EC 201 FINAL-amsler – Flashcards
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you value a year of college at more than $59,000 The total cost of a choice includes both the actual monetary amount paid and the opportunity cost of your time incurred by making that choice over another. By turning down the cashier job (and going to college), you forgo earning your annual salary of $23,000, so this is the opportunity cost of your time from attending your first year of college. You also choose to pay $36,000 for tuition, supplies, and additional housing expenses. So your total cost of attending your first year of college is . Nevertheless, you decide to attend college, so the value of the benefits must exceed the cost.
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CH.1: Before you started applying for college, a job recruiter offered you a full-time cashier position at a doctor's office earning an after-tax salary of $23,000 per year. However, you turn down this offer and attend your first year of college. The additional monetary cost of college to you, including tuition, supplies, and additional housing expenses, is $36,000. You decide to go to college, probably because ________________________ you value a year of college at more than $59,000 you value a year of college less than $36,000 you value a year of college at $36,000 you value a year of college at $23,000
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Many decisions are made on the margin
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CH.1: Neha is training for a triathlon Because her pool sessions are helping her swim more quickly, Neha plans to reduce by 1 hour per week the time she spends training on the bike and increase by 1 hour the time she spends in the swimming pool; however, her husband says that she should stop doing any biking and running and spend all 20 hours per week in the pool. Which basic principle of individual choice does Neha's plan illustrate that her husband's advice does not? -All costs are opportunity costs. -Resources are scarce. -Many decisions are made on the margin. -People usually exploit opportunities to make themselves better off.
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maintaining their place in line
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CH.1: Suppose that in the hypothetical country of Vanadia, picture frames are distributed on a first-come, first-served basis. This distribution rule gives the residents of Vanadia an incentive to spend time ____________________ earning money lobbying government officials maintaining their place in line
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When markets do not achieve efficiency, government intervention can improve overall welfare.
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CH.1: Because a type of fish is on the verge of extinction, the government imposes rules that prohibit fishing in the publicly owned spawning grounds. At first, owners of fishing boats complain about this restriction on where they can fish, but soon they notice that the number of adult fish swimming outside the protected area is much higher than it was before. With the restriction, each fishing boat ends up catching more fish than it did before the restriction was in place. Which of the following principles of economic interaction best describes this scenario? -Markets allocate goods effectively. -Markets usually lead to efficiency. -There is a tradeoff between equity and efficiency. -When markets do not achieve efficiency, government intervention can improve overall welfare.
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increase higher more lower
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CH.1: Suppose that the government believes the economy is not producing goods and services at its optimal level. In an attempt to stimulate the economy, the government increases the quantity of money in the economy by printing more money. This monetary policy _(1)_________ the economy's demand for goods and services, leading to _(2)_________ product prices. In the short run, the change in prices induces firms to produce _(3)_________ goods and services. This, in turn, leads to a _(4)_________ level of unemployment. (1): increase or decrease (2): higher or lower (3): more or fewer (4): lower or higher
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a simplified representation of some aspect of the economy
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CH.2: An economic model is: -a mechanical machine that replicates the functioning of the economy. -a fully detailed, realistic description of the economy. -a simplified representation of some aspect of the economy. -a computer program that predicts the future of the economy.
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households are sellers, and firms are buyers.
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CH.2: The circular-flow diagram illustrates that, in markets for the factors of production: -households are sellers, and firms are buyers. -households are buyers, and firms are sellers. -households and firms are both buyers. -households and firms are both sellers.
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feasible, but not efficient.
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CH.2: A point inside the production possibilities frontier is: -efficient, but not feasible. -feasible, but not efficient. -both efficient and feasible. -neither efficient nor feasible.
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move the economy along the production possibilities frontier.
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CH.2: An economy produces hot dogs and hamburgers. If a discovery of the remarkable health benefits of hot dogs were to change consumers' preferences, it would: -expand the production possibilities frontier. -contract the production possibilities frontier. -move the economy along the production possibilities frontier. -move the economy inside the production possibilities frontier.
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the influence of the government budget deficit on economic growth.
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CH.2: All of the following topics fall within the study of microeconomics EXCEPT: -the impact of cigarette taxes on the smoking behavior of teenagers. -the role of Microsoft's market power in the pricing of software. -the effectiveness of antipoverty programs in reducing homelessness. -the influence of the government budget deficit on economic growth.
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Law X will reduce national income. Positive statements are descriptive; they make a claim about how the world is. However, normative statements are prescriptive; they make a claim about how the world ought to be. Therefore, in this case, the only positive statement is law X will reduce national income because it states what will happen if something is done rather than what should be done.
