Econ Final

question

Oligopolists merge to ________.

answer

increase market power

question

________ is the market structure in which there are many rival firms producing differentiated products.

answer

Monopolistic competition

question

Suppose a monopolistic competitor produces 2,000 units of the good in equilibrium and charges a price of $10 for each unit. If the average total cost of producing 2,000 units of the good is $6, what is the total profit earned by the producer?

answer

$8,000

question

Scenario: The payoff matrix given below shows the payoffs to two rival firms in millions of US dollars for each strategy they choose. The first number listed in each cell is the payoff to the row player and the second number listed is the payoff to the column player.
Refer to the scenario above. In the dominant strategy equilibrium, the payoff to Firm B is ________.

answer

$3.0 million

question

Scenario: The payoff matrix given below shows the payoffs to two firms in millions of US dollars for choosing two alternative strategies. The first number listed in each cell is the payoff to the row player and the second number listed is the payoff to the column player.
Refer to the scenario above. Which of the following is true in this case?

answer

The dominant strategy equilibrium of this game is also the Nash equilibrium.

question

An industry with only two competing firms is called a ________.

answer

duopoly

question

There are several jewelry manufacturers in Richland. However, the jewelry produced by different manufacturers has different designs and the products are never identical. The jewelry market in Richland is an example of a ________.

answer

monopolistically competitive market

question

The marginal revenue curve of a monopolistic competitor ________.

answer

lies below the demand curve

question

Game theory is the study of ________.

answer

strategic interactions

question

Which of the following is true of a Nash equilibrium?

answer

No player can improve his payoff by changing his strategy once in Nash equilibrium.

question

________ is the market structure in which there are a few rival firms.

answer

Oligopoly

question

Why do firms enter into a collusive agreement?

answer

To increase profits

question

The long-run equilibrium for a monopolistically competitive firm occurs ________.

answer

along the downward sloping portion of its average total cost curve

question

Two rival firms have to choose between two strategies to maximize their benefits. The two alternative strategies available are X and Y. The matrix below shows their respective payoffs for each strategy they choose. The first number listed in each cell is the payoff to the row player and the second number listed is the payoff to the column player. This game ________.

answer

has two Nash equilibria

question

The figure below shows the demand and cost curves faced by a monopolistic competitor:
Refer to the figure above. The optimal price charged by the monopolistic competitor is ________.

answer

question

New firms enter a monopolistically competitive market structure in the long run if the price charged by the existing firms in the short run ________.

answer

exceeds the average total cost of production

question

Scenario: Jack and Jill have gone out for cycling and they have come to a place where the road is obstructed by a fallen tree. They can move the tree if both of them try. If neither of them tries, they have to turn back and reach home very late. However, if one of them tries while the other does not help, the one who tries will have a muscle sprain and will not be able to move the tree. The matrix below shows the utility each of them derives in each situation. The first number listed in each cell is the payoff to the row player and the second number listed is the payoff to the column player.

Refer to the scenario above. Jack will derive ________ units of utility if Jill tries to move the tree while he does not try at all.

answer

-2

question

A Nash equilibrium occurs if ________.

answer

each player chooses strategies that are mutual best responses

question

A monopolistic competitor produces 1,200 units of a good at an average cost of $120 per unit. If the price charged is $135, calculate his total profit.

answer

$18,000

question

The price charged by a monopolistic competitor for each unit of a good is $7. If it produces 5,000 units of the good at a total cost of $25,000, what is his profit?

answer

$10,000

question

answer

Firm A chooses Strategy Y if Firm B chooses Strategy Y.

question

A monopolistically competitive firm ________.

answer

can increase price without losing all of its business

question

The payoff matrix given below shows the payoffs to two firms in millions of US dollars for choosing two alternative strategies. The first number listed in each cell is the payoff to the row player and the second number listed is the payoff to the column player. Which of the following is true in this case?

answer

The dominant strategy equilibrium of this game is also the Nash equilibrium.

question

A profit-maximizing monopolistic competitor continues production until ________.

answer

marginal revenue equals marginal cost

question

Company A and Company B are considering whether to spend a certain sum of money to advertise their new range of products. If Company A chooses to advertise while Company B does not, Company A's annual sales will increase by $5 million while Company B's sales will remain unchanged. If Company B chooses to advertise while Company A does not, Company B's annual sales will increase by $5 million while Company A will not experience any change in its sales. If both the companies decide to advertise, their sales will increase sales by $2 million each and if none of them spends on advertisement, their sales will remain unchanged.

Refer to the scenario above. Suppose the cost of advertising in this industry is very high and each company will incur a cost of $3 million annually if they choose to advertise. Which of the following is true in this case?

answer

This game does not have a dominant strategy equilibrium.

question

A monopolistic competitor incurs losses if ________.

answer

price is lower than average total cost

question

A monopolistically competitive firm always faces a(n) ________.

answer

downward sloping demand curve

question

The payoff matrix given below shows the payoffs to two rival firms in millions of US dollars for each strategy they choose. The first number listed in each cell is the payoff to the row player and the second number listed is the payoff to the column player.
In the dominant strategy equilibrium, the payoff to Firm A is ________.

answer

$3.5 million

question

answer

The dominant strategy equilibrium of this game is also the Nash equilibrium.

question

There are several pen manufacturers in Eduland. However, the pens sold by each manufacturer have a unique design.

Refer to the scenario above. How will the demand for pens faced by the existing pen manufacturers in Eduland be affected if new firms enter the industry in the long run?

answer

The demand faced by the existing firms will decrease.

question

The payoff matrix given below shows the payoffs to two rival firms in millions of US dollars for each strategy they choose. The first number listed in each cell is the payoff to the row player and the second number listed is the payoff to the column player. In this game, the dominant strategy equilibrium occurs if ________.

answer

Firm A chooses Strategy Y, and Firm B chooses Strategy X

question

The figure below shows the demand curve (DD), the marginal revenue curve (MR), and the cost curves of a monopolistic competitor.
What does the region ABDC indicate?

answer

Economic profit

question

A monopolistic competitor earns zero economic profits if ________.

answer

price is equal to average total cost

question

Jack and Jill have gone out for cycling and they have come to a place where the road is obstructed by a fallen tree. They can move the tree if both of them try. If neither of them tries, they have to turn back and reach home very late. However, if one of them tries while the other does not help, the one who tries will have a muscle sprain and will not be able to move the tree. The matrix below shows the utility each of them derives in each situation. The first number listed in each cell is the payoff to the row player and the second number listed is the payoff to the column player.
Which of the following is true in this case?

answer

Jack is better off by trying to move the tree if Jill tries to move the tree.

question

answer

The dominant strategy equilibrium of this game is also the Nash equilibrium.

question

Which of the following will happen if some firms in a monopolistically competitive market incur losses in the short run and the market conditions are not expected to change?

answer

Some firms will exit the industry in the long run.

question

A monopolistic competitor exits the industry in the long run if ________.

answer

total costs exceed total revenue

question

Which of the following is a feature of an oligopoly market?

answer

Each firm's action affects the decisions of its rival.

question

The figure below shows the demand and cost curves faced by a monopolistic competitor:
Refer to the figure above. The optimal quantity produced by the monopolistic competitor is ________.

answer

question

Homogeneous goods are ________.

answer

perfect substitutes

question

The profit earned by a monopolistic competitor after the entry of new firms is ________.

answer

lower than the profit earned by the firm before the entry of new firms

question

Which of the following is a difference between an oligopoly with differentiated products and a monopolistic competition?

answer

There are huge barriers to entry in an oligopoly with differentiated products, while there are minimal barriers to entry in a monopolistically competitive market.

question

A best response is ________.

answer

one player's optimal action choice taking the other player's action as given

question

Rita and Mike have been caught cheating on an examination. They are taken to separate rooms for interrogation. Their payoff matrix is given below. The first outcome listed in each cell is the payoff to the row player and the second outcome listed is the payoff to the column playe
Which of the following is likely to happen if Mike confesses while Rita does not confess?

answer

Mike will be let free while Rita will be suspended.

question

The payoff matrix given below shows the payoffs to two rival firms in millions of US dollars for each strategy they choose. The first number listed in each cell is the payoff to the row player and the second number listed is the payoff to the column player.
Refer to the scenario above. Which of the following is true?

answer

Firm B is better off by choosing Strategy X when Firm A chooses Strategy Y.

question

answer

The dominant strategy equilibrium of this game is also the Nash equilibrium.

question

Sellers in which of the following market structures are likely to have the highest market power?

answer

Monopoly

question

Which of the following statements is true?

answer

Firms in a market with entry barriers are likely to have more market power than firms in a market with no entry barriers.

question

A ________ is the privilege granted to an individual or company by the government, which gives them the sole right to produce and sell a good.

answer

patent

question

A musician was guaranteed by the government that no one else could replicate or sell his music CDs. This is an example of a:

answer

question

A price maker is a firm that:

answer

has the power to affect the price of the product it sells.

question

A market in which a firm emerges as a monopoly due to large economies of scale is referred to as:

answer

a natural monopoly

question

Scenario: When a monopolist charges $10 for its product, it sells 500 units of the product. When it lowers the price to $6, it sells 1,400 units of the product.

