Rent control is an example of a price ceiling.
In the United States, imports and exports make up more than half of GDP.
If some monopolistically competitive firms exit their market after suffering short-run
losses, the demand curves of remaining firms will shift to the right.
If a country has an absolute advantage in producing a product, it must also have a
comparative advantage in producing that product.
A firm might prefer to choose a salary system rather than a commission or piece-rate
system of compensation when there are concerns about output quality.
Shortage means the same thing as scarcity.
An decrease in quantity supplied is represented by a leftward shift of the supply curve.
An externality is an example of a market failure.
If in the long run a firm makes zero profit, it should exit the industry.
Monopolistic competition differs from oligopoly in that in monopolistic competition
firms act independently while in oligopoly firms act interdependently.
A firm’s short-run average total cost curve is parallel to its short-run average variable
cost curve.
In the long-run equilibrium, both the perfectly competitive firm and the
monopolistically competitive firm produce the output at which MR = MC and charge a
price equal to the average total cost of production.
If the long-run average total cost curve is downward-sloping, then the firm is
experiencing decreasing returns to scale.
A decrease in liabilities will reduce a firm’s accounting profit.
Consider a country that produces only two goods: parrots and iguanas. Suppose it is
impossible for this country to increase its production of parrots without producing
fewer iguanas. In this case, its current output combination is efficient.
To maximize profit, a monopolist will produce and sell a quantity such that for the last
unit sold, marginal revenue equals marginal cost, and charges a price given by the
demand curve at that output level.
Assume that the personal computer industry is perfectly competitive. The fact that the
price of personal computers over the last decade has fallen despite increases in demand
signifies that the industry is a decreasing-cost industry.
If a per-unit tax on output sold is imposed on a monopoly’s product, the monopolist will
increase its market price by the full amount of the tax.
Deadweight loss refers to the reduction in economic surplus resulting from a market not
being in competitive equilibrium.
An increase in the supply of capital, which is a substitute to labor, will lead to a
decrease in the demand for labor.
Suppose there are economies of scale in the production of a specialized memory chip
that is used in manufacturing microwaves. This suggests that the microwave industry is
a decreasing-cost industry.
Horizontal equity means that two people in identical economic situations should pay the
same amount of taxes.
When a tax on output is imposed to internalize the external costs of pollution, the
supply curve shifts down by the amount of the tax.
Technological advancements that increase labor’s productivity shift the labor supply
curve to the right.
The public choice model asserts that the self-interest of policymakers is likely to cause
them to take actions that are inconsistent with the preferences of voters, even where
those preferences are clear.
The enjoyment or satisfaction people receive from consuming goods and services is
called utility.
If the marginal tax rate is greater than the average tax rate, the tax structure is described
as regressive.
Marginal benefit refers to the additional benefit that your activity provides to you.
Each person goes about her daily business seeking to maximize her own self interests.
In doing so, she contributes to the welfare of society at large. This is the idea underlying
Adam Smith’s “invisible hand.”
Suppose a monopoly is producing its profit-maximizing output level. Now suppose the
government imposes a lump-sum tax on the monopoly, independent of its output. As a
result the monopolist will increase the price of its product to cover its higher cost.
If the demand for a product increases and the supply of the same product increases, the
equilibrium price will increase.
In economics, the term “free market” refers to a market where products are traded but
not sold.
Because each customer pays according to her willingness to pay, a consumer maximizes
her consumer surplus under first-degree price discrimination.
The Coase Theorem asserts that government intervention is a prerequisite for
addressing externality problems.
The incidence of a tax depends on whether the government collects the tax from buyers
or sellers.
When there is a positive externality in a free market, too much of the good is produced
and consumed.
If the demand curve for a product shifts to the left and the supply curve for the product
shifts to the left, the equilibrium quantity will decrease.
In recent years the cost of producing organic produce in the United States has decreased
largely due technological advancement. At the same time, more and more Americans
prefer organic produce over conventional produce. Which of the following best explains
the effect of these events in the organic produce market?
A) The supply curve has shifted to the left and the demand curve has shifted to the
right. As a result there has been an increase in the equilibrium quantity and an uncertain
effect on the equilibrium price.