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CH.2: Which of the following is a positive, rather than a normative, statement? -Law X will reduce national income. -Law X is a good piece of legislation. -Congress ought to pass law X. -The President should veto law X.
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Ron in washing, neither in mowing.
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CH.3: In an hour, David can wash 2 cars or mow 1 lawn, while Ron can wash 3 cars or mow 1 lawn. Who has the absolute advantage in car washing, and who has the absolute advantage in lawn mowing? -David in washing, Ron in mowing. -Ron in washing, David in mowing. -David in washing, neither in mowing. -Ron in washing, neither in mowing.
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Ron in washing, David in mowing.
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CH.3: Once again, in an hour, David can wash 2 cars or mow 1 lawn, while Ron can wash 3 cars or mow 1 lawn. Who has the comparative advantage in car washing, and who has the comparative advantage in lawn mowing? -David in washing, Ron in mowing. -Ron in washing, David in mowing. -David in washing, neither in mowing. -Ron in washing, neither in mowing.
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they both obtain consumption outside their production possibilities frontier.
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CH.3: When two individuals produce efficiently and then make a mutually beneficial trade based on comparative advantage, -they both obtain consumption outside their production possibilities frontier. -they both obtain consumption inside their production possibilities frontier. -one individual consumes inside his production possibilities frontier, while the other consumes outside his. -each individual consumes a point on his own production possibilities frontier.
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those goods in which other nations have a comparative advantage
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CH.3: Which goods will a nation typically import? -those goods in which the nation has an absolute advantage -those goods in which the nation has a comparative advantage -those goods in which other nations have an absolute advantage -those goods in which other nations have a comparative advantage
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China will export shirts, while the United States will export aircraft.
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CH.3: Suppose that in the United States, producing an aircraft takes 10,000 hours of labor and producing a shirt takes 2 hours of labor. In China, producing an aircraft takes 40,000 hours of labor, while producing a shirt takes 4 hours of labor. What will these nations trade? -China will export aircraft, while the United States will export shirts. -China will export shirts, while the United States will export aircraft. -Both nations will export shirts. -There are no gains from trade in this situation.
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There are no gains from trade in this situation.
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CH.3: Mark can cook dinner in 30 minutes and wash the laundry in 20 minutes. His roommate takes half as long to do each task. How should the roommates allocate the work? -Mark should do more of the cooking based on his comparative advantage. -Mark should do more of the washing based on his comparative advantage. -Mark should do more of the washing based on his absolute advantage. -There are no gains from trade in this situation.
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The price of pizza rises to $20, the price of soda rises to $4, and his income rises to $400.
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CH.21: Emilio buys pizza for $10 and soda for $2. He has income of $100. His budget constraint will experience a parallel outward shift if which of the following events occurs? -The price of pizza falls to $5, the price of soda falls to $1, and his income falls to $50. -The price of pizza rises to $20, the price of soda rises to $4, and his income remains the same. -The price of pizza falls to $8, the price of soda falls to $1, and his income rises to $120. -The price of pizza rises to $20, the price of soda rises to $4, and his income rises to $400.
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willingness to trade one good for the other.
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CH.21: At any point on an indifference curve, the slope of the curve measures the consumer's -income. -willingness to trade one good for the other. -perception of the two goods as substitutes or complements. -elasticity of demand.
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2, 2
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CH.21: Matthew and Susan are both optimizing consumers in the markets for shirts and hats, where they pay $100 for a shirt and $50 for hat. Matthew buys 4 shirts and 16 hats, while Susan buys 6 shirts and 12 hats. From this information, we can infer that Matthew's marginal rate of substitution is _____ hats per shirt, while Susan's is _____. 2, 1 2, 2 4, 1 4, 2
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less milk and more cereal.
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CH.21: Charlie buys only milk and cereal. Milk is a normal good, while cereal is an inferior good. When the price of milk rises, Charlie buys -less of both goods. -more milk and less cereal. -less milk and more cereal. -less milk, but the impact on cereal is ambiguous.
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pasta is an inferior good, and the income effect is greater than the substitution effect.
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CH.21: If the price of pasta increases and a consumer buys more pasta, we can infer that -pasta is a normal good, and the income effect is greater than the substitution effect. -pasta is a normal good, and the substitution effect is greater than the income effect. -pasta is an inferior good, and the income effect is greater than the substitution effect. -pasta is an inferior good, and the substitution effect is greater than the income effect.
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the substitution effect on leisure is greater than the income effect.