Refer to the scenario above. What is the change in total revenue due to the price change?

answer

The total revenue increases by $3,400.

question

The following table shows the quantity of a good sold by a monopolist at different prices.
Refer to the table above. What is the marginal revenue of the monopolist when it sells 400 units of its product?

answer

-$3

question

When a monopolist sells positive levels of output, its demand curve:

answer

lies above its marginal revenue curve.

question

Over a particular price range, if the quantity effect of a price decrease is smaller than the price effect, it implies that:

answer

demand is inelastic in the price range.

question

The following figure shows the demand curve faced by a monopolist. Refer to the figure above. What is the change in total revenue due to a price reduction from $6 to $4?

answer

The total revenue increases by $200.

question

The following table shows the quantity of a good sold by a monopolist at different prices. Refer to the table above. What is the total revenue when the monopolist charges a price of $6?

answer

$1,800

question

The following table shows the quantity of a good sold by a monopolist at different prices. What is the total revenue of the monopolist when it charges a price of $9?

answer

$1,350

question

The following figure shows the marginal revenue (MR) and demand curves faced by a monopolist. Refer to the figure above. If the monopolist faces a constant marginal cost of $2, at what price should it sell its output?

answer

$10

question

Which of the following statements is true of price makers?

answer

Price makers set the price of a good after they determine how much to produce.

question

The following figure shows the marginal revenue (MR) and demand curves faced by a monopolist. Refer to the figure above. If the monopolist faces a constant marginal cost of $6, what is the optimal quantity that it should produce?

answer

30 units

question

At the profit-maximizing level of production of a monopolist, ________.

answer

marginal revenue equals marginal cost

question

The following figure shows the demand and marginal revenue (MR) curves faced by a monopolist. Refer to the figure above. What is the profit-maximizing quantity that the monopolist should produce if it faces a constant marginal cost of $5?

answer

200 units

question

If the marginal cost of a monopolist exceeds its marginal revenue, ________.

answer

additional production reduces profits

question

Which of the following statements correctly identifies a similarity between monopoly and perfect competition?

answer

Production is expanded until marginal revenue equals marginal cost in both the market structures.

question

A market structure in which there is no competition is referred to as ________.

answer

a monopoly

question

Greenaqua Corp. was given the exclusive right to produce and sell its newly introduced water purifier for 20 years. The right granted to Greenaqua is an example of a:

answer

patent

question

cenario: When a monopolist charges $5 for its product, it sells 250 units of the product. When it decreases the price of the product to $4, it sells 325 units of the product.

Refer to the scenario above. What is the change in total revenue due to the price reduction?

answer

The total revenue increases by $50.

question

The following table shows the quantity of a good sold by a monopolist at different prices.
Refer to the table above. What is the total revenue of the monopolist when it charges a price of $9?

answer

$1,350

question

Compared to a firm under perfect competition, a monopolist:

answer

charges more and produces less.

question

A ________ is an exclusive right granted by the government to an author's intellectual property.

answer

question

The following figure shows the demand curve faced by a monopolist. Refer to the figure above. What is the change in total revenue due to a price increase from $3 to $5?

answer

The total revenue increases by $200.

question

The following figure shows the demand curve faced by a monopolist.
Refer to the figure above. What is the change in total revenue due to a price reduction from $6 to $4?

answer

The total revenue increases by $200.

question

The following figure shows the marginal revenue (MR) and demand curves faced by a monopolist.
Refer to the figure above. If the monopolist faces a constant marginal cost of $2, at what price should it sell its output?

answer

$10

question

Patents are a source of:

answer

legal market power.

question

Economies of scale in production act as a source of:

answer

natural market power

question

The following figure shows the marginal revenue (MR) curve and demand curve faced by a monopolist. The monopolist faces a constant marginal cost of $3.
Refer to the figure above. If the average cost faced by the monopolist when it produces and sells the optimal output is $4, ________.

answer

it makes a profit of $60

question

Which of the following statements is true?

answer

Firms in a market with entry barriers are likely to have more market power than firms in a market with no entry barriers.

question

The following figure shows the marginal revenue (MR) and demand curves faced by a monopolist.
Refer to the figure above. If the monopolist faces a constant marginal cost of $10, at what price should it sell its output?

answer

$14

question

________ refers to the ability of sellers to affect market prices.

answer

Market Power

question

The following table shows the quantity of a good sold by a monopolist at different prices.
Quantity (units) Price ($)
150 9
200 8
250 7
300 6
350 5
400 4
450 3
Refer to the table above. What is the marginal revenue of the monopolist when it sells 200 units of its product?

answer

question

The following figure shows the marginal revenue (MR) and demand curves faced by a monopolist.
Refer to the figure above. If the monopolist faces a constant marginal cost of $2, what is the optimal quantity that it should produce?

answer

40 units

question

Scenario: When a monopolist charges $10 for its product, it sells 500 units of the product. When it lowers the price to $6, it sells 1,400 units of the product.
Refer to the scenario above. Which of the following statements is true of the demand curve that the monopolist faces in the price range of $6 to $10?

answer

The demand curve is elastic in the price range.

question

The following table shows the quantity of a good sold by a monopolist at different prices.
Quantity (units) Price ($)
150 9
200 8
250 7
300 6
350 5
400 4
450 3
Refer to the table above. What is the total revenue of the monopolist when it charges a price of $9?

answer

$1,350

question

As a firm increases its output, its average total cost decreases. This is an outcome of:

answer

economies of scale.

question

________ is a market structure where only one firm provides a good or service that has no close substitutes.

answer

A Monopoly

question

If the marginal revenue of a producer exceeds his marginal cost:

answer

additional production enhances profits.

question

Over a particular price range, if the quantity effect of a price decrease is larger than the price effect, it implies that:

answer

demand is elastic in the price range.

question

If a monopolist faces a linear demand curve, its marginal revenue curve will be:

answer

twice as steep as the demand curve.

question

A ________ is the privilege granted to an individual or company by the government, which gives them the sole right to produce and sell a good.

answer

patent

question

In which of the following market structures does a seller have NO market power?

answer

Perfect competition

question

The following table shows the quantity of a good sold by a monopolist at different prices.
Refer to the table above. Which of the following statements is true of the monopolist's total revenue?

answer

As the monopolist reduces the price of its product from $9 to $3, its total revenue increases then decreases.

question

A monopolist faces an average total cost of $6 when it produces 200 units of its product. If it sells the 200 units at $8 per unit, ________.

answer

the monopolist makes a profit of $400

question

In a ________ tax system, the marginal tax rate declines with income.

answer

regressive

question

Mr. Smith pays $20,000 annually as tax. If his annual income is $100,000, what is his average tax?

answer

20%

question

The table below shows the tax brackets for different income groups in a country:
Refer to the table above. This is an example of a ________ tax system.

answer

progressive

question

A ________ tax system is one in which tax rates increase with taxable base incomes.

answer

progressive

question

The government of Lithasia ran a budget deficit of $60,000 in 2014. If the tax revenue of the Lithasian government in 2014 was $320,000,000, how much did the government spend in that year?

answer

$320,060,000

question

Which of the following is true of a progressive tax system?

answer

High income households pay a higher percentage of their income as taxes.

question

The table below shows the tax brackets for different income groups in a country:
Refer to the table above. If Tom has a taxable income of $62,000, he faces a marginal tax rate of ________.

answer

20%

question

A budget surplus occurs when ________.

answer

tax revenue exceeds government spending

question

The figure below shows the demand (D) and supply (S) curves for Good X before and after a tax is imposed on each unit of the good sold.
Refer to the figure above. If a per-unit tax of $3 is imposed on the sale of Good X, what is the tax revenue received by the government?

answer

$60 million

question

The figure below shows the demand (D) and supply (S) curves for Good X before and after a tax is imposed on each unit of the good sold.
Refer to the figure above. If a per-unit tax of $1.50 is imposed on the sale of Good X, what is the size of the deadweight loss due to taxation?

answer

$7.5 million

question

The figure below shows the demand (D) and supply (S) curves for Good X before and after a tax is imposed on each unit of the good sold.
Refer to the figure above. The producer surplus before the imposition of the tax is given by the area ________.

answer

GAE

question

If the sellers of a good are taxed for each unit sold, ________.

answer

the supply curve for the good shifts to the left

question

The term ________ refers to how the burden of the tax is distributed across various agents in the economy.

answer

tax incidence

question

A rent control is an example of a ________.

answer

price ceiling

question

A price floor set above the equilibrium price leads to a(n) ________.

answer

excess supply of goods int he market

question

The figure below shows the market for Good X:
Refer to the figure above. The region ABC shows the ________ due to the price ceiling.

answer

deadweight loss

question

The government of Lithasia has decided to set a minimum price for certain agricultural products in order to safeguard the interests of farmers. This is an example of a ________.

answer

price ceiling

question

A price floor is the ________.

answer

lower limit on the price of a good

question

The price of a gallon of gasoline in Bonland is $3.20. However, just before the election, the government decides to fix the price of gasoline at $2.80 per gallon. This is an example of a ________.

