Econ 2010

Economics is a social science that studies how individuals, institutions, and society may:

Best use scarce resources to achieve the maximum satisfaction of economic wants

The key economic concept that serves as the basis for the study of economics is:

Scarcity

The idea in economics that "there is no free lunch" means that:

There are opportunity costs involved when scarce resources are used up for free lunches

Opportunity cost is best defined as:

The value of the best forgone alternative

Tammie makes $150 a day as a bank clerk. She takes off two days off work without pay to fly to another city to attend the concert of her favorite music group. The cost of transportation for the trip is $250. The cost of the concert ticket is $50. The opportunity cost of Tammie's attending the concert is:

$600

When a state government chooses to build more roads, the required resources are no longer available for spending on public education. This dilemma illustrates the concept of:

Opportunity cost

Henry wants to buy a book. The economic perspective suggests that Henry will buy the book if:

The marginal benefit of the book is greater than its marginal cost

The concept of "rational behavior" suggests that:

Different people make different choices because their circumstances and information differ

Economists have difficulty applying the scientific method because:

Controlled laboratory experiments are impossible or often infeasible

Which is an illustration of a macroeconomic question?

Are increasing wage demands by workers contributing to price inflation?

Microeconomics focuses on:

The individual units that make up the economy

Which of the following is a normative economic statement?

A trade deficit of 20 billion dollars will harm the economy

Clara states that "there is a high correlation between the level of people's education and the level of their income." Ellie replies that the correlation occurs because "more education is the best way to earn more income in this country."

Clara's statement is positive and Ellie's statement is normative

Assume that a consumer purchases only two products. Suppose that the consumer's money income doubles, and the prices of the two products also double. These changes in income and prices will result in

No change in the budget line

Which of the following is considered as an economic resource?

The land that are designated as national parks by the government

Which of the following is one of the four simplifying assumptions made in constructing the production possibilities model?

The economy is fully employed and is using least-cost methods of production

All of the following would affect the position of a country's production possibilities curve, except:

The level of unemployment

A point inside the production possibilities curve is:

Attainable, but the economy is inefficient

A point on the production possibilities curve is:

Attainable and resources are fully employed

The production possibility curve:

Is the boundary between attainable and unattainable outputs

The law of increasing opportunity costs says that:

Along a production possibilities curve, increases in the production of one good require larger and larger sacrifices of the other good

Which statement is an economic rationale for the law of increasing opportunity costs?

Many economic resources are better at producing one product than another

In a production possibilities table, the most-valued or optimal point for society is determined by:

The equality of marginal benefits and marginal costs

When a society is under-allocating resources to the production of a good or service, then the:

Marginal benefit is greater than the marginal cost

To improve the rate of growth of labor productivity a number of economists have suggested that there needs to be:

An increase in investment relative to consumption

If the opportunity cost of producing extra units of one good (expressed in terms of the amount of another good that is sacrificed) remains constant, then the shape of the production possibilities curve is:

A straight downsloping line

The production possibilities curve bows outward from the origin because:

Opportunity costs increase as the production of a good increases

The role of the entrepreneur in society is to:

Bring the factors of production together and take the risks of producing

Which of the following is a factor of production?

Capital

Which is considered a factor of production?

An auto plant

Clara states that "there is a high correlation between the level of people's education and the level of their income." Ellie replies that the correlation occurs because "more education is the best way to earn more income in this country."Which of the following is considered as an economic resource?

Clara's statement is positive and Ellie's statement is normative

The study of how a firm sets its prices in different regions of the nation would fall under:

Microeconomics

Microeconomics focuses on:

The individual units that make up the economy

Which question is an example of a microeconomic question?

Will the merger of two airlines likely lead to higher airline ticket prices?

The purpose of the ceteris paribus assumption used in economic analysis is to:

Focus on the effect of a single factor on a certain variable

The process of developing hypotheses, testing them against facts, and using the results to construct theories is called:

The scientific method

When an economist says that there is "too much of a good thing," the economist is suggesting that:

The marginal benefit of the thing is less than the marginal cost

The observation that people compare the marginal benefits with the marginal costs in making such decisions as how to spend time, which products to buy, whether or not to work, and which goods to produce and sell, is most closely associated with:

The economic perspective

One major assumption of the economic perspective is:

That individuals' behavior reflect rational self-interest

A recurring theme in economics is that people:

Have unlimited economic wants, but limited resources

The satisfaction or pleasure one gets from consuming a good or service is:

Utility

The utility of a specific product:

Varies from person to person using the product

Total utility is best defined by which of the following?

