ECON – Flashcard Answers

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scarcity
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limited resources and unlimited wants
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economics
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study of society manages its scare resourecs
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efficency
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the property of society getting the most from its scarce resources
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equality
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the property of distrubting economic prosperity uniformly among society’s members
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rational
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systematically and purposefully doing the best you can to achieve your objectives
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opportunity cost
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whatever is giving up to get something else
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marginal change
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an incremental adjustment to an existing plan
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market economy
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an economic system where interaction of households and firms in markets determines the allocation of resources
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property rights
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the ability of an individual to own and exercise control over scarce resources
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invisible hand
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the principle that self-interested market participants may unknowingly maximize the welfare of society as a whole
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market failure
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a situation in which the market fails to allocate resources efficiently
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externality
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when one person’s actions have an impact on a bystander
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market power
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the ability of an individual or group to substantially influent market prices
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monopoly
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the case in which there is only one seller in the market
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productivity
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the amount of goods and services produced from each unit of labor input
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inflation
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an increase in the overall level of prices
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business cycle
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fluctuations in economic activity
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which of the following involve a tradeoff?
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buying a new car taking a nap going to college watching a foot ball game on a saturday afternoon
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trade offs are required because wants are unlimited and resources are _____
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scarce
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economics is the study of how
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society manages its scarce resources
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a rational person does not act unless
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the action produces marginal benefits that exceed marginal cost
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raising taxes and incresing welfare payments
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improves equality at the expense of efficiency
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suppose you find $20. if you choose to use that $20 to go to the football game, your opportunity cost of going to the game is
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$20 bc you could have used that $20 to buy other things plus the value of your time spent at the game
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forgein trade
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allows a country to have a greater variety of products at a lower cost than if it tried to produce everything at home
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bc people respond to incentives we would expect that if the average salary if accountants increases by 50% while the average salary of teachers increase by 20%
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students will shift majors from education to accounting
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externality example
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a student has a party in their form room, she is pissing off the people around her
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example of not producing an externality
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food
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describes greatest market power
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microsoft’s impact on the prince of desktop operating system
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true statement about a market economy
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market participants act as if guided by an invisible hand to produce out comes that propmote general economic well-being
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workers in the US enjoy such a high living standard bc
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workers in the US are highly productive
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high and persistent inflation is caused by
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gove increasing the quantity of money too much
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in the short rin
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a decrease in inflation temporarily increases unemployment
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an increase in the price of beef provides
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info that tells producers to produce more beef
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you have spent 1000 building a hot for stand based on estimates of sales of 2000. the hot dog stand is nearly completed, but now you estimate total sales to be only 800. you can complete the hot dog stand for another 300. should you complete the hot dog stand? (assume hot dogs cost you nothing). your decision rule should to complete the stand as long as the cost to complete the stand is less than:
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800
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the opportunity cost of going on vacation should not include which: -the money you could have made had you stayed home and worked -the money you spent on food -the money you spent on airline tickets -the money you spent on a broadway show
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money spent on food
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productivity can be increased by
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improving workers education
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scientific method
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objective development and testing of theories
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economic models
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simplifications of reality based on assumptions
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circular flow diagram
circular flow diagram
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a diagram of the economy that shows the flow of goods and services, factors of production, and the monetary payments between households and firms
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factors of production
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inputs such as labor, land, and production
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production possibilities frontier
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a graph that shows the combinations of output the economy can possibly produce given the available factors of production and the available production technology
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efficiency
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getting max. output from the resources available
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microeconomics
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the study of how households and forms make choices and how the interact in the market. small picture
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macroeconomics
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the study of the economy- wide phenomena. large picture
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positive statements
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descriptions of the world as it is
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Normative statements
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prescription for how the world ought to be
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the scientific method requires