answer

price ceiling

question

A gallon of milk costs $4 in Bonland. If the government fixes the price at $3.50, ________.

answer

a shortage of milk will occur in the market

question

The government of Putania spent $67,000,000 in a particular year, and the total tax receipts of the government in that year were $120,000. Calculate the budget deficit.

answer

$66,880,000

question

One reason governments impose taxes is to ________.

answer

redistribute funds via transfer payments

question

A price ceiling refers to ________.

answer

the upper limit on the price of a good

question

The marginal income tax rate is the ________.

answer

percentage of the last dollar earned that a household pays in taxes

question

In a regressive tax system, ________.

answer

low income households pay a higher percentage of their income as taxes

question

The tax incidence on sellers is higher if ________.

answer

the buyers are more sensitive to price changes than the sellers

question

The figure below shows the market for Good X:
Refer to the figure above. How many units of Good X will be demanded if the government sets a price ceiling of Pc on the good?

answer

35 units

question

The figure below shows the market for Good X:
Refer to the figure above. How many units of Good X will be supplied if the government sets a price ceiling of Pc on the good?

answer

10 units

question

The government of Richland has set a minimum wage for factory workers. This will lead to an ________ if above the current market wage.

answer

increase in the number of workers supplied

question

If the sellers of a good are taxed for each unit sold, ________.

answer

a smaller quantity of the good will be sold

question

The average tax rate faced by an individual is the ________.

answer

total tax paid by her divided by the total income earned

question

A ________ occurs when government spending exceeds tax revenue.

answer

budget deficit

question

The demand curve for pizza in Foodieland is inelastic. If a tax is imposed on each pizza bought, ________.

answer

the burden of the tax will fall more heavily on the buyers

question

________ taxes are paid by a buyer as a percentage of the market price of an item.

answer

Sales

question

The figure below shows the demand (D) and supply (S) curves for Good X before and after a tax is imposed on each unit of the good sold.
Refer to the figure above. The region ________ shows the producer surplus after the imposition of the tax.

answer

JBF

question

The following figure shows the demand curve, D, and the supply curve, S, of chairs in Barylia. Barylia is open to free trade. The world price of chairs is $3 and the government of Barylia decides to impose a $1 tariff on the import of chairs.
Refer to the figure above. What is the consumer surplus when Lithasia opens up to free trade?

answer

$245

question

Which of the following correctly identifies an argument against free trade?

answer

Free trade may result in job loss in some specific industries in the domestic economy.

question

The following figure shows the demand curve, D, and the supply curve, S, of chairs in Barylia. Barylia is open to free trade. The world price of chairs is $3 and the government of Barylia decides to impose a $1 tariff on the import of chairs.
Refer to the figure above. What is the domestic price of chairs in Lithasia in the absence of trade?

answer

question

Which of the following correctly identifies an argument against free trade?

answer

Free trade can lead to excessive exploitation of resources in poor countries.

question

The marginal social cost of producing the last unit of a good is $1.10 while the consumers' willingness to pay for the last unit is $0.80. The deadweight loss from the production of the last unit of the good in equilibrium is ________.

answer

$0.30

question

Deadweight loss refers to the loss in ________.

answer

total surplus due to a market distortion such as an externality

question

Which of the following can give rise to a negative externality?

answer

Smoking a cigarette

question

Which of the following gives rise to a positive externality?

answer

Consumption of a drug to cure a communicable disease

question

Which of the following activities can give rise to a positive externality?

answer

Getting a flu vaccination

question

The production of a certain fertilizer emits a gas that keeps away mosquitoes and other insects from the surrounding community. This is an example of a ________.

answer

positive externality

question

Which of the following will lead to an efficient private solution if negative externalities are present in a market?

answer

The parties involved negotiate with each other and reach an agreement.

question

The Coase Theorem states that ________.

answer

negotiation between economic agents leads to an efficient allocation of resources

question

When a Pigouvian tax is imposed, ________.

answer

the marginal private cost curve shifts upward

question

Smoking increases the risk of lung infections not only for active smokers but also for other people inhaling the smoke passively. Which of the following will help in reducing smoking?

answer

A corrective tax

question

Government invention is required to solve externality problems if ________.

answer

the number of people affected by the externality is large

question

You bought a subscription for an online magazine and shared your log-in details with a friend. Your friend is a ________ in this case.

answer

free-rider

question

Public goods are ________ in consumption.

answer

non-excludable and non-rival

question

Which of the following goods is rival in consumption and is also excludable?

answer

A DVD

question

A fireworks show has been arranged in a park. The ticket for the show is $5 but only 40% of the tickets get sold as spectators can watch the show without entering the park. This is an example of ________.

answer

the free-rider problem

question

The tragedy of the commons occurs because some goods are ________ in consumption.

answer

non-excludable, but rival

question

An externality occurs when ________.

answer

an economic activity affects third parties not engaged in the activity

question

The presence of a positive externality in a market leads to ________.

answer

an underproduction of the good

question

The cost of making an economic exchange is called a(n) ________ cost.

answer

transaction

question

Which of the following is true?

answer

If production of a good gives rise to a negative externality, it can be internalized by taxing the producers of the good.

question

________ are highly excludable but non-rival in consumption.

answer

Club goods

question

Overfishing leading to a rapid depletion of the stock of fish is an example of ________.

answer

A tragedy in the commons

question

An open pasture has turned barren due to overgrazing by local ranchers. This happened because the pasture was ________.

answer

Non-excludable but rival

question

The following figure shows the demand curve, D, and the supply curve, S, of chairs in Barylia. Barylia is open to free trade. The world price of chairs is $3 and the government of Barylia decides to impose a $1 tariff on the import of chairs.
Refer to the figure above. Calculate the revenue earned by the government when it imposes a tariff of $1 on chairs.

answer

$40

question

Taxes levied on goods and services transported across political boundaries are referred to as:

answer

tariffs

question

The social cost of producing a good that generates negative externalities is the sum of the ________.

answer

private cost and external costs of production

question

The following figure shows the private cost and social cost of producing Good X.
Refer to the figure above. Which of the following statements are true in this case?

answer

Q2 is the efficient level of output of Good X.

question

The figure below shows the demand, supply, and marginal social benefit curves for Good Y.
Refer to the figure above. Social surplus can be increased by ________.

answer

increasing output above 13 million units

question

A free rider is a person who ________.

answer

receives benefits without paying for them

question

A retired athlete built a gym near his house that could be used for free by all the residents in the neighborhood. However, the overuse of the facilities soon led to irreparable damages. This is an example of the ________.

answer

tragedy of the commons

question

The following figure shows the demand curve, D, and the supply curve, S, of chairs in Barylia. Barylia is open to free trade. The world price of chairs is $3 and the government of Barylia decides to impose a $1 tariff on the import of chairs.
Refer to the figure above. What is the deadweight loss of the tariff imposed by the government?

answer

$10

question

The following figure shows the private cost and social cost of producing Good X.
Refer to the figure above. What does the region EFG represent?

answer

Deadweightloss

question

If negative externalities are present in a market, ________.

answer

the quantity supplied in the market is larger than the socially optimal level

question

Which of the following is true if the production of a good gives rise to a positive externality?

answer

The marginal social benefit from each level of output exceeds the consumers' willingness to pay.

question

_______ are non-excludable in consumption.

answer

Public goods and common pool resource

question

answer

$180

question

The following figure shows the demand curve, D, and the supply curve, S, of chairs in Barylia. Barylia is open to free trade. The world price of chairs is $3 and the government of Barylia decides to impose a $1 tariff on the import of chairs.
Refer to the figure above. How many chairs were imported by Lithasia before the tariff was imposed by the government

answer

60 units

question

Which of the following gives rise to a negative externality?

answer

Deforestation leading to the extinction of many species

question

Which of the following is an implication of the Coase Theorem?

answer

Government intervention is not always necessary to solve externality problems

question

_____ occurs when an individual has no incentive in paying for a good because failure to pay does not prevent consumption.

answer

a free-rider problem

question

A ________ occurs when an economic activity has a spillover cost that does not affect those directly engaged in the activity.

answer

negative externality

question

If too little of a good is being produced in the free market, the production of the good is likely to have a(n) ________ externality.

answer

positive

question

Alex is a non-union employee in a factory. If the union negotiates certain benefits for the employees, Alex enjoys all the benefits although he does not pay the union fee. His behavior is an example of ________.

answer

free-riding

question

The invisible hand suggests that:

answer

individuals working for self-interest will eventually maximize the well-being of society.

question

In a competitive market equilibrium:

answer

There is pareto efficiency

question

Scenario: With the available resources, Wendy can produce 20 greeting cards or 10 earrings. Sarah, with the resources she has, can produce 5 greeting cards or 15 earrings.
Refer to the scenario above. What is Wendy's opportunity cost of producing one earring?

answer

2 greeting cards

question

Points on a production possibilities curve are ________ and ________.

answer

efficient; attainable

question

An outcome is Pareto efficient if:

answer

no individual can be made better off without making someone else worse off.

question

Scenario: Jack takes 3 hours to complete a painting and 6 hours to make a sculpture. He has 30 hours of time to be spent on both activities.
Refer to the scenario above. Which of the following combinations will lie on Jack's production possibilities curve?