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CH.21: The labor supply curve slopes upward if -leisure is a normal good. -consumption is a normal good. -the income effect on leisure is greater than the substitution effect. -the substitution effect on leisure is greater than the income effect.
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$50, $10
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CH.13: Raj opens up a lemonade stand for two hours. He spends $10 for ingredients and sells $60 worth of lemonade. In the same two hours, he could have mowed his neighbor's lawn for $40. Raj has an accounting profit of _____ and an economic profit of ____. $50, $10 $90, $50 $10, $50 $50, $90
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-the production function gets flatter, while the total cost curve gets steeper.
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CH.13: Diminishing marginal product explains why, as a firm's output increases, -the production function and total cost curve both get steeper. -the production function and total cost curve both get flatter. -the production function gets steeper, while the total cost curve gets flatter. -the production function gets flatter, while the total cost curve gets steeper.
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Marginal cost is $8, and average total cost is $5. Marginal cost tells us the increase in total cost that arises from producing an additional unit of output. In this case, producing one additional unit raises costs by . Average total cost tells us the cost of a typical unit of output if total cost is divided evenly over all the units produced. In this case, total cost divided by the number of units produced is equal to roughly . See Section: Average and Marginal Cost.
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CH.13: A firm is producing 1,000 units at a total cost of $5,000. If it were to increase production to 1,001 units, its total cost would rise to $5,008. What does this information tell you about the firm? Marginal cost is $5, and average variable cost is $8. Marginal cost is $8, and average variable cost is $5. Marginal cost is $5, and average total cost is $8. Marginal cost is $8, and average total cost is $5.
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Average total cost would decrease.
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CH.13: A firm is producing 20 units with an average total cost of $25 and marginal cost of $15. If the firm were to increase production to 21 units, which of the following must occur? Marginal cost would decrease. Marginal cost would increase. Average total cost would decrease. Average total cost would increase.
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Average total cost and average fixed cost.
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CH.13: The government imposes a $1,000 per year license fee on all pizza restaurants. Which cost curves shift as a result? Average total cost and marginal cost. Average total cost and average fixed cost. Average variable cost and marginal cost. Average variable cost and average fixed cost.
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economies, falling
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CH.13: If a higher level of production allows workers to specialize in particular tasks, a firm will likely exhibit ________ of scale and ________ average total cost. economies, falling economies, rising diseconomies, falling diseconomies, rising
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takes its price as given by market conditions.
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CH.14: A perfectly competitive firm -chooses its price to maximize profits. -sets its price to undercut other firms selling similar products. -takes its price as given by market conditions. -picks the price that yields the largest market share.
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marginal cost equals the price.
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CH.14: A competitive firm maximizes profit by choosing the quantity at which average total cost is at its minimum. marginal cost equals the price. average total cost equals the price. marginal cost equals average total cost.
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marginal, average variable
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CH.14: A competitive firm's short-run supply curve is its ________ cost curve above its ________ cost curve. average total, marginal average variable, marginal marginal, average total marginal, average variable
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keep producing in the short run but exit the market in the long run.
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CH.14: If a profit-maximizing, competitive firm is producing a quantity at which marginal cost is between average variable cost and average total cost, it will -keep producing in the short run but exit the market in the long run. -shut down in the short run but return to production in the long run. -shut down in the short run and exit the market in the long run. -keep producing both in the short run and in the long run.
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P=MC and P=ATC
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CH.14: In the long-run equilibrium of a competitive market with identical firms, what is the relationship between price P , marginal cost MC , and average total cost ATC? P>MC and p>ATC P>MC and .P=ATC P=MC and P>ATC P=MC and P=ATC
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no change in the short run, down in the long run
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CH.14: Pretzel stands in New York City are a perfectly competitive industry in long-run equilibrium. One day, the city starts imposing a $100 per month tax on each stand. How does this policy affect the number of pretzels consumed in the short run and the long run? down in the short run, no change in the long run up in the short run, no change in the long run no change in the short run, down in the long run no change in the short run, up in the long run
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the price of hamburgers
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CH.4: A change in which of the following will NOT shift the demand curve for hamburgers? the price of hot dogs the price of hamburgers the price of hamburger buns the income of hamburger consumers
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supply, quantity demanded
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CH.4: An increase in ________ will cause a movement along a given demand curve, which is called a change in ________. supply, demand supply, quantity demanded demand, supply demand, quantity supplied
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The demand curve shifts to the right.
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CH.4: Movie tickets and DVDs are substitutes. If the price of DVDs increases, what happens in the market for movie tickets? The supply curve shifts to the left. The supply curve shifts to the right. The demand curve shifts to the left. The demand curve shifts to the right.