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scientists to be objective
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which of the following is most likely to produce scientific evidence about a theory? chap 2
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a tenured economist emplyed at a leading university analyzing the impact of bank regulations on real lending
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which of the following statements regarding the circular flow diagram is true? chap 2
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the factors of production are owned by households
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in which of the following cases is the assumption most reasonable chap 2
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to address the benefit of trade an economist assumes that there are 2 people and 2 goods
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economic models are
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but with assumptions
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which of the following is not a factor of production: land labor capital money all are are factors of production
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money
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points on the possibilities frontier are
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efficient
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which of the following will not shift a country’s production possibilites frontier outward? -an increase in the capital stock -an advance in technology -a reduction in unemployment -an increase in the labor force
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a reduction in unemployment
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economic growth is depicted by
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a shift in the production possibilities frontier outward
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IN TEXT BOOK PIC if the economy is operating at point C, the opportunity cost of addinng 15 units of bacon is
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20 units of eggs
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IN TEXT BOOK PIC if the economy were operating at point E
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20 additional units of offs can be produced with no impact on bacon production
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IN TEXT BOOK PIC point F represents
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a combination of production that can be reached if there is a sufficient advance in technology
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IN TEXT BOOK PIC as we move from point A to D
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the opportunity cost of eggs in terms of bacon rises
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which of the following issues is related to microeconomics? -the impact of money on inflation -the impact on technology on economic growth -the impact of the deficit on saving -the impact of oil prices on auto production
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the impact of oil prices on auto production
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which of the following statements about microeconomics and macroeconomics is NOT true. chap 2
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the study of very large industries is a topic with in macroeconomics
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which of the following statements is normative? -printing too much money causes inflation -people work harder if the wage is higher -the unemployment rate should be lower -large Gove deficits cause an economy to grow more slowly
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the unemployment rate should be lower
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in making of which of the following statements is an economist acting more like a scientist? chap 2
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a reduction in unemployment benefits will reduce the uneployment rate
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postitive statements are
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statements of description that can be tested
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suppose 2 economists are arguing about polices that deal with unemployment. one economists says ” the gove should fight unemployment bc it is the greatest social evil” the other responds “hogwash. inflation is the greatest social evil” these economists
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disagree bc they have 2 diff values
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suppose 2 economists are arguing about prices that deal with unemployment. one economist says “the gove could lower unemployment by 1% point if they would just increase gove spending by 50 billion dollars” the other responds ” hogwash. if the government spent an additional 50 billion dollars, it would reduce unemployment by 1/10th of 1%, and that effect would be only temporary” these economists
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disagree bc they have different scientfic judegments
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absolute advantage
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the ability to produce a good using fewer inputs than another producer
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comparative advantage
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the ability to produce a good at a lower opportunity cost than another producer
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gains from trade
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the increase in total production due to specialization allowed by trade
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imports
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goods produced abroad and sold domestically
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exports
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goods produced domestically and sold abroad
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if a nation has absolute advantage in the production of a good
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it can produce that good using fewer resources that its trading partner
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if ta nation has a comparative advantage in the production of a good
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it can produce that good at a lower opportunity cost than its trading partner
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which of the following statements about trade is true? chap 3
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trade can benefit everyone in society because it allows people to specialize in activities in which they have a comparative advantage
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according to the principle of comparative advantage
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countries should specialize in the production of goods for which they have a lower opportunity cost of production that their trading partners
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which of the following is true? chap 3
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a self-sufficient country at best can consume on its production possibilities frontier
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suppose a country’s workers can produce 4 watches per our or 12 rings per hour. if there is no trade
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the domestic price of 1 ring is 1/3 of a watch
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suppose a country’s workers can produce 4 wathes per hour or 12 rings per hour. if there is no trade
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the opportunity cost of 1 watch is 3 rings
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LOOK AT TABLE which of the following statements about absolute advantage is true? chap 3
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australia has an absolute advantage in the production of both food and electronics
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LOOK AT TABLE the opportunity cost of 1 unit of electronics in Australia is: CHAP 3
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4 units of food
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LOOK AT TABLE the opportunity cost of 1 unit of electronics in Korea is: chap 3
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2 units of food
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LOOK AT TABLE the opportunity cost of 1 unit of food in Australia is: chap 3
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1/4 of a unit of electronics
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LOOK AT TABLE: which of the following statements is true about compartive advantage: chap 3
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austrailia has a comparative advantfe in the production of food while korea has a comparative advantage in the production of electronics
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LOOK AT TABLE: Korea should: chap 3
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specialize in electronics production, export electronics, and import food
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LOOK AT TABLE: prices of electronics can be stated in terms of units of food. what is the range of prices of electronics for which both countries could gain from trade?