The total satisfaction received from consuming a particular amount of a product

Which of the following statements is correct?

Total utility is the cumulation or summation of marginal utility

Which situation is consistent with the law of diminishing marginal utility?

The more pizza Henry eats, the less he enjoys an additional slice

Which statement is correct?

When marginal utility is positive, an increase in the quantity consumed will increase total utility

The reason why people are charged for an additional can of soda they get from a soda machine, but are not charged for an additional paper taken from a newspaper dispensing machine, is that the marginal utility of an additional:

Soda diminishes slowly, but the marginal utility of an additional paper is close to zero

The downward slope of the demand curve for a product shows the implications of:

Diminishing marginal utility

Which of the following is an assumption of the marginal-utility theory of consumer behavior?

Each good and service has a price

Which of the following is not an assumption of the marginal-utility theory of consumer behavior?

The consumer's tastes and preferences change within the period studied

A consumer with a fixed income will maximize utility when each good is purchased in amounts such that the:

Marginal utility per dollar spent is the same for all goods

In deciding what to buy, the consumer will choose the good with the:

Highest marginal utility-to-price ratio

Assume that a consumer purchases a combination of products Y and Z and that the MUy/Py= 25 and MUz/Pz= 20. To maximize utility, without spending more money, the consumer should:

Purchase more of Y and less of Z

The goal of a rational consumer is to maximize:

Total utility from all goods consumed

The reason the substitution effect works to encourage a consumer to buy less of a product when its price increases is:

The product is now relatively more expensive than it was before

The fact that an ounce of gold is priced higher than an ounce of chocolate suggests that:

The marginal utility of the last unit of gold consumed is greater than the marginal utility of the last unit of chocolate consumed

An increase in the productivity of labor over time will:

Increase the value of time

Health insurance often pays 80 percent of health care cost. This situation will encourage the rational consumer to:

Use more medical services than they would if they had to paid the full price

From the viewpoint of potential criminals, the probability of being fined or imprisoned:

Raises the marginal cost or "price" of criminal behavior

One implication of the phenomenon described by economist Richard Easterlin as the "hedonic treadmill" is that:

People can only become happier if they are consuming more and more

Marginal utility is the accumulation of the total utility from successive units of a good or service consumed.

False

The law of diminishing marginal utility suggests that the total utility a consumer derives from a product will increase slower and slower as consumption of the product increases.

True

The income and substitution effects will both induce the consumer to buy more of a normal good when its price decreases.

True

Someone paying $800 to fly from one city to another instead of paying only $100 for a bus trip between the two cities is making an irrational choice and is thus not maximizing his utility.

False

Behavioral economics is still in the early stages of development and thus is not yet capable of being used as a basis for policy-making

False

When diminishing marginal utility starts happening as a person consumes more and more of a given good:

Total utility will increase at a diminishing rate

Children who dislike Brussels sprouts exemplify the notion that the marginal utility of Brussels sprouts is:

Negative

According to utility theory, when total utility reaches a maximum, then marginal utility is

Equal to zero

When the price of a product falls for a normal good, the:

Income and substitution effects will encourage consumers to purchase more of the product

When the price of a product rises for an inferior good, the

Substitution effect will encourage consumers to purchase less of the product but the income effect will encourage them to purchase more

An increase in the price of product X causes a decrease in the quantity demanded for product X. One basic explanation for this is:

The law of diminishing marginal utility

The price of diamonds is substantially greater than the price of water because:

The marginal utility of the last unit of a diamond is significantly greater than the marginal utility of the last unit of a gallon of water consumed by a typical person

The marginal utility of leisure time appears to:

Increase as the quantity of available leisure time decreases

The financing of health care through insurance has:

Resulted in consumers directly paying less than the full price of health care

The law of diminishing marginal utility implies that in order to induce a buyer to buy more of a product, the seller must lower its price.

True

The value of the next best alternative for a resource is called its opportunity cost

True

An industry is expected to expand if firms in the industry are earning positive:

Economic profits

Suppose a firm sells its product at a price lower than the opportunity cost of the inputs used to produce it. Which of the following statements is definitely true?