answer

10 paintings only

question

The ability of an individual, firm, or country to produce a certain good at a lower opportunity cost than other producers is referred to as:

answer

comparative advantage

question

The following figure shows the production possibilities curve of two individuals: Ryan and Tom.
Refer to the figure above. Which of the following statements is true?

answer

Ryan's opportunity cost of producing Good 2 is higher than Tom's opportunity cost of producing it.

question

The terms of trade refer to:

answer

exchange rate of goods for goods.

question

The following figure shows the production possibilities curve of two individuals: Ryan and Tom.
Refer to the figure above. Which of the following statements is true?

answer

Ryan has an absolute advantage in the production of both the goods.

question

The curvature of an economy's production possibilities curve represents:

answer

an increasing opportunity cost of producing each good.

question

Which of the following will cause an inward shift of the production possibilities curve of an economy?

answer

A decline in the size of the labor force

question

Which of the following statements is true?

answer

The production possibilities curve of a country is fixed in the short run.

question

The following figure shows the demand curve, D, and supply curve, S, of ball point pens in Lithasia. The world price of pens is $2.
Refer to the figure above. Which of the following statements is true?

answer

The nation gained as a whole by opening up to free trade.

question

Which of the following statements is true?

answer

If the domestic price of a good in a country is lower than the world price, the country will become an exporter of the good.

question

The following figure shows the demand curve, D, and supply curve, S, of ball point pens in Lithasia. The world price of pens is $2.
Refer to the figure above. What is the consumer surplus before Lithasia opens up to free trade?

answer

$18

question

The following figure shows the demand curve, D, and the supply curve, S, for calculators in Barylia. The world price of calculators is $40.
Refer to the figure above. What is the consumer surplus before Barylia opens up to free trade?

answer

$400

question

An export is any good that is:

answer

produced domestically, but sold abroad

question

The following figure shows the demand curve, D, and supply curve, S, of ball point pens in Lithasia. The world price of pens is $2.
Refer to the figure above. If Lithasia opens up to free trade, then which of the following statements is true?

answer

Lithasia will start importing pens.

question

An import is any good that is:

answer

produced abroad, but sold domestically

question

Which of the following statements is true of a perfectly competitive market?

answer

The equilibrium price in a competitive market efficiently allocates scarce resources to participants in that market.

question

Points lying below a production possibilities curve are:

answer

inefficient because more can be produced with the available resources.

question

The ability of an individual, firm, or country to produce more of a certain good than other competing producers, given the same amount of resources, is referred to as:

answer

absolute advantage

question

Scenario: Hawaii and South Carolina are trading partners. Hawaii has an absolute advantage in the production of both coffee and tea. The opportunity cost of producing 1 pound of tea in Hawaii is 2 pounds of coffee and the opportunity cost of producing one pound of tea in South Carolina is 1/3 pound of coffee.
Refer to the scenario above. If both nations decide to trade, which of the following statements is true?

answer

Hawaii should export coffee and South Carolina should export tea.

question

Suppose a nation opens up to free trade and becomes an exporter of goods. Which of the following is then true of this nation?

answer

Sellers gain.

question

The following figure shows the supply curve of a shoe manufacturing firm.
Refer to the figure above. What is the producer surplus when the price is $50?

answer

$200

question

A production possibilities curve shows the relationship between:

answer

the maximum production of one good for a given level of production of another good.

question

Scenario: Hawaii and South Carolina are trading partners. Hawaii has an absolute advantage in the production of both coffee and tea. The opportunity cost of producing 1 pound of tea in Hawaii is 2 pounds of coffee and the opportunity cost of producing one pound of tea in South Carolina is 1/3 pound of coffee.
Refer to the scenario above. Which of the following statements is true of the terms of trade of tea for coffee?

answer

The term of trade will lie between 1/3 and 2.

question

The marginal cost curve intersects:

answer

both the average variable cost curve and the average total cost curve at their minimum.

question

The following table shows the total output, number of workers employed, variable costs, and fixed costs of a firm.
Number of Workers Total Output (units) Variable Costs ($) Fixed Costs ($)
0 0 0 150
1 25 10 150
2 55 20 150
3 86 30 150
4 110 40 150
5 130 50 150
6 145 60 150
7 155 70 150
8 160 80 150
Refer to the table above. What is the average fixed cost of producing 110 units of the good?

answer

$1.36

question

In a perfectly competitive market:

answer

price is always equal to marginal revenue.

question

The following table shows the total output, number of workers employed, variable costs, and fixed costs of a firm.
Refer to the table above. What is the average variable cost of producing 86 units of the good?

answer

$0.35

question

When the marginal cost curve lies below the average cost curve, ________.

answer

the average cost curve slopes downward

question

Suppose that a firm in a competitive market faces the following revenues and costs:
Refer to Table 14-8. The firm should not produce an output level beyond

answer

5 units.

question

Scenario 14-3
Suppose a certain competitive firm is producing Q=500 units of output. The marginal cost of the 500th unit is $17, and the average total cost of producing 500 units is $12. The firm sells its output for $20.
Refer to Scenario 14-3. At Q=500, the firm's profits equal

answer

$4,000

question

Suppose a firm operating in a competitive market has the following cost curves:
Refer to Figure 14-6. When market price is P3, a profit-maximizing firm's total costs

answer

P3xQ2

question

A firm producing 10 units of output incurs a total cost of $800. When it produces 11 units, the total cost increases to $890. What is the marginal cost of producing the eleventh unit?

answer

$90

question

Scenario 14-2
Assume a certain firm is producing Q = 1,000 units of output. At Q = 1,000, the firm's marginal cost equals $20 and its average total cost equals $25. The firm sells its output for $30 per unit.
Refer to Scenario 14-2. At Q = 1,000, the firm's profits equal

answer

$5,000.

question

answer

$24,980.

question

The entry of new firms into a perfectly competitive market will cause:

answer

a decrease in the profitability of existing firms.

question

If new firms are expected to enter an existing market, ________.

answer

the market price is likely to fall

question

When price is less than the firms' minimum average total cost, ________.

answer

existing firms will leave the market

question

The incentive for new firms to enter into a perfectly competitive market is primarily the:

answer

positive profits observed for the existing firms in the market.

question

Positive economic profits in a perfectly competitive market imply that:

answer

producers are earning more than their opportunity cost.

question

The ________ plots the relationship between prices and the quantity producers are willing to sell.

answer

supply curve

question

Which of the following is likely to cause the supply curve for steel window frames to shift to the right?

answer

A decrease in the cost of production of steel due to a new subsidy

question

The Law of Supply states that:

answer

the quantity supplied of a good rises when the price rises.

question

The quantity supplied of a good:

answer

is the amount of the good that sellers are ready to supply at a given price.

question

Which of the following pairs of goods has a negative cross-price elasticity?

answer

Pens and paper notebooks

question

As the number of available substitutes increases, the price elasticity of demand for a good:

answer

increases.

question

________ is the measure of the sensitivity of one variable to a change in another.

answer

Elasticity

question

Negative values of the price elasticity of demand of a good can be attributed to:

answer

the Law of Demand.

question

Which of the following goods is likely to have the lowest price elasticity of demand?

answer

Life-saving drugs

question

As the ________ increases, ________.

answer

price of a good; its quantity demanded decreases

question

Which of the following statements is true of the cross-price elasticity of demand?

answer

The cross-price elasticity of demand between complements is negative.

question

A good is said to have a relatively elastic demand if the value of price elasticity is:

answer

greater than 1

question

Economists normally assume that the goal of a firm is to earn
(i)profits as large as possible, even if it means reducing output.
(ii)profits as large as possible, even if it means incurring a higher total cost.
(iii)revenues as large as possible, even if it reduces profits.

answer

i and ii only

question

Explicit costs

answer

require an outlay of money by the firm.

question

The difference between accounting profit and economic profit is

answer

implicit costs

question

Jamar used to work as an office manager, earning $40,000 per year. He gave up that job to start a life-coaching business. In calculating the economic profit of his life-coaching business, the $40,000 income that he gave up is counted as part of the life-coaching business's

answer

opportunity costs

question

Wanda owns a lemonade stand. She produces lemonade using five inputs: water, sugar, lemons, paper cups, and labor. Her average costs per glass are as follows: $0.01 for water, $0.02 for sugar, $0.03 for lemons, $0.02 for cups, and $0.10 for the opportunity cost of her labor. She can sell 300 glasses for $0.50 each.
Refer to Scenario 13-8. What are Wanda's total accounting profits?

answer

$126

question

When a factory is operating in the short run,

answer

it cannot adjust the quantity of fixed inputs.

question

Increases in the marginal product of labor can be attributed to:

answer

specialization of workers.

question

The following table shows the total output produced by different numbers of workers in a shoe factory.
Refer to the table above. What is the marginal product of the sixth worker?

answer

20 pairs of shoes

question

The following table shows the total output of bread produced by different numbers of workers in a bakery.
Refer to the table above. Diminishing marginal returns sets in when:

answer

the fourth worker is hired.

question

Which of the following refers to diminishing marginal returns?

answer

The additional output produced in a firm decreased as more workers were hired.