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the price must be greater than 2 units of food but less than 4 units of food
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suppose the world consisted of 2 countries, mexico and the US. furthermore suppose there are only 2 goods- food and clothing. which of the following statements are true? chap 3
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if the US has a comparative advantage in the production of food, then mexico must have the comparative advantage in clothing
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LOOK AT CHART argentina has the comparative advantage in the production of
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beef
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LOOK AT CHART peru will export
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fruit
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LOOK AT CHART the opportunity cost of producing 1 metric ton of beef in peru is
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3 tons of fruit
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joe is a tax accountant. He receives 100 per hour doing tax returns. He can type 10,000 charactres per hour into spreadsheets. he can hire an assistant who can type 2500 words per hour into spread sheets. which of the following statements is true? chap 3
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joe should hire the assistant as long as he pays the assistant less than 25 an hour
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market
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a group of buyers and sellers of a particular good or sercice
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competitive market
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a market in which there are many buyers and sellers so that each has a negligible impact on the market price
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quantity demanded
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the amount of good that buyers are willing and able to purchase
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law of demand
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the claim that, other things equal, the quantity demanded of a good falls when the price of a good rises
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demand schedule
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a table that shows the relationship between a price of a food and the quantity demanded
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demand curve
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a graph of the relationship between the price of a good and a the quantity demanded
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normal good
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a good for which, other things equal, an increase in income leads to an increase in demand
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inferior good
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a good for which, other things equal, an increase in income leads to a decrease in demand
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substitutes
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2 goods for which an increase in the price of one leads to an increase in the demand for the other
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complements
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2 goods for which an increase in the price of one leads to the decrease in the demand for the other
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quantity supplied
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the amount of a good that sellers are willing nd able to sell
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law of supply
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the claim that, other things equal, the quantity supplied of a good rises when the price of the good risess
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supply schedule
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a table that shoes the relationship between the price of a good and the quantity demanded
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supply curve
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a graph of the relationship between the price of a good and the quantity supplied
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equilibrium
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a situation in which the rice has reached the level where quantity supplied equals quantity
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equilibrium price
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the price that balances quantity supplied and quantity demanded
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equilibrium quantity
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the quantity supplied and the quantity demanded at the equilibrium price
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surplus
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a situation in which the quantity supplied is greater than quantity supplied
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shortage
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a situation in which quantity demanded is greater than quantity supplied
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law of supply and demand
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the claim that price of any good adjusts to bring the quantity supplied and the quantity demanded for that food into balance
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a perfectly competitive market has
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many buyers and sellers
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if an increase in the price of blue jean leafs to an increase in demand of tennis shoes, then blue jeans and tennis shoes are
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substitutes
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the law of demand states that an increase in the price of a good
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decreases the quantity demanded for that good
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if an increase in consumer incomes leads to a decrease in the demand for camping equipment, then equipment is
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an inferior good
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a monopolistic market
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only one seller
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which of the following shifts the demand for watches to the right? Chap 4
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a decrease in the price of watch batteries if watch batteries and watches are complements
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all of the following shift the supply of watches to the right except: chap 4
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an increase in the price of watches
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if the price of a good is above the equilibrium price
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there is a surplus and the price will fall
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if the price of a good is below the equilibrium price
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there is a shortage and the price will rise
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if the price of a good is equal to the equilibrium price
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the quantity demanded is equal to the quantity supplied and the price remains unchanged
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an increase (rightward shift) in the demand for a good will tend to cause
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a increase in the equilibrium price and quantity
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a decrease (leftward shift) un the supply for a good will tend to cause
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an increase in the equilibrium price and a decrease in the equilibrium quantity
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suppose there is an increase in both the supply and demand for personal computers. in the market for personal computers, we would expect
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equilibrium quantity to rise and change in the equilibrium price to be ambiguous
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suppose there is an increase in both the supply and demand for personal computers. furthermore, suppose the supply of personal computers increases more than demand for personal computers, in the market for personal computers, we would expect the
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equilibrium quantity to rise and equilibrium price to fall
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which of the following statements is true about the impact of an increase in the price of lettuce? chap 4
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the equilibrium price and quantity of salad dressing will fall
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suppose a frost destroys much of the florida orange crop. at the same time, suppose consumer tastes shift toward orange juice. what would we expect to happen to the equilibrium price and quantity in the market for orange juice? chap 4
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price will increase; quantity is ambiguous
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suppose consumers tasts shift toward the consumption of apples. which of the following statements os am am accurate description of the impact of this event on the market for apples? chap 4
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there is an increase in the demand for apples and an increase in the quantity supplied for apples
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suppose both buyers and sellers of wheat expect the price of wheat to rise in the near future. what would we expect to happen to the equilibrium price and quantity in the market for wheat today? chap 4
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price will increase; quantity is ambiguous