The firm may earn positive accounting profits, but will face economic losses

Normal profits are:

Considered an implicit cost by economists

Which of the following statements is false?

The short run refers to a period of less than one year

In the short run:

Output is raised or reduced by changing the levels of variable inputs

Which is most likely to be a long-run adjustment for a firm that manufactures cars on an assembly line basis?

A change in production to a redesigned and retooled facili

Marginal product of labor refers to the:

Increase in output resulting from employing one more labor

According to the law of diminishing marginal returns:

The additional output generated by additional units of an input will diminish

Which of the following statements is true?

Diminishing marginal returns means that in order to increase output at a constant rate, the firm must add larger and larger quantities of the variable inputs

The law of diminishing returns in a manufacturing plant of a fixed capacity implies that, eventually, employing one:

More worker will decrease the average amount of output per worker

Which statement best illustrates the law of diminishing returns?

The marginal product of the last unit of a resource used is less than the marginal product of the preceding unit of resource

The total product curve graphically shows the:

Maximum level of output that can be produced by a quantity of a variable resource holding constant the quantity of other resources

The marginal product of labor curve graphically shows the change in total product resulting from a:

One-unit increase in the quantity of a particular resource used, holding constant other resources

When a bakery manager reports that at her bakery, productivity of her 15 workers last month was 1,800 loaves per worker, she is referring to the:

Average product of labor

The range of diminishing marginal productivity begins when:

Marginal product reaches its maximum

At the Amarillo Piano Company, the average product of labor stays constant at 5, regardless of how much labor is employed. This implies that:

The marginal product of labor is constant

At the point where diminishing marginal returns of an input sets in, the:

Marginal product starts to decrease

With fixed costs of $400, a firm has average total costs of $3 and average variable costs of $2.50. Its output quantity must be:

800 units

If the long-run average total cost curve for a firm is horizontal in the relevant range of production, then it indicates that there:

Are constant returns to scale

When diminishing marginal returns starts occurring, the addition of successive units of a variable resource to a fixed resource will cause the firm's production to diminish.

False

The law of diminishing marginal returns is another name for the law of diminishing marginal utility.

False

Marginal product is highest where marginal cost is lowest

True

When a firm increases its output, its average fixed costs will stay constant.

False

If a firm increases all its inputs by 10 percent and its output increases by 15 percent, the firm is experiencing diseconomies of scale.

False

In which market model would there be a unique product for which there are no close substitutes?

Pure monopoly

There would be some control over price within rather narrow limits in which market model?

Monopolistic competition

Under which market model are the conditions of entry into the market easiest?

Pure competition

Under which market model are the conditions of entry the most difficult?

Pure monopoly

Local electric or gas utility companies mostly operate in which market model?

Pure monopoly

The production of agricultural products such as wheat or corn would best be described by which market model?

Pure competition

The steel and automobile industries would be examples of which market model?

Oligopoly

Which is not a basic market model?

Free enterprise

Which characteristic would best be associated with pure competition?

Price takers

In a purely competitive industry, each firm:

Can easily enter or exit the industry

Which is a feature of a purely competitive market?

Products are standardized or homogeneous

Which is true under conditions of pure competition?

No single firm can influence the market price by changing its output

Price is constant or "given" to the individual firm selling in a purely competitive market because:

Each seller supplies a negligible fraction of total demand and supply

Which is not a required characteristic of a purely competitive industry?

Industry demand is highly elastic

A purely competitive firm does not try to sell more of its product by lowering its price below the market price because:

It can sell all it wants to at the market price

The demand curve faced by a purely competitive firm

Is the same as its marginal revenue curve

In pure competition, the demand for the product of a single firm is perfectly:

Elastic because many other firms produce the same product

If a firm is a price taker, then the demand curve for the firm's product is:

Perfectly elastic

In pure competition, each extra unit of output that a firm sells will yield a marginal revenue that is:

Equal to the price

In a graph for a firm in pure competition with the quantity of output measured on the horizontal axis, the total revenue curve is:

Upward-sloping

The total revenue of a purely competitive firm from 8 units of output is $48. Based on this information, total revenue for 9 units of output must be:

$54

Which is necessarily true for a purely competitive firm in short-run equilibrium?