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supply, lower
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CH.4: The discovery of a large new reserve of crude oil will shift the ________ curve for gasoline, leading to a ________ equilibrium price. supply, higher supply, lower demand, higher demand, lower
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Prices and quantities both rise.
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CH.4: If the economy goes into a recession and incomes fall, what happens in the markets for inferior goods? Prices and quantities both rise. Prices and quantities both fall. Prices rise, quantities fall. Prices fall, quantities rise.
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an increase in the price of grapes, an input to jelly
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CH.4: Which of the following might lead to an increase in the equilibrium price of jelly and a decrease in the equilibrium quantity of jelly sold? -an increase in the price of peanut butter, a complement to jelly -an increase in the price of Marshmallow Fluff, a substitute for jelly -an increase in the price of grapes, an input to jelly -an increase in consumers' incomes, as long as jelly is a normal good
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a small elasticity of demand
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CH.5: A life-saving medicine without any close substitutes will tend to have a small elasticity of demand. a large elasticity of demand. a small elasticity of supply. a large elasticity of supply.
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1/2.
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CH.5: The price of a good rises from $8 to $12, and the quantity demanded falls from 110 to 90 units. Calculated with the midpoint method, the elasticity is 1/5. 1/2. 2. 5.
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inelastic at some points, and elastic at others
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CH.5: A linear, downward-sloping demand curve is inelastic. unit elastic. elastic. inelastic at some points, and elastic at others.
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the supply curve is more elastic.
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CH.5: The ability of firms to enter and exit a market over time means that, in the long run, the demand curve is more elastic. the demand curve is less elastic. the supply curve is more elastic. the supply curve is less elastic.
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the demand curve is inelastic.
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CH.5: An increase in the supply of a good will decrease the total revenue producers receive if the demand curve is inelastic. the demand curve is elastic. the supply curve is inelastic. the supply curve is elastic.
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Tom, Harry, and Mary
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CH.5: The price of coffee rose sharply last month, while the quantity sold remained the same. Each of five people suggests an explanation: Tom:Demand increased, but supply was perfectly inelastic. Dick:Demand increased, but it was perfectly inelastic. Harry:Demand increased, but supply decreased at the same time. Larry:Supply decreased, but demand was unit elastic. Mary:Supply decreased, but demand was perfectly inelastic. Who could possibly be right? Tom, Dick, and Harry Tom, Dick, and Mary Tom, Harry, and Mary Dick, Harry, and Larry Dick, Harry, and Mary
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a surplus of the good to develop.
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CH.6: When the government imposes a binding price floor, it causes the supply curve to shift to the left. the demand curve to shift to the right. a shortage of the good to develop. a surplus of the good to develop.
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increase, decrease, shortage
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CH.6: In a market with a binding price ceiling, an increase in the ceiling will ________ the quantity supplied, ________ the quantity demanded, and reduce the ________. increase, decrease, surplus decrease, increase, surplus increase, decrease, shortage decrease, increase, shortage
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a $1 per unit tax levied on producers of the good.
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CH.6: A $1 per unit tax levied on consumers of a good is equivalent to a $1 per unit tax levied on producers of the good. a $1 per unit subsidy paid to producers of the good. a price floor that raises the good's price by $1 per unit. price ceiling that raises the good's price by $1 per unit.
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the imposition of a binding price floor
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CH.6: Which of the following would increase quantity supplied, decrease quantity demanded, and increase the price that consumers pay? the imposition of a binding price floor the removal of a binding price floor the passage of a tax levied on producers the repeal of a tax levied on producers
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the repeal of a tax levied on producers
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CH.6: Which of the following would increase quantity supplied, increase quantity demanded, and decrease the price that consumers pay? the imposition of a binding price floor the removal of a binding price floor the passage of a tax levied on producers the repeal of a tax levied on producers
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supply is elastic, and demand is inelastic.
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CH.6: When a good is taxed, the burden of the tax falls mainly on consumers if the tax is levied on consumers. the tax is levied on producers. supply is inelastic, and demand is elastic. supply is elastic, and demand is inelastic.
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consumer surplus is $20 larger than producer surplus.
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Ch.7: Jen values her time at $60 an hour. She spends 2 hours giving Colleen a massage. Colleen was willing to pay as much at $300 for the massage, but they negotiate a price of $200. In this transaction, consumer surplus is $20 larger than producer surplus. consumer surplus is $40 larger than producer surplus. producer surplus is $20 larger than consumer surplus. producer surplus is $40 larger than consumer surplus.
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It falls by less than $100.