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an inferior good is one for which an increase in incomes an
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decease in demand
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elasticity
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a measure of the responsiveness of the quantity demanded or quantity supplied to a change in one of its determinants
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price elasticity of demand
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a measure of how much the quantity demanded of a good responds to a change in the price of that good
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elastic
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when the quantity demanded or supplied responds substantially to a change in one of its determinants
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inelastic
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when the quantity demanded or supplied responds only slightly to a change in one of its determinants
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total revenue
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the amount paid by buyers and received by sellers of a good computed as Q*P
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income elasticity of demand
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a measure of how much the quantity demanded for a good responds to a change in consumers’ income
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cross price elasticity of demand
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a measure of how much the quantity demanded of one good responds to a change in the price of another good
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price of elasticity of supply
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a measure of how much the quantity supplied of a good responds to a change in the price of that good
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if a small percentage increase in the price of a good greatly reduces the quantity demanded for that good
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price elastic
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the price elasticity of demand is defined as
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the percentage change in the quantity demanded of a good divided by the percentage change in the price of that good
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in general, a flatter demand curve is more likely to be
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price elastic
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in general a steeper supply curve is more likely to be
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price inelastic
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which of the following would cause a demand curve for a goo to be inelastic? -there is a great number of substitutes for the good -the good is inferior -the good is a luxury – the good is a necessity
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the good is a necessity
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the demand for which of the following is likely to be the most price in elastic? -airline tickets -bus tickets – taxi rides -transportation
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transportation
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if the cross price elasticty between 2 goods is negative, the 2 goods are likely to be
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complements
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if a supply curve for a good is price elastic, then
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the quantity supplied is sensitive to changes in the price of that good
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if a fisherman must sell all of his daily catch before it spoils for whatever price he is offered, once the fish are caught, the fishermen’s price elasticity of supply for fish is
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zero
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a decrease in supply (shift to the left) will increase in that market if
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demand is inelastic
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if an increase in the price of a good has no impact on the total revenue i that market, demand must be
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unit price elastic
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if consumers always spend 15% of their income on food, then the income elasticity of demand for food is
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1.00
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technological improvements in agriculture that shift the supply of agricultural commodities to the right tend to
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reduce total revenue to farmers as a whole because the demand for food is inelastic
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if supply is price inelastic, the value of the price elasticity of supply must be
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less than 1
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if there is excess captivity in a production facility, it is likely that the firm’s supply curve is
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price elastic
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IN TEXT chap 5 using the midpoint method for calculating the elasticity, what is the price elasticity of demand for cable television
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1.4
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IN TEXT chap 5 at which of the following prices does does Small Town Cablevision earn the greatest total revenue?
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$30 per month
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if a demand is linear (a straight line), then price elasticity of demand is
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elastic in the upper portion and inelastic in the lower portion
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if the income elasticity of demand for a good is negative, it must be
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an inferior good
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if consumers thing that there are very few substitutes for a good, then
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demand would tend to be price inelastic
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price ceiling
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a legal maximum on the price at which a good can be sold
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price floor
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a legal minimum on the price at which a good can be sold
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tax incidence
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the manner in which the burden of a tax is shared among participants in a market
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tax wedge
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the difference between what the buyer pays and the seller receives after tax has been imposed
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for a price ceiling to be a binding constraint on the market, the government must set it
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below the equilibrium price
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a binding price ceiling creates
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a shortage
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suppose the equilibrium price for apartments is $500 per month and the government imposes rent controls of $250, which if the following is unlikely to occur as a result of the rent controls? chap 6
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the quality of the apartment will improve
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a price floor
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sets a legal minimum on the proce at which a good can be sold
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which of following statements about a binding price ceiling is true? chap 6
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the shortage created by the price ceiling is greater in the long run than in the short run
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which side of the market is more likely to lobby government for a price floor? chap 6
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the sellers
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the surplus caused by a binding price floor will be greatest if
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both supply and demand are elastic
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which of the following is an example of price floor? chap 6
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the minimum wage
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which of the following statements is trues if the government places a price ceiling on gas at $1.50 per gallon and the equilibrium price $1.00 per gallon? chap 6
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a significant increase in the demand for gasoline could cause the price ceiling to become a binding constraint
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studies show that 10% increase in the minimum wage
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decrease teenage employment about 1 to 3 percent
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within the supply and demand model, a tax collected form the buyers of a good shifts the
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demand curve downward by the size of the tax per unit
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within the supply and demand model, a tax collected form the sellers of a good shifts the
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supply curve upward by the size of the tax per unit
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which of the following takes place when a tax is placed on a good? chap 6