question

A firm produced 376 units with 10 workers. When the eleventh worker was hired, the output increased to 398 units. The marginal product of the eleventh worker is:

answer

22 units

question

The following table shows the total output produced by different numbers of workers in a shoe factory.
Refer to the table above. What is the marginal product of the third worker?

answer

68 pairs of shoes

question

The following figure displays John's budget constraint when he spends his income on tables and chairs.
Refer to the figure above. If the price of a table is $2, what is John's income?

answer

$80

question

Which of the following is NOT a direct determining factor of consumers' purchase decisions?

answer

Cost of factor inputs

question

Suppose the prices of a pair of jeans, a shirt, and a tie are $30, $20, and $10 respectively. Which of the following statements is true in this context?

answer

The opportunity cost of buying a shirt is 2 ties.

question

If quantity of milk is measured on the horizontal axis and quantity of juice is measured on the vertical axis, a decrease in the price of milk will cause the budget constraint to:

answer

pivot rightward along the horizontal axis.

question

If quantity of tea is measured on the horizontal axis and quantity of coffee is measured on the vertical axis, an increase in the price of coffee will cause the budget constraint to:

answer

pivot leftward along the vertical axis.

question

A decrease in the price of either good will cause a consumer's budget constraint to:

answer

pivot rightward.

question

________ in economics is a measure of satisfaction or happiness that comes from consuming a good or service.

answer

Utility

question

The consumption bundle that maximizes a consumer's satisfaction given his income is located:

answer

at the point of tangency of the consumer's budget constraint and indifference curve.

question

The demand curve for most goods is normally:

answer

downward sloping.

question

Which of the following is likely to cause the demand curve for large cars to shift to the left

answer

A rise in the price of gasoline

question

Jenny likes chocolates. One day, a friend offers her a chocolate bar and she is extremely happy on receiving it. As the day progresses, many other people also buy her chocolate. As she gets more and more chocolates, her excitement on receiving each bar is seen to gradually lessen. Which economic principle is reflected in this example?

answer

The Law of Diminishing Marginal Benefit

question

Which of the following factors will NOT cause a shift in the demand for a good?

answer

A change in the market price of the good

question

A change in the quantity demanded of a good is:

answer

represented by a movement along the demand curve.

question

The market demand is the ________ of the individual demand of all the potential buyers.

answer

sum

question

Which of the following best describes the difference between a demand curve and a demand schedule?

answer

A demand curve is a graphical representation of the relationship between the quantity of a good and its price, whereas a demand schedule is a tabular representation.

question

The Law of Diminishing Marginal Benefit states that:

answer

the willingness to pay for an additional unit declines as more of a good is consumed.

question

The following table shows the demand schedules of three consumers of wine. Assume that these three buyers constitute the entire market.
Price
($/Unit) Consumer 1 Demand Consumer 2 Demand Consumer 3 Demand
$4 5 10 17
$3 10 20 20
$2 16 26 23
$1 20 31 25
Refer to the table above. What is the market demand for wine when the price is $3?

answer

50 units

question

Two goods are said to be substitutes when a fall in the price of one good:

answer

leads to a left shift in the demand for the other good.

question

The quantity demanded of a good is:

answer

the amount of a good that buyers are willing to purchase at a given market price.

question

The willingness to pay for a commodity:

answer

decreases as consumption of the commodity increases.

question

Which of the following is an example of a normative economic statement?

answer

An increase in government expenditure will lead to an increase in well-being.

question

Which of the following statements is true?

answer

Normative statements depend on personal preferences.

question

Which of the following statements is true?

answer

A government is an example of an economic agent.

question

Which of the following statements is true of economic reasoning?

answer

Economic reasoning helps people make the best use of scarce resources.

question

Empiricism is analysis that uses ________ to test theories.

answer

data

question

John has to choose between two jobs: one that offers him $50 per hour and one that offers him $35 per hour. The opportunity cost of choosing the job that offers him $50 per hour is:

answer

$35 per hour

question

________ is a calculation that adds up costs and benefits using a common unit of measurement, like dollar values.

answer

Cost-benefit analysis

question

The following table shows the monthly wages of five different individuals.
Individual Monthly Wage (in dollars)
1 200
2 450
3 640
4 700
5 800
If a number greater than the mean (average) of a series of observations is added to the series, the new mean is:

answer

greater than the original mean

question

Data show that in 2012, the college enrollment in Lithasia increased. In the same year, the sale of hotdogs in Lithasia also increased. The relationship between college enrollment and the sale of hotdogs exhibits:

answer

a positive correlation.

question

A variable is a factor that:

answer

takes different values at different points of time.

question

The mean of a data set is the:

answer

sum of all different values divided by the number of values.

question

In most cases, optimization in differences is faster and easier than optimization in levels because:

answer

the former only focuses on the key differences between options and ignores things in common.

question

Which of the following statements identifies a similarity between optimization in levels and optimization in differences?

answer

Both techniques require the conversion of all costs and benefits into a common unit of measurement.

question

Which of the following statements identifies a difference between optimization in levels and optimization in differences?

answer

In many cases, optimization in differences is faster and easier than optimization in levels.

question

Among a set of alternatives with the same benefits, an individual is said to optimize if she chooses an alternative that:

answer

has the lowest total cost.

question

Among a set of alternatives with the same total costs, an individual is said to optimize if she chooses an alternative that has the:

answer

highest total benefit.

question

Ryan wants to rent an apartment. The following table shows the monthly rent of five apartments and the monthly commuting time to work from each apartment. Ryan's opportunity cost of time is $15 per hour.
Apartment Commuting Time (hours/month) Rent ($/month)
1 40 1,500
2 20 1,750
3 10 2,000
4 4 2,210
5 1 2,250
Refer to the table above. If the opportunity cost of time increases to $60 per hour, renting which apartment will minimize Ryan's total cost every month?

answer

question

If the total cost incurred in hiring ten workers by a firm is $45, and the total cost incurred when the eleventh worker is hired is $60, the marginal cost of hiring the eleventh worker is:

answer

$15

question

Assume that an individual has to decide between a two-day vacation and a three-day vacation to the same place. If he uses optimization in differences, he will:

answer

only think about the net benefits of the extra day.

question

________ uses the concept of marginal analysis to determine the optimum choice.

answer

Optimization in differences

1 of 284

question

Oligopolists merge to ________.

answer

increase market power

question

________ is the market structure in which there are many rival firms producing differentiated products.

answer

Monopolistic competition

question

answer

$8,000

question

answer

$3.0 million

question

answer

The dominant strategy equilibrium of this game is also the Nash equilibrium.

question

An industry with only two competing firms is called a ________.

answer

duopoly

question

answer

monopolistically competitive market

question

The marginal revenue curve of a monopolistic competitor ________.

answer

lies below the demand curve

question

Game theory is the study of ________.

answer

strategic interactions

question

Which of the following is true of a Nash equilibrium?

answer

No player can improve his payoff by changing his strategy once in Nash equilibrium.

question

________ is the market structure in which there are a few rival firms.

answer

Oligopoly

question

Why do firms enter into a collusive agreement?

answer

To increase profits

question

The long-run equilibrium for a monopolistically competitive firm occurs ________.

answer

along the downward sloping portion of its average total cost curve

question

answer

has two Nash equilibria

question

The figure below shows the demand and cost curves faced by a monopolistic competitor:
Refer to the figure above. The optimal price charged by the monopolistic competitor is ________.

answer

question

New firms enter a monopolistically competitive market structure in the long run if the price charged by the existing firms in the short run ________.

answer

exceeds the average total cost of production

question

answer

-2

question

A Nash equilibrium occurs if ________.

answer

each player chooses strategies that are mutual best responses

question

A monopolistic competitor produces 1,200 units of a good at an average cost of $120 per unit. If the price charged is $135, calculate his total profit.

answer

$18,000

question

The price charged by a monopolistic competitor for each unit of a good is $7. If it produces 5,000 units of the good at a total cost of $25,000, what is his profit?

answer

$10,000

question

answer

Firm A chooses Strategy Y if Firm B chooses Strategy Y.

question

A monopolistically competitive firm ________.

answer

can increase price without losing all of its business

question

answer

The dominant strategy equilibrium of this game is also the Nash equilibrium.

question

A profit-maximizing monopolistic competitor continues production until ________.

answer

marginal revenue equals marginal cost

question

answer

This game does not have a dominant strategy equilibrium.

question

A monopolistic competitor incurs losses if ________.

answer

price is lower than average total cost

question

A monopolistically competitive firm always faces a(n) ________.

answer

downward sloping demand curve

question

answer

$3.5 million

question

answer

The dominant strategy equilibrium of this game is also the Nash equilibrium.

question

answer

The demand faced by the existing firms will decrease.

question

The payoff matrix given below shows the payoffs to two rival firms in millions of US dollars for each strategy they choose. The first number listed in each cell is the payoff to the row player and the second number listed is the payoff to the column player. In this game, the dominant strategy equilibrium occurs if ________.

answer

Firm A chooses Strategy Y, and Firm B chooses Strategy X

question

The figure below shows the demand curve (DD), the marginal revenue curve (MR), and the cost curves of a monopolistic competitor.
What does the region ABDC indicate?