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Ch.7: The demand curve for cookies is downward sloping. When the price of cookies is $2, the quantity demanded is 100. If the price rises to $3, what happens to consumer surplus? It falls by less than $100. It falls by more than $100. It rises by less than $100. It rises by more than $100.
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between $100 and $200
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Ch.7: John has been working as a tutor for $300 a semester. When the university raises the price it pays tutors to $400, Emily enters the market and begins tutoring as well. How much does producer surplus rise as a result of this price increase? by less than $100 between $100 and $200 between $200 and $300 by more than $300
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consumer surplus plus producer surplus.
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Ch.7: An efficient allocation of resources maximizes consumer surplus. producer surplus. consumer surplus plus producer surplus. consumer surplus minus producer surplus.
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highest, lowest
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Ch.7: When a market is in equilibrium, the buyers are those with the ________ willingness to pay, and the sellers are those with the ________ costs. highest, highest highest, lowest lowest, highest lowest, lowest
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positive but less than the marginal seller's cost.
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Ch.7: Producing a quantity larger than the equilibrium of supply and demand is inefficient because the marginal buyer's willingness to pay is negative. zero. positive but less than the marginal seller's cost. positive and greater than the marginal seller's cost.
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Hillary's newly cut lawn makes her neighborhood more attractive.
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CH.10: Which of the following is an example of a positive externality? -Bob mows Hillary's lawn and is paid $100 for performing the service. -While mowing the lawn, Bob's lawnmower spews out smoke that Hillary's neighbor Kristen has to breathe. -Hillary's newly cut lawn makes her neighborhood more attractive. -Hillary's neighbors pay her if she promises to get her lawn cut on a regular basis.
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above, less
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CH.10: If the production of a good yields a negative externality, then the social-cost curve lies ________ the supply curve, and the socially optimal quantity is ________ than the equilibrium quantity. above, greater above, less below, greater below, less
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increases, more
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CH.10: When the government levies a tax on a good equal to the external cost associated with the good's production, it ________ the price paid by consumers and makes the market outcome ________ efficient. increases, more increases, less decreases, more decreases, less
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They cause deadweight losses.
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CH.10: Which of the following statements about corrective taxes is not true? Economists prefer them to command-and-control regulation. They raise government revenue. They cause deadweight losses. They reduce the quantity sold in a market.
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$50
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CH.10: The government auctions off 500 units of pollution rights. They sell for $50 per unit, raising total revenue of $25,000. This policy is equivalent to a corrective tax of _____ per unit of pollution. $10 $50 $450 $500
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transaction costs make negotiating difficult.
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CH.10: The Coase theorem does not apply if there is a significant externality between two parties. the court system vigorously enforces all contracts. transaction costs make negotiating difficult. both parties understand the externality fully.
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-the nation has a comparative advantage in producing steel and would become a steel exporter if it opened up trade.
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CH.9: If a nation that does not allow international trade in steel has a domestic price of steel lower than the world price, then -the nation has a comparative advantage in producing steel and would become a steel exporter if it opened up trade. -the nation has a comparative advantage in producing steel and would become a steel importer if it opened up trade. -the nation does not have a comparative advantage in producing steel and would become a steel exporter if it opened up trade. -the nation does not have a comparative advantage in producing steel and would become a steel importer if it opened up trade.
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Domestic production of coffee falls, and Ectenia becomes a coffee importer.
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CH.9: When the nation of Ectenia opens itself to world trade in coffee beans, the domestic price of coffee beans falls. Which of the following describes the situation? Domestic production of coffee rises, and Ectenia becomes a coffee importer. Domestic production of coffee rises, and Ectenia becomes a coffee exporter. Domestic production of coffee falls, and Ectenia becomes a coffee importer. Domestic production of coffee falls, and Ectenia becomes a coffee exporter.
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producer surplus decreases, but consumer surplus and total surplus both increase.
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CH.9: When a nation opens itself to trade in a good and becomes an importer, -producer surplus decreases, but consumer surplus and total surplus both increase. -producer surplus decreases, consumer surplus increases, and so the impact on total surplus is ambiguous. -producer surplus and total surplus increase, but consumer surplus decreases. -producer surplus, consumer surplus, and total surplus all increase.
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the domestic quantity supplied.
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CH.9: If a nation that imports a good imposes a tariff, it will increase the domestic quantity demanded. the domestic quantity supplied. the quantity imported from abroad. all of the above.
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starting to allow trade when the world price is greater than the domestic price
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CH.9: Which of the following trade policies would benefit producers, hurt consumers, and increase the amount of trade? the increase of a tariff in an importing country the reduction of a tariff in an importing country starting to allow trade when the world price is greater than the domestic price starting to allow trade when the world price is less than the domestic price
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government revenue.