B) Both the supply and demand curves have shifted to the right. As a result, there has
been an increase in the equilibrium quantity and an uncertain effect on the equilibrium
price.
C) Both the supply and demand curves have shifted to the right. As a result, there has
been an increase in both the equilibrium price and the equilibrium quantity.
D) The supply curve has shifted to the left and the demand curve has shifted to the
right. As a result, there has been an increase in the equilibrium price and an uncertain
effect on the equilibrium quantity.
Figure 15-4
Figure 15-4 shows the demand and cost curves for a monopolist.
Refer to Figure 15-4. What is the price charged for the profit-maximizing output level?
A) $13
B) $21
C) $27
D) $34
Which of the following is a macroeconomics question?
A) What determines the inflation rate?
B) What determines the production of DVDs?
C) What factors determine the price of carrots?
D) What determines the wage of auto workers?
________ refers to reductions in a firm’s costs that result from an increase in the size of
an industry.
A) Internal economies
B) External economies
C) Autarkial dominance
D) Streamlining
Compensating differentials are associated most closely with which of the following?
A) hazardous jobs
B) comparable worth
C) economic discrimination
D) differences in education
The absolute value of the slope of the budget constraint is equal to
A) the marginal rate of substitution between the two goods in question.
B) the price of good on the vertical axis divided by the price of the good on the
horizontal axis.
C) the price of good on the horizontal axis divided by the price of the good on the
vertical axis.
D) the quantity of the good on the vertical axis divided by the quantity of the good on
the horizontal axis.
Anyone can purchase sulfur dioxide emission allowances on the Chicago Mercantile
Exchange. Several environmental groups have raised money to buy allowances (which
they subsequently destroy). As part of their fund-raising, these groups have urged
contributors to buy the allowances as gifts. As one newspaper story put it, “For the
environmentalist in your life, here’s a gift that is sold by the ton, fits in an envelope and
will last forever.”
Source for quote: Randall Edwards, “Dear Santa: Please Bring Me Sulfur Dioxide for
Christmas,” Columbus Dispatch, December 19, 1999.
What would be the impact on the price of the emission allowances in the market?
A) The price rises.
B) The price falls to zero.
C) The price falls but not to zero.
D) The price remains unchanged because the allowances purchased by the
environmental groups are destroyed.
We can derive the market demand curve for gold earrings
A) only if the tastes of all gold earring consumers are similar.
B) by adding horizontally the individual demand curves of each gold earring consumer.
C) by adding vertically the quantity demanded of each gold earring consumed at each
price.
D) by adding the prices each gold earring consumer is willing to pay for each quantity.
Table 4-2
Refer to Table 4-2. The table above lists the highest prices five consumers are willing to
pay for a theater ticket. If the price of one of the tickets is $10
A) everyone will buy a ticket except for Esther.
B) only Anya and Basil will buy tickets.
C) Celeste’s consumer surplus is $25.
D) the total consumer surplus from the purchase of tickets will be $61.
Leisure is
A) an inferior good.
B) a complementary good to labor.
C) wasteful to society.
D) a normal good.
Table 2-8
Table 2-8 shows the number of labor hours required to produce a digital camera and a
pound of wheat in China and South Korea.
Refer to Table 2-8. What is South Korea’s opportunity cost of producing one digital
camera?
A) 05 pounds of wheat
B) 20 pounds of wheat
C) 25 pounds of wheat
D) 60 pounds of wheat
Which of the following is the best example of a quota?
A) a subsidy from the U.S. government to domestic manufacturers of tires to enable
them to compete more effectively with foreign producers
B) a limit on the quantity of tires that can be imported from a foreign country
C) a 40% fee imposed on all imported tires
D) a tax placed on all tires sold in the domestic market to help offset the impact of lost
jobs in the domestic tire industry
Figure 13-9
Refer to Figure 13-9. Which of the graphs in the figure depicts a monopolistically
competitive firm that is minimizing its losses?
A) Panel A
B) Panel B
C) Panel C
D) Panel A and Panel C
Owners of a corporation share in the profits of the firm
A) by selling any bonds or stocks owned and realizing a capital gain.
B) through coupon payments on that firm’s bonds.
