer

declines as one moves southeast along an indifference curve

question

Indifference curve analysis:

answer

presumes only that the consumer can say one combination of two goods yields more or less utility than some ohter combination

question

Assume a diagram in which a budget line is imposed on an indifference map. A consumer will maximize her utility:

answer

Where the budget line is tangent to an indifference curve

question

the lines on a topographical map are analogous to a(n):

answer

indifference map

question

a topographical map shows successively higher equal-elevation lines, whereas an indifference map shows successively higher levels of total:

answer

utility

question

Costs to an economist:

answer

may or may not involve monetary outlays

question

Implicit costs are:

answer

"payments" for self-employed resources

question

cash expenditures a firm makes to pay for resources are called:

answer

explicit costs

question

in the short run, output:

answer

can vary as the result of using a fixed amount of plant and equipment more or less intensively

question

the main difference between the short run and the long run is that:

answer

in the short run, one or more inputs is fixed

question

which of the following is most like likely to be a fixed cost?

answer

property insurance premiums

question

if you know that when a firm produces 10 units of output, total costs are $1,030 and average fixed costs are $10, then total fixed costs are:

answer

$100 - AFT=TFC/Q or TFC = ($10)(10 units)

question

economies and diseconomies of scale explain:

answer

why the firm's long-run average total cost curve is U-shaped

question

when diseconomies of scale occur:

answer

the long-run average total cost curve rises

question

when a firm doubles its inputs and finds that its output has more than doubled, this is known as:

answer

economies of scale

question

an industry comprised of a very large number of sellers producing a standardized product is known as:

answer

pure competition

question

a purely competitive seller is:

answer

a "price taker"

question

for a purely competitive firm total revenue:

answer

is price times quantity sold, increases by a constant absolute amount as output expands, and graphs as a straight upsloping line from the origin

question

the marginal revenue curve of a purely competitive firm:

answer

is horizontal at the market price

question

a perfectly elastic demand curve implies that the firm:

answer

can sell as much output as it chooses at the existing price

question

profit-maximizing output for a firm is:

answer

(from a graph with TC and TR) where there is the biggest gap between the two lines

question

short-run data graph;

answer

any level of output between the two intersecting points on a TC and TR graph will yield an economic profit

question

which of the following distinguishes the short run from the long run in pure competition?

answer

firms can enter and exit the market in the long run, but not the short run

question

suppose a firm in a purely competitive market discovers that the price of its product is above its minimum AVC point but everywhere below ATC. Given this, the firm:

answer

should continue producing in the short run, but leave the industry in the long run if the situation persists

question

long-run competitive equilibrium:

answer

results in zero economic profits

question

a constant cost industry is one in which:

answer

if 100 units can be produced for $100, then 150 can be produced for $150, 200 for $200 and so forth

question

a purely competitive firm is precluded from making economic profit in the long run because:

answer

of unimpeded entry to the industry

question

a decreasing cost industry is one which:

answer

input prices fall or technology improves as the industry expands

question

when LCD tvs first came on the market, they sold for at least $1,000, and some for much more. Now many units can be purchased for under $400. These facts imply that:

answer

the LCD tv industry is a decreasing cost industry

question

Purely competitive industry X has constant cost and its product is an inferior good. The industry is currently in long-run equilibrium. The economy now goes into a recession and average incomes decline. The result will be:

answer

an increase in output but not in the price, of the product

question

Using a graph of Average total cost, at the long-run equilibrium level of output, the firm's total REVENUE

answer

is price times quantity and the lowest point on ATC line

question

same graph, ATC for purely competitive firm, the firms total COST

answer

is the cost at the lowest point on the ATC line

Chapters 5-9 Macroeconomics – Flashcards

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