Marginal revenue less marginal cost equals zero

A purely competitive firm is in short-run equilibrium and its MC exceeds its ATC. It can be concluded that:

The firm is realizing an economic profit

In pure competition, the industry demand curve is infinitely price elastic.

False

The break-even point means that the firm is realizing economic profits.

True

Which is an example of a market failure?

Polio shots and chest x-rays provide widespread benefits to the community as a whole as well as to the individuals who get them

Which of the following situations is not an example of market failure?

Ben cannot afford to buy a high-end Mercedes Benz luxury car

Charlie is willing to pay $10 for a T-shirt that is priced at $9. If Charlie buys the T-shirt, then his consumer surplus is

$1

Consumer surplus arises in a market because:

The equilibrium market price is below what some consumers are willing to pay for the product

If the price of a product increases:

The consumer surplus will decrease

Deadweight losses occur when the quantity of an output produced is:

less than or greater than the competitive equilibrium quantity

When there is overproduction of a good:

The marginal cost of the good exceeds its marginal benefit

What are the two characteristics that differentiate private goods from public goods?

Rivalry and excludability

Private firms can hardly produce a public good profitably because of:

The free-rider problem

A public good:

Can't be provided to one person without making it available to others as well

External benefits in consumption refer to benefits accruing to

Those other than the ones who consumed the product

If a good that generates negative externalities were priced to take into account these negative externalities, then its:

Price would increase and its output would decrease

If the production of a product or service involves external benefits, then the government can improve efficiency in the market by:

Providing a subsidy to correct for an underallocation of resources

When external benefits occur in the production of a particular product, the private market tends to provide:

Too little of the product

Where there are spillover (or external) costs from the production of a good, the government can make the quantity of the good approach the socially optimal level by doing the following except:

Subsiding the sellers of the product

Which antipollution policy would be least likely to make use of cost-benefit analysis?

Enacting legislation that bans pollution

An emission fee levied against polluters will tend to:

Internalize the external cost of pollution

Oftentimes, the socially optimal quantity for a product that imposes external costs on the society is not zero, but something greater than zero. This is because completely eliminating the externality involves:

A much greater marginal cost than marginal benefit

Sometimes, public goods whose benefits are less than their costs still get produced because:

The benefits accrue to politically powerful government officials and their constituents

Market failures refer to those situations where the sellers are not producing as much as the buyers are wanting to buy.

False

Demand-side market failures refer to those situations when there is a shortage in the market because buyers want to buy more than what is available in the market.

False

When the marginal benefits exceed the marginal costs of producing a product, then allocative efficiency is not achieved in the market.

True

Deadweight losses occur when there is overproduction of a product.

True

The free-rider problem refers to the local government's problem of finding funds to subsidize public transportation.

False

Because in any period of time and in any region the quantity of pollutants that can be absorbed by nature is fixed, the supply of "pollution rights" in a cap-and-trade system will be perfectly elastic.

False

Which statement best illustrates the concept of diminishing marginal utility?

A typical consumer will receive less satisfaction from consuming the fourth hamburger per week than the third hamburger per week

As a result of a fall in the price of gasoline, consumers can afford to take more driving trips. This is an illustration of:

The income effect

A market demand schedule for a product would indicate that:

There is an inverse relationship between price and quantity demanded

The horizontal axis of a graph which shows a market demand curve indicates the:

Quantities which consumers will be willing and able to buy at various prices

Which of the following is a determinant of demand?

Income

An increase in the demand for computers indicates that:

More will be purchased even if prices stayed the same

Which is not a determinant of demand?

The cost of inputs in production

Which goods would usually be an inferior good?

Generic beer

If product Y is an inferior good, a decrease in consumer incomes will:

Shift the demand curve for product Y to the right

For most products, purchases tend to fall with decreases in buyers' incomes. Such products are known as

Normal goods

If the price of gasoline increases and car dealers suffer a decrease in demand for sport utility vehicles, then gasoline and sport utility vehicles are:

Complements

All of the following would affect the position of the demand curve for personal computers, except the:

Price of personal computers

An increase in the price of product G will result in a

Movement up and to the left along the demand curve for G

Suppose that a more efficient way to produce a good is discovered, thus lowering production costs for the good. This will cause a(n):

Increase in supply, or a rightward shift of the supply curve

Which would cause a rightward shift in the supply curve for telephone service?