C) through dividend payments on shares of that firm’s stock.
D) by raising the interest rate on bonds.
Table 14-6
There are two mobile home manufacturers in Nevada, Sturdy Homes (S) and My Haven
(M). Sturdy Homes has been in the market for a long time and must now compete with
newcomer, My Haven. Suppose that Sturdy Homes believes that My Haven will match
any price it sets. Use Table 14-6 to answer the following question and assume
throughout that Sturdy Homes believes that My Haven will match any price it sets.
Refer to Table 14-6. What price will Sturdy Homes charge and what profit does Sturdy
Homes expect to make?
A) Price = $8,000; expected profit = $7 million
B) Price = $8,000; expected profit = $4 million
C) Price = $10,000; expected profit = $5 million
D) Price = $12,000; expected profit = $3 million
Of the following industries, which are perfectly competitive? For those that are not
perfectly competitive, explain why.
a. Restaurants
b. Corn
c. College education
d. Local radio and television
One reason for the success that firms have in getting the government to erect barriers to
foreign competition is that jobs lost to foreign competition are easy to identify but jobs
created by foreign trade are often hard to identify. Which of the following is a second
reason?
A) The costs that tariffs and quotas impose on consumers are large in total but relatively
small per person.
B) People who benefit from foreign trade tend not to vote in elections; people who are
harmed by foreign trade are much more likely to vote.
C) Firms that benefit from trade barriers have more money to lobby government
officials to support the barriers than do firms that are harmed by trade barriers.
D) The benefits from free trade are less than the costs.
If a perfectly competitive firm’s total revenue is less than its total variable cost, the firm
A) should raise its price above its average variable cost.
B) should continue to produce and increase its demand.
C) should stop production by shutting down temporarily.
D) should adopt new technology in order to lower its costs of production.
The demand curve for corn is downward sloping. If the price of corn, an inferior good,
falls
A) the income effect which causes you to reduce your corn purchases is smaller than
the substitution effect which causes you to increase your corn purchases, resulting in a
net increase in quantity demanded.
B) the income effect which causes you to increase your corn purchases is larger than the
substitution effect which causes you to reduce your corn purchases, resulting in a net
increase in quantity demanded.
C) both the income and substitution effects reinforce each other to increase the quantity
demanded.
D) the income and substitution effects offset each other but the price effect of an
inferior good leads you to buy less corn.
Table 2-11
Table 2-11 shows the number of labor hours required to produce a motorcycle and a
guitar in Ireland and Scotland.
Refer to Table 2-11. What is Ireland’s opportunity cost of producing one motorcycle?
A) 2 guitar
B) 5 guitars
C) 8 guitars
D) 32 guitars
Figure 3-4
Refer to Figure 3-4. If the current market price is $10, the market will achieve
equilibrium by
A) a price increase, increasing the supply and decreasing the demand.
B) a price decrease, decreasing the supply and increasing the demand.
C) a price decrease, decreasing the quantity supplied and increasing the quantity
demanded.
D) a price increase, increasing the quantity supplied and decreasing the quantity
demanded.
If marginal utility of apples is diminishing and is a positive amount, consuming one
more apple will cause
A) total utility to decrease.
B) a consumer to get no satisfaction from consuming apples.
C) a consumer’s total utility to increase.
D) a consumer to go beyond her optimal consumption of apples.
Consider two oligopolistic industries selling the same product in different locations. In
the first industry, firms always match price changes by any other firm in the industry. In
the second industry, firms always ignore price changes by any other firm. Which of the
following statements is true about these two industries, holding everything else
constant?
A) Market prices are likely to be higher in the first industry in which firms always
match price changes by rival firms than in the second where firms ignore their rivals’
price changes.
B) Market prices are likely to be lower in the first industry where firms always match
price changes by rival firms than in the second where firms ignore their rivals’ price
changes.
C) Market prices are likely to be the same in both markets because they are both
oligopolistic markets.
D) No conclusions can be drawn about the pricing behavior under these very different
firm behaviors.
What is the difference between a firm’s marginal revenue and its marginal revenue
product?
A) Marginal revenue is the change in sales revenue from selling one more unit of output
while marginal revenue product is the profit earned from hiring one more worker.