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CH.9: The main difference between imposing a tariff and handing out licenses under an import quota is that a tariff increases consumer surplus. producer surplus. international trade. government revenue.
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70%
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Ch.18: Approximately what percentage of U.S. national income is paid to workers, as opposed to owners of capital and land? 30% 50% 70% 90%
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the value of the marginal product of labor.
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Ch.18: If firms are competitive and profit maximizing, the demand curve for labor is determined by the opportunity cost of workers' time. the value of the marginal product of labor. offsetting income and substitution effects. the value of the marginal product of capital.
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1/2 cake per hour
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Ch.18: A bakery operating in competitive markets sells its output for $20 per cake and hires labor at $10 per hour. To maximize profits, it should hire labor until the marginal product of labor is 1/2 cake per hour. 2 cakes per hour. 10 cakes per hour. 15 cakes per hour.
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demand, right
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Ch.18: A technological advance that increases the marginal product of labor shifts the labor ________ curve to the ________. demand, left demand, right supply, left supply, right
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slowdown, slowdown
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Ch.18: Around 1973, the U.S. economy experienced a significant ________ in productivity growth, coupled with a(n) ________ in the growth of real wages. acceleration, acceleration acceleration, slowdown slowdown, acceleration slowdown, slowdown
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Wages fall, and the rental price of capital rises.
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Ch.18: A storm destroys several factories, thereby reducing the stock of capital. What effect does this event have on factor markets? Wages and the rental price of capital both rise. Wages and the rental price of capital both fall. Wages rise, and the rental price of capital falls. Wages fall, and the rental price of capital rises.
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decreasing average total cost.
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Ch.15: A firm is a natural monopoly if it exhibits the following as its output increases: decreasing marginal revenue. increasing marginal cost. decreasing average revenue. decreasing average total cost.
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P>MR and MR=MC
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Ch.15: For a profit-maximizing monopoly that charges the same price to all consumers, what is the relationship between price P , marginal revenue MR , and marginal cost MC ? P=MR and MR=MC P>MR and MR=MC P=MR and MR>MC P>MR and MR>MC
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stay the same, decrease
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Ch.15: If a monopoly's fixed costs increase, its price will _____, and its profit will _____. increase, decrease decrease, increase increase, stay the same stay the same, decrease
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a quantity that is too low and a price that is too high.
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Ch.15: Compared to the social optimum, a monopoly firm chooses a quantity that is too low and a price that is too high. a quantity that is too high and a price that is too low. a quantity and a price that are both too high. a quantity and a price that are both too low.
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some potential consumers who forgo buying the good value it more than its marginal cost.
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Ch.15: The deadweight loss from monopoly arises because the monopoly firm makes higher profits than a competitive firm would. some potential consumers who forgo buying the good value it more than its marginal cost. consumers who buy the good have to pay more than marginal cost, reducing their consumer surplus. the monopoly firm chooses a quantity that fails to equate price and average revenue.
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consumer surplus.
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Ch.15: When a monopolist switches from charging a single price to perfect price discrimination, it reduces the quantity produced. the firm's profit. consumer surplus. total surplus.
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It takes its price as given by market conditions.
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CH.16: Which of the following conditions does NOT describe a firm in a monopolistically competitive market? It makes a product different from its competitors. It takes its price as given by market conditions. It maximizes profit both in the short run and in the long run. It has the freedom to enter or exit in the long run.
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soft drinks
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CH.16: Which of the following goods best fits the definition of monopolistic competition? wheat tap water crude oil soft drinks
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marginal revenue is greater than marginal cost.
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CH.16: A monopolistically competitive firm will increase its production if marginal revenue is greater than marginal cost. marginal revenue is greater than average total cost. price is greater than marginal cost. price is greater than average total cost.
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price is greater than average total cost.
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CH.16: New firms will enter a monopolistically competitive market if marginal revenue is greater than marginal cost. marginal revenue is greater than average total cost. price is greater than marginal cost. price is greater than average total cost.
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Price is greater than marginal cost.
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CH.16: What is true of a monopolistically competitive market in long-run equilibrium? Price is greater than marginal cost. Price is equal to marginal revenue. Firms make positive economic profits. Firms produce at the minimum of average total cost.
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decrease, increase
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CH.16: If advertising makes consumers more loyal to particular brands, it could ________ the elasticity of demand and ________ the markup of price over marginal cost. increase, increase increase, decrease decrease, increase decrease, decrease
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a small number of firms are acting strategically.