A decrease in the wages of telephone workers

A leftward shift of the supply curve for oil in the United States is most likely to result from:

An increase in the costs of exploration and drilling for oil

A fall in the price of milk, used in the production of ice cream, will:

Increase the supply of ice cream, causing the supply curve of ice cream to shift to the right

A movement along a given supply curve for a product is caused by a change in the:

Price of the product

There is a shortage in a market for a product when:

Quantity demanded is greater than quantity supplied

If the market price is above the equilibrium price:

A surplus will occur and producers will produce less and lower prices

When a shortage of a commodity occurs, we would expect to find that:

Buyers will tend to bid its price up

A television station reports that the price of coffee has increased but the quantity traded in the market has decreased. This situation would be caused by a(n):

Decrease in supply

A newspaper reports that the average price of new homes in a certain city had decreased, and the number of new homes sold had also decreased. This situation is probably caused by:

Declining incomes of people in that city

A decrease in the price of digital cameras would lead to a(n):

Increase in the price and quantity sold of memory cards

An increase in demand for oil along with a simultaneous increase in supply of oil will:

Increase quantity, but whether it increases price depends on how much each curve shifts

When economists describe "a market," they mean:

A system that allows buyers and sellers to interact with one another

When one speaks of "demand" in a particular market, this refers to:

The whole demand curve

A higher price reduces the quantity demanded for a product because:

ndividuals can afford less of the product and will switch to substitutes

As a result of a decrease in the price of MP3 music, consumers download more songs and buy fewer CDs. This is an illustration of:

The substitution effect

Which will not cause a change in the demand for product A?

A change in the price of A

If the price of ground beef increases, the demand for hamburger buns is predicted to:

Decrease

An increase in the price of product B leads to an increase in the demand for product C. This indicates that products B and C are:

Substitute goods

An increase in the price of product G will result in a:

Movement up and to the left along the demand curve for G

An increase in demand is shown graphically by a:

Shift of the demand curve to the right

Which of the following is a determinant of supply?

Technology

If farmers withhold some of their current corn harvest from the market because they anticipate a higher price of corn in the future, then this would cause a(n):

Decrease in the supply of corn

A leftward shift of the supply curve for oil in the United States is most likely to result from:Which would cause a rightward shift in the supply curve for telephone service?

An increase in the costs of exploration and drilling for oil

All of the following are assumed to be constant when the supply curve for a product is drawn, except the:

Price of the product

A market for a product is in equilibrium when:

Quantity supplied equals quantity demanded

A black market could arise as a result of:

The imposition of a legal price ceiling below the equilibrium price

Which would cause an increase in quantity supplied of product A?

An increase in the price of A

The primary force encouraging the entry of new firms into a purely competitive industry is:

economic profits earned by firms already in the industry.

In a purely competitive industry

there may be economic profits in the short run, but not in the long run

Which of the following is true concerning purely competitive industries?

In the short run, firms may incur economic losses or earn economic profits, but in the long run they earn normal profits

We would expect an industry to expand if firms in that industry are

earning economic profits

Which of the following statements is correct?

Economic profits induce firms to enter an industry; losses encourage firms to leave.

An increasing-cost industry is associated with:

an upsloping long-run supply curve.

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

of unimpeded entry to the industry.

Assume that a decline in consumer demand occurs in a purely competitive industry which is initially in long-run equilibrium. We can:

not compare the original and the new price without knowing about cost conditions in the industry.

Under what conditions would an increase in demand lead to a lower long-run equilibrium price?

The firms in the market are part of a decreasing-cost industry.

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

the LCD television industry is a decreasing-cost industry.

Suppose an increase in product demand occurs in a decreasing-cost industry. As a result:

the new long-run equilibrium price will be lower than the original long-run equilibrium price.

The MR = MC rule applies:

in both the short run and the long run.

A firm is producing an output such that the benefit from one more unit is more than the cost of producing that additional unit. This means the firm is:

producing less output than allocative efficiency requires.

The term productive efficiency refers to:

the production of a good at the lowest average total cost.

If the price of product Y is $25 and its marginal cost is $18:

resources are being underallocated to Y.

If for a firm P = minimum ATC = MC, then:

both allocative efficiency and productive efficiency are being achieved

Assume that society places a higher value on the last unit of X produced than the value of the resources used to produce that unit. With no spillovers, this information means that:

price is greater than marginal cost.