answer

Economic profit

question

A monopolistic competitor earns zero economic profits if ________.

answer

price is equal to average total cost

question

answer

Jack is better off by trying to move the tree if Jill tries to move the tree.

question

answer

The dominant strategy equilibrium of this game is also the Nash equilibrium.

question

Which of the following will happen if some firms in a monopolistically competitive market incur losses in the short run and the market conditions are not expected to change?

answer

Some firms will exit the industry in the long run.

question

A monopolistic competitor exits the industry in the long run if ________.

answer

total costs exceed total revenue

question

Which of the following is a feature of an oligopoly market?

answer

Each firm's action affects the decisions of its rival.

question

The figure below shows the demand and cost curves faced by a monopolistic competitor:
Refer to the figure above. The optimal quantity produced by the monopolistic competitor is ________.

answer

question

Homogeneous goods are ________.

answer

perfect substitutes

question

The profit earned by a monopolistic competitor after the entry of new firms is ________.

answer

lower than the profit earned by the firm before the entry of new firms

question

Which of the following is a difference between an oligopoly with differentiated products and a monopolistic competition?

answer

There are huge barriers to entry in an oligopoly with differentiated products, while there are minimal barriers to entry in a monopolistically competitive market.

question

A best response is ________.

answer

one player's optimal action choice taking the other player's action as given

question

answer

Mike will be let free while Rita will be suspended.

question

The payoff matrix given below shows the payoffs to two rival firms in millions of US dollars for each strategy they choose. The first number listed in each cell is the payoff to the row player and the second number listed is the payoff to the column player.
Refer to the scenario above. Which of the following is true?

answer

Firm B is better off by choosing Strategy X when Firm A chooses Strategy Y.

question

answer

The dominant strategy equilibrium of this game is also the Nash equilibrium.

question

Sellers in which of the following market structures are likely to have the highest market power?

answer

Monopoly

question

Which of the following statements is true?

answer

Firms in a market with entry barriers are likely to have more market power than firms in a market with no entry barriers.

question

A ________ is the privilege granted to an individual or company by the government, which gives them the sole right to produce and sell a good.

answer

patent

question

A musician was guaranteed by the government that no one else could replicate or sell his music CDs. This is an example of a:

answer

question

A price maker is a firm that:

answer

has the power to affect the price of the product it sells.

question

A market in which a firm emerges as a monopoly due to large economies of scale is referred to as:

answer

a natural monopoly

question

answer

The total revenue increases by $3,400.

question

answer

-$3

question

When a monopolist sells positive levels of output, its demand curve:

answer

lies above its marginal revenue curve.

question

Over a particular price range, if the quantity effect of a price decrease is smaller than the price effect, it implies that:

answer

demand is inelastic in the price range.

question

The following figure shows the demand curve faced by a monopolist. Refer to the figure above. What is the change in total revenue due to a price reduction from $6 to $4?

answer

The total revenue increases by $200.

question

The following table shows the quantity of a good sold by a monopolist at different prices. Refer to the table above. What is the total revenue when the monopolist charges a price of $6?

answer

$1,800

question

The following table shows the quantity of a good sold by a monopolist at different prices. What is the total revenue of the monopolist when it charges a price of $9?

answer

$1,350

question

answer

$10

question

Which of the following statements is true of price makers?

answer

Price makers set the price of a good after they determine how much to produce.

question

answer

30 units

question

At the profit-maximizing level of production of a monopolist, ________.

answer

marginal revenue equals marginal cost

question

answer

200 units

question

If the marginal cost of a monopolist exceeds its marginal revenue, ________.

answer

additional production reduces profits

question

Which of the following statements correctly identifies a similarity between monopoly and perfect competition?

answer

Production is expanded until marginal revenue equals marginal cost in both the market structures.

question

A market structure in which there is no competition is referred to as ________.

answer

a monopoly

question

Greenaqua Corp. was given the exclusive right to produce and sell its newly introduced water purifier for 20 years. The right granted to Greenaqua is an example of a:

answer

patent

question

answer

The total revenue increases by $50.

question

The following table shows the quantity of a good sold by a monopolist at different prices.
Refer to the table above. What is the total revenue of the monopolist when it charges a price of $9?

answer

$1,350

question

Compared to a firm under perfect competition, a monopolist:

answer

charges more and produces less.

question

A ________ is an exclusive right granted by the government to an author's intellectual property.

answer

question

The following figure shows the demand curve faced by a monopolist. Refer to the figure above. What is the change in total revenue due to a price increase from $3 to $5?

answer

The total revenue increases by $200.

question

The following figure shows the demand curve faced by a monopolist.
Refer to the figure above. What is the change in total revenue due to a price reduction from $6 to $4?

answer

The total revenue increases by $200.

question

The following figure shows the marginal revenue (MR) and demand curves faced by a monopolist.
Refer to the figure above. If the monopolist faces a constant marginal cost of $2, at what price should it sell its output?

answer

$10

question

Patents are a source of:

answer

legal market power.

question

Economies of scale in production act as a source of:

answer

natural market power

question

answer

it makes a profit of $60

question

Which of the following statements is true?

answer

Firms in a market with entry barriers are likely to have more market power than firms in a market with no entry barriers.

question

answer

$14

question

________ refers to the ability of sellers to affect market prices.

answer

Market Power

question

answer

question

answer

40 units

question

Scenario: When a monopolist charges $10 for its product, it sells 500 units of the product. When it lowers the price to $6, it sells 1,400 units of the product.
Refer to the scenario above. Which of the following statements is true of the demand curve that the monopolist faces in the price range of $6 to $10?

answer

The demand curve is elastic in the price range.

question

The following table shows the quantity of a good sold by a monopolist at different prices.
Quantity (units) Price ($)
150 9
200 8
250 7
300 6
350 5
400 4
450 3
Refer to the table above. What is the total revenue of the monopolist when it charges a price of $9?

answer

$1,350

question

As a firm increases its output, its average total cost decreases. This is an outcome of:

answer

economies of scale.

question

________ is a market structure where only one firm provides a good or service that has no close substitutes.

answer

A Monopoly

question

If the marginal revenue of a producer exceeds his marginal cost:

answer

additional production enhances profits.

question

Over a particular price range, if the quantity effect of a price decrease is larger than the price effect, it implies that:

answer

demand is elastic in the price range.

question

If a monopolist faces a linear demand curve, its marginal revenue curve will be:

answer

twice as steep as the demand curve.

question

A ________ is the privilege granted to an individual or company by the government, which gives them the sole right to produce and sell a good.

answer

patent

question

In which of the following market structures does a seller have NO market power?

answer

Perfect competition

question

The following table shows the quantity of a good sold by a monopolist at different prices.
Refer to the table above. Which of the following statements is true of the monopolist's total revenue?

answer

As the monopolist reduces the price of its product from $9 to $3, its total revenue increases then decreases.

question

A monopolist faces an average total cost of $6 when it produces 200 units of its product. If it sells the 200 units at $8 per unit, ________.

answer

the monopolist makes a profit of $400

question

In a ________ tax system, the marginal tax rate declines with income.

answer

regressive

question

Mr. Smith pays $20,000 annually as tax. If his annual income is $100,000, what is his average tax?

answer

20%

question

The table below shows the tax brackets for different income groups in a country:
Refer to the table above. This is an example of a ________ tax system.

answer

progressive

question

A ________ tax system is one in which tax rates increase with taxable base incomes.

answer

progressive

question

The government of Lithasia ran a budget deficit of $60,000 in 2014. If the tax revenue of the Lithasian government in 2014 was $320,000,000, how much did the government spend in that year?

answer

$320,060,000

question

Which of the following is true of a progressive tax system?

answer

High income households pay a higher percentage of their income as taxes.

question

The table below shows the tax brackets for different income groups in a country:
Refer to the table above. If Tom has a taxable income of $62,000, he faces a marginal tax rate of ________.

answer

20%

question

A budget surplus occurs when ________.

answer

tax revenue exceeds government spending

question

answer

$60 million

question

answer

$7.5 million

question

answer

GAE

question

If the sellers of a good are taxed for each unit sold, ________.

answer

the supply curve for the good shifts to the left

question

The term ________ refers to how the burden of the tax is distributed across various agents in the economy.

answer

tax incidence

question

A rent control is an example of a ________.

answer

price ceiling

question

A price floor set above the equilibrium price leads to a(n) ________.

answer

excess supply of goods int he market

question

The figure below shows the market for Good X:
Refer to the figure above. The region ABC shows the ________ due to the price ceiling.

answer

deadweight loss

question

The government of Lithasia has decided to set a minimum price for certain agricultural products in order to safeguard the interests of farmers. This is an example of a ________.

answer

price ceiling

question

A price floor is the ________.

answer

lower limit on the price of a good

question

The price of a gallon of gasoline in Bonland is $3.20. However, just before the election, the government decides to fix the price of gasoline at $2.80 per gallon. This is an example of a ________.

answer

price ceiling

question

A gallon of milk costs $4 in Bonland. If the government fixes the price at $3.50, ________.