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an increase in the price buyers pay, a decrease in the price sellers receive, and a decrease in the quantity sold
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when a tax is collected from the buyers in the market
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the tax burden on the buyers and sellers is the same as an equivalent tax collected from the sellers
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a tax of $1.00 per gallon on gas
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places a tax wedge of $1.00 between the price the buyers pay and the price sellers receive
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the burden of a tax falls more heavily on the sellers in a market when
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demand is elastic and supply is inelastic
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a tax placed on a good that is a necessity for consumers will likely generate a tax burden that
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falls more heavily on buyers
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the burden of a tax falls more heavily on the buyers in a market when
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demand is inelastic and supply is elastic
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which of the following statements about the burden o f a tax is correct? chap 6
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the distribution of the burden of a tax is determined by the relative elasticities of supply and demand and is not determined by legislation
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for which of the following products would the burden of a tax is likely fall more heavily on the sellers? -food -entertainment -clothing -housing
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entertainment
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total cost
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the market value of the inputs a firm uses in production
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profit
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total revenue minus total cost
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explicit cost
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input costs that require on outlay of money by the firm
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implicit costs
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input costs that do not require an outlay of money by the firm
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economic profit
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total revenue minus total cost, including both explicit and implicit costs
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accounting profit
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total revenue minus total cost
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production function
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the relationship between quantity of inputs used to make a good and the quantity of output of that good
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marginal product
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the increase in output that arises from an additional unit of input
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diminisihing marginal product
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the property whereby the marginal product of an input declines as the quantity of input increases
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fixed costs
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costs that do not vary with the quantity of output produced
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variable costs
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costs that vary with the quantity of out put produced
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average total cost
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total cost divided by the quantity of output
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average fixed cost
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fixed costs divided by the quantity of output
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average variable cost
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variable costs divided by the quantity of output
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marginal cost
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the increase in total cost that arises from an extra unit of production
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efficient scale
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the quantity of output that minimizes average total cost
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economies of scale
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the property whereby long run average total cost falls as the quantity of out put increases
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diseconomies of scale
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the property whereby long run average total cost rises as the quantity of output increases
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constant returns to scale
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the property whereby long run average total cost stays the same as the quantity of out put changes
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accounting profit is equal to total revenue minus
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explicit costs
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economic profit is equal to total revenue minus
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the sum of implicit and explicit costs
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IN TEXT BOOK the accounting profit at madelyns pottery factory is chap 13
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$75,000
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IN TEXT BOOK the canonic profit at madelyns pottery factory is
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$30,000
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if there are implicit costs of production
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accounting profit will exceed economic profit
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if a production function exhibits diminishing marginal product its slope
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becomes flatter as the quantity of input increases
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if a production function exhibits diminishing marginal product its slope of the corresponding total-cost curve
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becomes steeper as the quantity of out put increases
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UES TABLE IN TEXT BOOK chap 13 the marginal product of labor as production moves from employing one worker to employing 2 workers is
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17
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the production process described above exhibits
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diminishing marginal product of labor
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which of the following is a variable cost in the short run? chap 13
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wages paid to factory labor
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USE TABLE IN TEXT chap 13. the average fixed cost of producing 4 units is
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$2.50
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USE TABLE IN TEXT chap 13 the average total cost of producing 3 units is
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$9.33
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USE TABLE IN TEXT chap 13 the marginal cost of changing production from 3 units to 4 units is
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$8
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USE TABLE IN TEXT chap 13
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4 units
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when marginal costs are below average total costs
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average tottal costs are falling
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if marginal costs equal average total costs
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average total costs are minimized
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if as the quantity produced increases, production function first exhibits increasing marginal prodcut and later diminishing marginal product, the corresponding marginal-cost curve willl
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be U-shaped
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in the long run, if a very small factory were to expand its scale of operations, it is likely that it would initially experience
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economies of scale
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the efficient scale of production is the quantity of output that minimizes
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average total cost
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which of the following statements is true? -all costs are fixed in the long run -all costs are variable in the long run -all costs are fixed in the short run -all costs are variable in the short run
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all costs are variable in the long run
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price takers
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buyers and sellers in a competitive market that must accept the price that the market determine
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average revenue
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total revenue divided by the quantity sold
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marginal revenue
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the change in total revenue from an additional unit sold