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CH.17: The key feature of an oligopolistic market is that each firm produces a different product from other firms. a single firm chooses a point on the market demand curve. each firm takes the market price as given. a small number of firms are acting strategically.
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less than, equal to
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CH.17: If an oligopolistic industry organizes itself as a cooperative cartel, it will produce a quantity of output that is ________ the competitive level and ________ the monopoly level. less than, more than more than, less than less than, equal to equal to, more than
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less than, more than
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CH.17: If an oligopoly does not cooperate and each firm chooses its own quantity, the industry will produce a quantity of output that is ________ the competitive level and ________ the monopoly level. less than, more than more than, less than less than, equal to equal to, more than
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equal to, more than
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CH.17: As the number of firms in an oligopoly grows large, the industry approaches a level of output that is ________ the competitive level and ________ the monopoly level. less than, more than more than, less than less than, equal to equal to, more than
question
even if cooperation is better than the Nash equilibrium, each person might have an incentive not to cooperate.
answer
CH.17: The Prisoners' Dilemma is a two-person game illustrating that the cooperative outcome could be worse for both people than the Nash equilibrium. even if the cooperative outcome is better than the Nash equilibrium for one person, it might be worse for the other. even if cooperation is better than the Nash equilibrium, each person might have an incentive not to cooperate. rational, self-interested individuals will naturally avoid the Nash equilibrium, because it is worse for both of them.
question
prevent firms from acting in ways that reduce competition.
answer
CH.17: The anti-trust laws aim to facilitate cooperation among firms in oligopolistic industries. encourage mergers to take advantage of economies of scale. discourage firms from moving production facilities overseas. prevent firms from acting in ways that reduce competition.
question
private goods and club goods
answer
CH.11: Which categories of goods are excludable? private goods and club goods private goods and common resources public goods and club goods public goods and common resources
question
private goods and common resources
answer
CH.11: Which categories of goods are rival in consumption? private goods and club goods private goods and common resources public goods and club goods public goods and common resources
question
national defense
answer
CH.11: Which of the following is an example of a public good? residential housing national defense restaurant meals fish in the ocean
question
fish in the ocean
answer
CH.11: Which of the following is an example of a common resource? residential housing national defense restaurant meals fish in the ocean
question
underprovided in the absence of government
answer
CH.11: Public goods are efficiently provided by market forces. underprovided in the absence of government. overused in the absence of government. a type of natural monopoly.
question
overused in the absence of government.
answer
CH.11: Common resources are efficiently provided by market forces. underprovided in the absence of government. overused in the absence of government. a type of natural monopoly.
question
adverse selection.
answer
CH.22: Because Elaine has a family history of significant medical problems, she buys health insurance, while her friend Jerry, who has a healthier family, goes without. This is an example of moral hazard. adverse selection. signaling. screening.
question
moral hazard.
answer
CH.22: George has a life insurance policy that pays his family $1 million if he dies. As a result, he does not hesitate to enjoy his favorite hobby of bungee jumping. This is an example of moral hazard. adverse selection. signaling. screening.
question
screening.
answer
CH.22: Before selling anyone a health insurance policy, the Kramer Insurance Company requires that applicants undergo a medical examination. Those with significant preexisting medical problems are charged more. This is an example of moral hazard. adverse selection. signaling. screening.
question
leads to social preferences that are not transitive.
answer
CH.22: The Condorcet Paradox illustrates Arrow's Impossibility theorem by showing that pairwise majority voting is inconsistent with the principle of unanimity. leads to social preferences that are not transitive. violates the independence of irrelevant alternatives. makes one person in effect a dictator.
question
$10,000
answer
CH.22: Two political candidates are vying for town mayor, and the key issue is how much to spend on the annual Fourth of July fireworks. Among the 100 voters, 40 voters want to spend $30,000, 30 voters want to spend $10,000, and 30 voters want to spend nothing at all. What is the winning position on this issue? $10,000 $15,000 $20,000 $30,000
question
care about fairness, even to their own detriment.
answer
CH.22: The experiment called the ultimatum game illustrates that people are overconfident in their own abilities. play the Nash equilibrium in strategic situations. care about fairness, even to their own detriment. make inconsistent decisions over time.
question
individual income taxes and payroll taxes for social insurance.
answer
CH.12: The two largest sources of tax revenue for the U.S. federal government are individual and corporate income taxes. individual income taxes and payroll taxes for social insurance. corporate income taxes and payroll taxes for social insurance. payroll taxes for social insurance and property taxes.