answer

a shortage of milk will occur in the market

question

The government of Putania spent $67,000,000 in a particular year, and the total tax receipts of the government in that year were $120,000. Calculate the budget deficit.

answer

$66,880,000

question

One reason governments impose taxes is to ________.

answer

redistribute funds via transfer payments

question

A price ceiling refers to ________.

answer

the upper limit on the price of a good

question

The marginal income tax rate is the ________.

answer

percentage of the last dollar earned that a household pays in taxes

question

In a regressive tax system, ________.

answer

low income households pay a higher percentage of their income as taxes

question

The tax incidence on sellers is higher if ________.

answer

the buyers are more sensitive to price changes than the sellers

question

The figure below shows the market for Good X:
Refer to the figure above. How many units of Good X will be demanded if the government sets a price ceiling of Pc on the good?

answer

35 units

question

The figure below shows the market for Good X:
Refer to the figure above. How many units of Good X will be supplied if the government sets a price ceiling of Pc on the good?

answer

10 units

question

The government of Richland has set a minimum wage for factory workers. This will lead to an ________ if above the current market wage.

answer

increase in the number of workers supplied

question

If the sellers of a good are taxed for each unit sold, ________.

answer

a smaller quantity of the good will be sold

question

The average tax rate faced by an individual is the ________.

answer

total tax paid by her divided by the total income earned

question

A ________ occurs when government spending exceeds tax revenue.

answer

budget deficit

question

The demand curve for pizza in Foodieland is inelastic. If a tax is imposed on each pizza bought, ________.

answer

the burden of the tax will fall more heavily on the buyers

question

________ taxes are paid by a buyer as a percentage of the market price of an item.

answer

Sales

question

answer

JBF

question

answer

$245

question

Which of the following correctly identifies an argument against free trade?

answer

Free trade may result in job loss in some specific industries in the domestic economy.

question

The following figure shows the demand curve, D, and the supply curve, S, of chairs in Barylia. Barylia is open to free trade. The world price of chairs is $3 and the government of Barylia decides to impose a $1 tariff on the import of chairs.
Refer to the figure above. What is the domestic price of chairs in Lithasia in the absence of trade?

answer

question

Which of the following correctly identifies an argument against free trade?

answer

Free trade can lead to excessive exploitation of resources in poor countries.

question

answer

$0.30

question

Deadweight loss refers to the loss in ________.

answer

total surplus due to a market distortion such as an externality

question

Which of the following can give rise to a negative externality?

answer

Smoking a cigarette

question

Which of the following gives rise to a positive externality?

answer

Consumption of a drug to cure a communicable disease

question

Which of the following activities can give rise to a positive externality?

answer

Getting a flu vaccination

question

The production of a certain fertilizer emits a gas that keeps away mosquitoes and other insects from the surrounding community. This is an example of a ________.

answer

positive externality

question

Which of the following will lead to an efficient private solution if negative externalities are present in a market?

answer

The parties involved negotiate with each other and reach an agreement.

question

The Coase Theorem states that ________.

answer

negotiation between economic agents leads to an efficient allocation of resources

question

When a Pigouvian tax is imposed, ________.

answer

the marginal private cost curve shifts upward

question

Smoking increases the risk of lung infections not only for active smokers but also for other people inhaling the smoke passively. Which of the following will help in reducing smoking?

answer

A corrective tax

question

Government invention is required to solve externality problems if ________.

answer

the number of people affected by the externality is large

question

You bought a subscription for an online magazine and shared your log-in details with a friend. Your friend is a ________ in this case.

answer

free-rider

question

Public goods are ________ in consumption.

answer

non-excludable and non-rival

question

Which of the following goods is rival in consumption and is also excludable?

answer

A DVD

question

answer

the free-rider problem

question

The tragedy of the commons occurs because some goods are ________ in consumption.

answer

non-excludable, but rival

question

An externality occurs when ________.

answer

an economic activity affects third parties not engaged in the activity

question

The presence of a positive externality in a market leads to ________.

answer

an underproduction of the good

question

The cost of making an economic exchange is called a(n) ________ cost.

answer

transaction

question

Which of the following is true?

answer

If production of a good gives rise to a negative externality, it can be internalized by taxing the producers of the good.

question

________ are highly excludable but non-rival in consumption.

answer

Club goods

question

Overfishing leading to a rapid depletion of the stock of fish is an example of ________.

answer

A tragedy in the commons

question

An open pasture has turned barren due to overgrazing by local ranchers. This happened because the pasture was ________.

answer

Non-excludable but rival

question

The following figure shows the demand curve, D, and the supply curve, S, of chairs in Barylia. Barylia is open to free trade. The world price of chairs is $3 and the government of Barylia decides to impose a $1 tariff on the import of chairs.
Refer to the figure above. Calculate the revenue earned by the government when it imposes a tariff of $1 on chairs.

answer

$40

question

Taxes levied on goods and services transported across political boundaries are referred to as:

answer

tariffs

question

The social cost of producing a good that generates negative externalities is the sum of the ________.

answer

private cost and external costs of production

question

The following figure shows the private cost and social cost of producing Good X.
Refer to the figure above. Which of the following statements are true in this case?

answer

Q2 is the efficient level of output of Good X.

question

The figure below shows the demand, supply, and marginal social benefit curves for Good Y.
Refer to the figure above. Social surplus can be increased by ________.

answer

increasing output above 13 million units

question

A free rider is a person who ________.

answer

receives benefits without paying for them

question

answer

tragedy of the commons

question

The following figure shows the demand curve, D, and the supply curve, S, of chairs in Barylia. Barylia is open to free trade. The world price of chairs is $3 and the government of Barylia decides to impose a $1 tariff on the import of chairs.
Refer to the figure above. What is the deadweight loss of the tariff imposed by the government?

answer

$10

question

The following figure shows the private cost and social cost of producing Good X.
Refer to the figure above. What does the region EFG represent?

answer

Deadweightloss

question

If negative externalities are present in a market, ________.

answer

the quantity supplied in the market is larger than the socially optimal level

question

Which of the following is true if the production of a good gives rise to a positive externality?

answer

The marginal social benefit from each level of output exceeds the consumers' willingness to pay.

question

_______ are non-excludable in consumption.

answer

Public goods and common pool resource

question

answer

$180

question

The following figure shows the demand curve, D, and the supply curve, S, of chairs in Barylia. Barylia is open to free trade. The world price of chairs is $3 and the government of Barylia decides to impose a $1 tariff on the import of chairs.
Refer to the figure above. How many chairs were imported by Lithasia before the tariff was imposed by the government

answer

60 units

question

Which of the following gives rise to a negative externality?

answer

Deforestation leading to the extinction of many species

question

Which of the following is an implication of the Coase Theorem?

answer

Government intervention is not always necessary to solve externality problems

question

_____ occurs when an individual has no incentive in paying for a good because failure to pay does not prevent consumption.

answer

a free-rider problem

question

A ________ occurs when an economic activity has a spillover cost that does not affect those directly engaged in the activity.

answer

negative externality

question

If too little of a good is being produced in the free market, the production of the good is likely to have a(n) ________ externality.

answer

positive

question

answer

free-riding

question

The invisible hand suggests that:

answer

individuals working for self-interest will eventually maximize the well-being of society.

question

In a competitive market equilibrium:

answer

There is pareto efficiency

question

answer

2 greeting cards

question

Points on a production possibilities curve are ________ and ________.

answer

efficient; attainable

question

An outcome is Pareto efficient if:

answer

no individual can be made better off without making someone else worse off.

question

answer

10 paintings only

question

The ability of an individual, firm, or country to produce a certain good at a lower opportunity cost than other producers is referred to as:

answer

comparative advantage

question

The following figure shows the production possibilities curve of two individuals: Ryan and Tom.
Refer to the figure above. Which of the following statements is true?

answer

Ryan's opportunity cost of producing Good 2 is higher than Tom's opportunity cost of producing it.

question

The terms of trade refer to:

answer

exchange rate of goods for goods.

question

The following figure shows the production possibilities curve of two individuals: Ryan and Tom.
Refer to the figure above. Which of the following statements is true?

answer

Ryan has an absolute advantage in the production of both the goods.

question

The curvature of an economy's production possibilities curve represents:

answer

an increasing opportunity cost of producing each good.

question

Which of the following will cause an inward shift of the production possibilities curve of an economy?

answer

A decline in the size of the labor force

question

Which of the following statements is true?

answer

The production possibilities curve of a country is fixed in the short run.

question

answer

The nation gained as a whole by opening up to free trade.

question

Which of the following statements is true?

answer

If the domestic price of a good in a country is lower than the world price, the country will become an exporter of the good.

question

answer

$18

question

answer

$400

question

An export is any good that is:

answer

produced domestically, but sold abroad

question

answer

Lithasia will start importing pens.

question

An import is any good that is:

answer

produced abroad, but sold domestically

question

Which of the following statements is true of a perfectly competitive market?

answer

The equilibrium price in a competitive market efficiently allocates scarce resources to participants in that market.

question

Points lying below a production possibilities curve are:

answer

inefficient because more can be produced with the available resources.