Which of the following conditions is true for a purely competitive firm in long-run equilibrium?

P = MC = minimum ATC

Allocative efficiency occurs whenever:

it is impossible to produce a net benefit for society by changing the combination of goods and services produced.

Which of the following outcomes is consistent with a purely competitive market in long-run equilibrium?

consumer and producer surplus will be maximized.

Entrepreneurs in purely competitive industries:

innovate to lower operating costs and generate short-run economic profits.

The process by which new firms and new products replace existing dominant firms and products is called:

creative destruction.

The theory of creative destruction was advanced many years ago by:

Joseph Schumpeter.

Creative destruction is least beneficial to:

workers in the "destroyed" industries.

(Last Word) When patents on new medications expire, the market for those drugs:

change from being monopolistic to being competitive.

Which of the following is a characteristic of pure monopoly?

barriers to entry

Which of the following is not a barrier to entry?

X-inefficiency

Barriers to entering an industry

are the basis for monopoly.

Large minimum efficient scale of plant combined with limited market demand may lead to:

natural monopoly.

What do economies of scale, the ownership of essential raw materials, and patents have in common?

They are all barriers to entry.

When a firm is on the inelastic segment of its demand curve, it can:

increase profits by increasing price.

With respect to the pure monopolist's demand curve it can be said that:

price exceeds marginal revenue at all outputs greater than 1.

The demand curve faced by a pure monopolist:

is less elastic than that faced by a single purely competitive firm.

The pure monopolist's demand curve is relatively elastic:

in the price range where marginal revenue is positive.

A nondiscriminating profit-maximizing monopolist:

will never produce in the output range where demand is inelastic.

For a pure monopolist marginal revenue is less than price because:

when a monopolist lowers price to sell more output, the lower price applies to all units sold

The vertical distance between the horizontal axis and any point on a nondiscriminating monopolist's demand curve measures:

product price and average revenue.

Which of the following is incorrect? Imperfectly competitive producers

do not compete with one another.

A pure monopolist:

will realize an economic profit if price exceeds ATC at the profit-maximizing/loss-minimizing level of output.

A pure monopolist's short-run profit-maximizing or loss-minimizing position is such that price:

may be greater or less than ATC.

Economic profit in the long run is:

possible for a pure monopoly, but not for a pure competitor.

An important economic problem associated with pure monopoly is that, at the profit maximizing outputs, resources are:

underallocated because price exceeds marginal cost.

There is some evidence to suggest that X-inefficiency is:

more likely to occur in monopolistic firms than in competitive firms.

Price discrimination refers to:

the selling of a given product at different prices that do not reflect cost differences.

The practice of price discrimination is associated with pure monopoly because:

monopolists have considerable ability to control output and price.

Which of the following is not a precondition for price discrimination?

The commodity involved must be a durable good.

Other things equal, in which of the following cases would economic profit be the greatest?

an unregulated monopolist which is able to engage in price discrimination

If a monopolist engages in price discrimination, it will:

charge a higher price where individual demand is inelastic and a lower price where individual demand is elastic

(Last Word) DeBeers Consolidated Mines markets about:

55 percent of the world's rough-cut diamonds.

A pure monopolist will maximize profits by producing at that output where price and marginal cost are equal.

False

Which of the following is a measure of the degree of industry concentration?

Herfindahl Index

Demand and marginal revenue curves are downsloping for monopolistically competitive firms because:

Product differentiation allows each firm some degree of monopoly power

The demand curve faced by a monopolistically competitive firm:

Is more elastic than the monopolist's demand curve

A monopolistically competitive firm is producing at a short-run output level where average total cost is $10.00, marginal cost is $5.00, marginal revenue is $6.00, and price is $12.00. In the short run, the firm should:

Increase the level of output

Firms in an industry will not earn long-run economic profits if:

There is free entry and exit of firms in the industry

Suppose some firms exit an industry characterized by monopolistic competition. We would expect the demand curve of a firm already in the industry to:

Shift to the right

In monopolistic competition there is an underallocation of resources at the profit-maximizing level of output, which means that:

Price is greater than MC

The economic inefficiency of monopolistic competition means that:

Producers produce at an output short of, and charge a price greater than, minimum average total cost

The variety of products and features which consumers may choose from in monopolistically competitive industries:

At least partially offsets the economic inefficiencies of this market structure

Which is true of pure competition but not of monopolistic competition?