question
$20, $20
answer
CH.12: Andy gives piano lessons. He has an opportunity cost of $50 per lesson and charges $60. He has two students: Bob, who has a willingness to pay of $70, and Carl, who has a willingness to pay of $90. When the government puts a $20 tax on piano lessons and Andy raises his price to $80, the deadweight loss is _____ and the tax revenue is _____. $10, $20 $10, $40 $20, $20 $20, $40
question
15, 25
answer
CH.12: If the tax code exempts the first $20,000 of income from taxation and then taxes 25 percent of all income above that level, then a person who earns $50,000 has an average tax rate of _____ percent and a marginal tax rate of _____ percent. 15, 25 25, 15 25, 30 30, 25
question
the benefits principle.
answer
CH.12: A toll is a tax on those citizens who use toll roads. This policy can be viewed as an application of the benefits principle. horizontal equity. vertical equity. tax progressivity.
question
30
answer
CH.12: In the United States, taxpayers in the top one percent of the income distribution pay about _____ percent of their income in federal taxes. 5 10 20 30
question
workers bear some of the burden of the tax.
answer
CH.12: If the corporate income tax induces businesses to reduce their capital investment, then the tax does not have any deadweight loss. corporate shareholders benefit from the tax. workers bear some of the burden of the tax. the tax achieves the goal of vertical equity.
question
4, 45
answer
CH.20: In the United States, the poorest fifth of the population earns about _____ percent of all income, while the richest fifth earns about _____ percent. 2, 65 4, 45 10, 35 15, 25
question
has less equality than most advanced nations but more equality than many developing countries.
answer
CH.20: When income inequality is compared across countries, one finds that the United States is one of the most equal nations in the world. is one of the least equal nations in the world. has more equality than most advanced nations but less equality than many developing countries. has less equality than most advanced nations but more equality than many developing countries.
question
the distortionary effect on work incentives is not too large.
answer
CH.20: A utilitarian believes that the redistribution of income from the rich to the poor is worthwhile as long as the worst-off members of society benefit from it. those contributing to the system are in favor of it. each person's income, after taxes and transfers, reflects his marginal product. the distortionary effect on work incentives is not too large.
question
the station of life each of us was born into is largely a matter of luck.
answer
CH.20: Rawls's thought experiment of the "original position" behind the "veil of ignorance" is meant to draw attention to the fact that most of the poor do not know how to find better jobs and escape poverty. the station of life each of us was born into is largely a matter of luck. the rich have so much money that they don't know how to spend it all. outcomes are efficient only if everyone begins with equal opportunity.
question
individuals with low income get transfers from the government.
answer
CH.20: A negative income tax is a policy under which individuals with low income get transfers from the government. the government raises tax revenue without distorting incentives. everyone pays less than under a conventional income tax. some taxpayers are on the wrong side of the Laffer curve.
question
increase the effective marginal tax rate that the poor face.
answer
CH.20: If the benefits from an antipoverty program are phased out as an individual's income increases, then the program will encourage greater work effort from the poor. lead to an excess supply of labor among unskilled workers. increase the effective marginal tax rate that the poor face. cost the government more than a program that benefits everyone.
question
human capital.
answer
Ch.19: Ricky leaves his job as a high school math teacher and returns to school to study the latest developments in computer programming, after which he takes a higher-paying job at a software firm. This is an example of a compensating differential. human capital. signaling. efficiency wages.
question
a compensating differential.
answer
Ch.19: Lucy and Ethel work at a local department store. Lucy, who greets customers as they arrive, is paid less than Ethel, who cleans the bathrooms. This is an example of a compensating differential. human capital. signaling. efficiency wages.
question
efficiency wages.
answer
Ch.19: Fred runs a small manufacturing company. He pays his employees about twice what other firms in the area pay, even though he could pay less and still recruit all the workers he wants. He believes that higher wages make his workers more loyal and hard-working. This is an example of a compensating differential. human capital. signaling. efficiency wages.
question
signaling.
answer
Ch.19: A business consulting firm hires Vivian because she was a math major in college. Her new job does not require any of the mathematics she learned, but the firm believes that anyone who can graduate with a math degree must be very smart. This is an example of a compensating differential. human capital. signaling. efficiency wages.
question
workers differ in their attributes and the types of jobs they have.
answer
Ch.19: Measuring how much discrimination affects labor market outcomes is difficult because data on wages are crucial but not readily available. firms misreport the wages they pay to hide discriminatory practices. workers differ in their attributes and the types of jobs they have. the same minimum wage law applies to workers in all groups.
question
employers.
answer
Ch.19: The forces of competition in markets with free entry and exit tend to eliminate wage differentials that arise from discrimination by employers. customers. government. all of the above.