question

The ability of an individual, firm, or country to produce more of a certain good than other competing producers, given the same amount of resources, is referred to as:

answer

absolute advantage

question

answer

Hawaii should export coffee and South Carolina should export tea.

question

Suppose a nation opens up to free trade and becomes an exporter of goods. Which of the following is then true of this nation?

answer

Sellers gain.

question

The following figure shows the supply curve of a shoe manufacturing firm.
Refer to the figure above. What is the producer surplus when the price is $50?

answer

$200

question

A production possibilities curve shows the relationship between:

answer

the maximum production of one good for a given level of production of another good.

question

Scenario: Hawaii and South Carolina are trading partners. Hawaii has an absolute advantage in the production of both coffee and tea. The opportunity cost of producing 1 pound of tea in Hawaii is 2 pounds of coffee and the opportunity cost of producing one pound of tea in South Carolina is 1/3 pound of coffee.
Refer to the scenario above. Which of the following statements is true of the terms of trade of tea for coffee?

answer

The term of trade will lie between 1/3 and 2.

question

The marginal cost curve intersects:

answer

both the average variable cost curve and the average total cost curve at their minimum.

question

answer

$1.36

question

In a perfectly competitive market:

answer

price is always equal to marginal revenue.

question

answer

$0.35

question

When the marginal cost curve lies below the average cost curve, ________.

answer

the average cost curve slopes downward

question

Suppose that a firm in a competitive market faces the following revenues and costs:
Refer to Table 14-8. The firm should not produce an output level beyond

answer

5 units.

question

answer

$4,000

question

Suppose a firm operating in a competitive market has the following cost curves:
Refer to Figure 14-6. When market price is P3, a profit-maximizing firm's total costs

answer

P3xQ2

question

A firm producing 10 units of output incurs a total cost of $800. When it produces 11 units, the total cost increases to $890. What is the marginal cost of producing the eleventh unit?

answer

$90

question

answer

$5,000.

question

answer

$24,980.

question

The entry of new firms into a perfectly competitive market will cause:

answer

a decrease in the profitability of existing firms.

question

If new firms are expected to enter an existing market, ________.

answer

the market price is likely to fall

question

When price is less than the firms' minimum average total cost, ________.

answer

existing firms will leave the market

question

The incentive for new firms to enter into a perfectly competitive market is primarily the:

answer

positive profits observed for the existing firms in the market.

question

Positive economic profits in a perfectly competitive market imply that:

answer

producers are earning more than their opportunity cost.

question

The ________ plots the relationship between prices and the quantity producers are willing to sell.

answer

supply curve

question

Which of the following is likely to cause the supply curve for steel window frames to shift to the right?

answer

A decrease in the cost of production of steel due to a new subsidy

question

The Law of Supply states that:

answer

the quantity supplied of a good rises when the price rises.

question

The quantity supplied of a good:

answer

is the amount of the good that sellers are ready to supply at a given price.

question

Which of the following pairs of goods has a negative cross-price elasticity?

answer

Pens and paper notebooks

question

As the number of available substitutes increases, the price elasticity of demand for a good:

answer

increases.

question

________ is the measure of the sensitivity of one variable to a change in another.

answer

Elasticity

question

Negative values of the price elasticity of demand of a good can be attributed to:

answer

the Law of Demand.

question

Which of the following goods is likely to have the lowest price elasticity of demand?

answer

Life-saving drugs

question

As the ________ increases, ________.

answer

price of a good; its quantity demanded decreases

question

Which of the following statements is true of the cross-price elasticity of demand?

answer

The cross-price elasticity of demand between complements is negative.

question

A good is said to have a relatively elastic demand if the value of price elasticity is:

answer

greater than 1

question

answer

i and ii only

question

Explicit costs

answer

require an outlay of money by the firm.

question

The difference between accounting profit and economic profit is

answer

implicit costs

question

answer

opportunity costs

question

answer

$126

question

When a factory is operating in the short run,

answer

it cannot adjust the quantity of fixed inputs.

question

Increases in the marginal product of labor can be attributed to:

answer

specialization of workers.

question

The following table shows the total output produced by different numbers of workers in a shoe factory.
Refer to the table above. What is the marginal product of the sixth worker?

answer

20 pairs of shoes

question

The following table shows the total output of bread produced by different numbers of workers in a bakery.
Refer to the table above. Diminishing marginal returns sets in when:

answer

the fourth worker is hired.

question

Which of the following refers to diminishing marginal returns?

answer

The additional output produced in a firm decreased as more workers were hired.

question

A firm produced 376 units with 10 workers. When the eleventh worker was hired, the output increased to 398 units. The marginal product of the eleventh worker is:

answer

22 units

question

The following table shows the total output produced by different numbers of workers in a shoe factory.
Refer to the table above. What is the marginal product of the third worker?

answer

68 pairs of shoes

question

The following figure displays John's budget constraint when he spends his income on tables and chairs.
Refer to the figure above. If the price of a table is $2, what is John's income?

answer

$80

question

Which of the following is NOT a direct determining factor of consumers' purchase decisions?

answer

Cost of factor inputs

question

Suppose the prices of a pair of jeans, a shirt, and a tie are $30, $20, and $10 respectively. Which of the following statements is true in this context?

answer

The opportunity cost of buying a shirt is 2 ties.

question

If quantity of milk is measured on the horizontal axis and quantity of juice is measured on the vertical axis, a decrease in the price of milk will cause the budget constraint to:

answer

pivot rightward along the horizontal axis.

question

If quantity of tea is measured on the horizontal axis and quantity of coffee is measured on the vertical axis, an increase in the price of coffee will cause the budget constraint to:

answer

pivot leftward along the vertical axis.

question

A decrease in the price of either good will cause a consumer's budget constraint to:

answer

pivot rightward.

question

________ in economics is a measure of satisfaction or happiness that comes from consuming a good or service.

answer

Utility

question

The consumption bundle that maximizes a consumer's satisfaction given his income is located:

answer

at the point of tangency of the consumer's budget constraint and indifference curve.

question

The demand curve for most goods is normally:

answer

downward sloping.

question

Which of the following is likely to cause the demand curve for large cars to shift to the left

answer

A rise in the price of gasoline

question

answer

The Law of Diminishing Marginal Benefit

question

Which of the following factors will NOT cause a shift in the demand for a good?

answer

A change in the market price of the good

question

A change in the quantity demanded of a good is:

answer

represented by a movement along the demand curve.

question

The market demand is the ________ of the individual demand of all the potential buyers.

answer

sum

question

Which of the following best describes the difference between a demand curve and a demand schedule?

answer

A demand curve is a graphical representation of the relationship between the quantity of a good and its price, whereas a demand schedule is a tabular representation.

question

The Law of Diminishing Marginal Benefit states that:

answer

the willingness to pay for an additional unit declines as more of a good is consumed.

question

answer

50 units

question

Two goods are said to be substitutes when a fall in the price of one good:

answer

leads to a left shift in the demand for the other good.

question

The quantity demanded of a good is:

answer

the amount of a good that buyers are willing to purchase at a given market price.

question

The willingness to pay for a commodity:

answer

decreases as consumption of the commodity increases.

question

Which of the following is an example of a normative economic statement?

answer

An increase in government expenditure will lead to an increase in well-being.

question

Which of the following statements is true?

answer

Normative statements depend on personal preferences.

question

Which of the following statements is true?

answer

A government is an example of an economic agent.

question

Which of the following statements is true of economic reasoning?

answer

Economic reasoning helps people make the best use of scarce resources.

question

Empiricism is analysis that uses ________ to test theories.

answer

data

question

John has to choose between two jobs: one that offers him $50 per hour and one that offers him $35 per hour. The opportunity cost of choosing the job that offers him $50 per hour is:

answer

$35 per hour

question

________ is a calculation that adds up costs and benefits using a common unit of measurement, like dollar values.

answer

Cost-benefit analysis

question

answer

greater than the original mean

question

answer

a positive correlation.

question

A variable is a factor that:

answer

takes different values at different points of time.

question

The mean of a data set is the:

answer

sum of all different values divided by the number of values.

question

In most cases, optimization in differences is faster and easier than optimization in levels because:

answer

the former only focuses on the key differences between options and ignores things in common.

question

Which of the following statements identifies a similarity between optimization in levels and optimization in differences?

answer

Both techniques require the conversion of all costs and benefits into a common unit of measurement.

question

Which of the following statements identifies a difference between optimization in levels and optimization in differences?

answer

In many cases, optimization in differences is faster and easier than optimization in levels.

question

Among a set of alternatives with the same benefits, an individual is said to optimize if she chooses an alternative that:

answer

has the lowest total cost.

question

Among a set of alternatives with the same total costs, an individual is said to optimize if she chooses an alternative that has the:

answer

highest total benefit.

question

answer

question

If the total cost incurred in hiring ten workers by a firm is $45, and the total cost incurred when the eleventh worker is hired is $60, the marginal cost of hiring the eleventh worker is:

answer

$15

question

Assume that an individual has to decide between a two-day vacation and a three-day vacation to the same place. If he uses optimization in differences, he will:

answer

only think about the net benefits of the extra day.

question

________ uses the concept of marginal analysis to determine the optimum choice.

answer

Optimization in differences

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