B) Marginal revenue is the change in sales revenue from selling one more unit of output
while marginal revenue product is the change in total revenue from hiring one more
worker.
C) Marginal revenue is the increase in revenue when a firm raises its output price while
marginal revenue product is the increase in marginal product when a firm hires an
additional worker.
D) There is no difference between the two terms.
A negative externality exists if
A) there are price controls in a market.
B) there are quantity controls in a market.
C) the marginal social cost of producing a good or service exceeds the private cost.
D) the marginal private cost of producing a good or service exceeds the social cost.
Government intervention in agricultural markets in the U.S. began in the
A) 1920s.
B) 1930s.
C) 1950s.
D) 1970s.
Figure 18-2
Figure 18-2 shows a demand curve and two sets of supply curves, one set more elastic
than the other.
Refer to Figure 18-2. If the government imposes an excise tax of $1.00 on every unit
sold, the government’s revenue from the tax
A) is larger if the supply curve is S0.
B) is larger if the supply curve is S1.
C) is identical under either supply curve.
D) is not maximized.
Along a downward-sloping linear demand curve
A) the marginal utility from the consumption of each unit of the good and the total
utility from consuming larger quantities increase.
B) the marginal utility from the consumption of each unit of the good and the total
utility from consuming larger quantities remain constant.
C) the marginal utility from the consumption of each unit of the good falls and the total
utility from consuming larger quantities increases.
D) the marginal utility from the consumption of each unit of the good rises and the total
utility from consuming larger quantities remain constant.
Which government agency publishes four-firm concentration ratios?
A) the Economic Council
B) the Federal Reserve System
C) the U.S. Bureau of the Census
D) the Treasury Department
Many golf courses charge members an annual membership fee as well as a fee each
time they golf. One reason for this is
A) golf courses do not want their members to overuse their fairways. Charging for each
round of golf played reduces fairway maintenance costs.
B) charging both fees allows the courses to transfer more consumer surplus into profit
than charging only an admission fee.
C) charging both fees allows the courses to transfer more producer surplus into profit
than charging only an admission fee.
D) research has shown that charging both fees increases the likelihood that golfers will
renew their memberships.
If the price of steel increases drastically, the quantity of steel demanded by the building
industry will fall significantly over the long run because
A) buyers of steel are more sensitive to a price change if they have more time to adjust
to the price change.
B) buyers of steel are less sensitive to a price change if they have more time to adjust to
the price change.
C) sales revenue in the building industry will fall sharply.
D) profits will fall by a greater amount in the long run than in the short run.
What is the difference between a monopoly’s marginal revenue curve and a perfect
competitor’s marginal revenue curve?
Describe how UPS has used positive technological change to improve its package
handling and delivery schedule.
What is yield management? How is yield management being used in the airline
industry?
What is an entrepreneur, and what decisions does an entrepreneur make in a market
system?
What role do well-functioning financial markets play in a market economy?
Explain the difference between a normal good and an inferior good.
The following table contains the actual prices charged by four Web sites for the
PlayStation 4 game Call of Duty; Black Ops III in November 2015.
Explain whether the information in this table contradicts the law of one price.
List the competitive forces in the five competitive forces model.
“Being the only seller in the market, the monopolist can choose any price and quantity
it desires.” Evaluate this statement: Is it true or false? Explain your answer.
Does the fact that monopolistically competitive firms do not achieve productive
efficiency or allocative efficiency mean that there is a significant loss in consumer
welfare?
Suppose the current price of copper is $3 per pound and the quantity supplied is 200
pounds per day. If the price of copper falls to $2.50 per pound, the quantity supplied
drops to 180 pounds per day. Use the midpoint formula to calculate the price elasticity
of supply for copper.
In the long run, perfectly competitive firms earn zero economic profit. Why do firms
enter an industry when they know that in the long-run they will not earn any profit?
A negative externality is an example of market failure. The root of the problem lies in
the definition and enforcement of property rights. Explain.
What is a corporate bond and what does it specify?
What is the difference between a price ceiling and a price floor? Compared to the
competitive equilibrium price, where must price ceilings and price floors be set to have
an effect on the market.
What is comparative advantage? What is absolute advantage?