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shut down
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a short run decision to temporarlily cease production during a specific period of time due to current market conditions
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exit
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a long run decision to permanently cease production and leave the market
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sunk cost
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a cost to which one is already committed and is not recoverable
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which of the following is not a characteristic of a competitive market? chap 14
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firms gernerate small but positive economic profits in the long run
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which of the following markets would most closely satisfy the requirements for a competitve market? -gold bullion -electricity -cable television -soda -all of them
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gold bullion
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if a competitive firm doubles its out put its total rev
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doubles
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for a competitive firm, marginal rev is
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equal to the price of the good sold
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the competitive firm maximizes profit when it prices out put up to the point whre
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marginal cost equals marginal rev
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if a competitive firm is producing a level of output where marginal rev exceeds marginal cost the firm could increase its profits if it
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increase production
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USE CHART IN BOOK chap 14 if the price is P4, a competitve firm will maximize profits if it produces
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Q3
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USE CHART IN BOOK chap 14 if the price is P4 the firm will earn profits equal to the area
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(P4-P3) *Q3
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USE CHART IN BOOK in the short run, competitive firms will temporarily shut down production if the price falls bellow
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P1
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in the long run firms some competitive firms will exit the market if the price is below
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P2
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in the long run the competitive equilibrium is
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P2,Q2
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in the short run, the comptitive firm’s supply curve is the
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portion of the marginal cost curve that lies above the average variable cost curve
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in the long run, the competitive firm’s supply curve is the
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portion of the marginal cost curve that lies above the average total cost curve
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a grocery store should close at night if the
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variable costs of staying open are greater than the total revenue due to staying open
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the long run market supply curve
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is always more elastic that the short run market supply curve
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in the long run some firms will exit the market if the price of the good offered for sale is less than
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average total cost
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if all firms in a market have identical cost structures and if inputs used in the production of the good in that market are readily avaliable, then the long run market supply curve for that good should be
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perfectly elastic
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if the long run market supply curve for a good is perfectly elastic an increase in the demand for that good will in the long run cause
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an increase in the number of firms in the market but no increase in the price of that good
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in long run equilibrium in a competitive market firms are operating at
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-the minimum of there average total cost curve -the intersection of marginal cost and marginal revenue -their efficient scale -zero economic profit
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natural monopoly
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a monopoly that arises because a single firm can supply a good or service to an entire market at a smaller cost than could 2 or more firms
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price discrimination
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the business practice of selling the same good at different prices to different customers
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arbitrage
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the process of buying a good in one market at a low price and selling in another market at a higher price
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perfect price discrimination
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a situation in which the monopolist is able to charge each customer precisely his willingness to pay
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which of the fowling is not a barrier to entry in a monopolized market? chap 15
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a single firm is very large
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a firm whose average total cost continually declines at least to he quantity that could supply the entire market is known as
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a natural monopoly
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when a monopolist produces an additional unit, the marginal revenue generated by that unit must be
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below the price because the price effect outweighs the output effect
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a monopolist maximizes profit by producing the quantity at which
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marginal rev = marginal cost
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which if the following statements about price and marginal cost in a competitive and monopolized market is true? chap 15
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in competitive markets, price equals marginal cost in monopolized markets price exceeds marginal cost
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south western is a monpolist in the production of this text book bc
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the gove has granted south western exculsive rights to produce this text book
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USE CHART IN BOOK the profit maximizing monopolist will choose the price and quantity represented by? chap 15
answer

A
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USE CHART IN BOOK the profit earned by the profit maximizing monopolist is represented by the area chap 15
answer

P4ACP1
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USE CHART IN BOOK the deadweight loss associated with monopoly pricing is represented by the area chap 15
answer

ABD
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USE CHART IN BOOK the efficient price and quantity are represented by point chap 15
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D
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the inefficiency associated with monopoly is due to
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underproduction of the good
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compared to a perfectly competitive market, a monopoly market will usually generate
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higher prices and lower output
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the monopoly supply curve
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DOES NOT EXIST
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using gove regulations to force a natural monopoly to charge a price equal to its marginal cost will
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cause the monopolist to exit the market
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the purpose of an anti trust law is to
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increase competition in an industry by preventing mergers and breaking up large firms
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public ownership of natural monopolies
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tends to be inefficient
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which of the following statements about price discrimination is not true? chap 15
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perfect price discrimination generates dead weight loss
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if regulators break up a natural monopoly into many smaller firms, the cost of production will
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rise
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a monopoly is able to continue to gernerate economic profits in the long run because
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there is some barrier to entry in that market
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if marginal revenue exceeds marginal cost a monopolist should
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increase output

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