Long-run equilibrium occurs at the minimum point on the ATC curve

Which is not a common form of nonprice competition in monopolistic competition?

Cash rebates and discount coupons

A major distinction between a monopolistically competitive firm and an oligopolistic firm is that:

A recognized interdependence exists between firms in one industry but not in the other

In which market model is there mutual interdependence?

Oligopoly

The increased use of plastic bags instead of paper bags in grocery stores and retail shops is an example of:

Interindustry competition

Industry Y is dominated by five large firms that hold market shares of 20, 25, 15, 10, and 25 percent. The four-firm concentration ratio for this industry is:

85 percent

Industry A is composed of four large firms that hold market shares of 60, 20, 10, and 10. The Herfindahl index and four-firm concentration ration for this industry are:

4200 and 100, respectively

One major problem with concentration ratios is that they fail to take into account:

The localized market for products

When firms in an industry reach an agreement to fix prices, divide up market share, or otherwise restrict competition, they are practicing the strategy of:

Collusion

Game theory, which is used in studying oligopoly behavior, originated from the study of games such as the following, except:

Solitaire

In the kinked demand model, there will be a vertical break in the firm's:

Marginal revenue curve

If output is set at the kink of the kinked demand model, then there:

Are several prices at which marginal revenue equals marginal cost

A prediction from the kinked demand curve model of oligopoly is that, for an individual firm, small changes in:

Marginal cost will not lead to changes in price or output

One shortcoming of the kinked demand curve model of oligopoly is that it does not explain:

How the current price gets determined

A cartel is:

A formal agreement among firms to collude

A major reason that firms form a cartel is to:

Maximize joint profits

Where there is asymmetric information between buyers and sellers.

markets can produce inefficient outcomes.

As it applies to insurance, the adverse selection problem is the tendency for:

those most likely to collect on insurance to buy it.

Firms are not likely to provide sufficient workplace safety if:

workers are unaware of workplace hazards.

Professional buyers of antiques often have more information about the value of antique objects than do the sellers. This illustrates:

asymmetric information.

In a television advertisement for AFLAC supplemental health insurance, an ice skater says to his skating partner, "Do you want to try a triple jump?" She responds, "Why not, I have AFLAC." This response illustrates the:

moral hazard problem.

An economic analysis of the relationship between proposed legislation affecting major employers in each state and the voting patterns of Senators and representatives in Congress on that legislation would fit within the subcategory of economics called:

public choice theory.

Because majority voting fails to incorporate the strength of the preferences of individual voters, it:

produces economically inefficient outcomes under some circumstances.

A situation in which society may not be able to rank its preferences consistently through paired-choice majority voting refers to:

the paradox of voting.

The principle that under some circumstances majority voting fails to make consistent choices reflecting the community's underlying preference is best demonstrated by the:

paradox of voting.

Suppose that in a series of paired-choice votes a new park is preferred to new recreation center and a new recreation center is preferred to street widening. Also suppose that street widening is preferred to a new park. This set of votes is an example of the:

paradox of voting.

Suppose three roommates cannot agree on the size of a pizza to order. Domino argues for a medium pizza, Godfather contends a large pizza will be needed, and Little Caesar wants a super-large pizza. Assuming no paradox of voting, majority voting will result in a decision to order:

a large pizza.

Suppose a college economics department decides to use a single economics text for all sections of principles of economics. Also assume that the three individual members of the textbook selection committee have the following preferences.

selecting the M/B book.

In corporations, owners are __________________ and managers are ______________.

principals; agents

In representative democracy, voters are ____________ and politicians are ____________.

principals; agents

As it relates to the political process, the principal-agent problem results from the:

inconsistency between voters' interest in programs and politicians' interest in re-election.

Factors that impede the attainment of economic efficiency in the public sector are called:

government failures.

Public choice theorists point out that the political process:

differs from the marketplace in that voters and congressional representatives often face limited and bundled choices.

Pork-barrel" legislation that contains funding for hundreds of earmarks throughout numerous states often reflects:

logrolling.

In a sporting goods store, you can buy the equipment you want and forgo the rest. But in an election you "buy" the entire range of the candidate's positions, including some you may not agree with. This difference:

reflects limited and bundled choices in the public secto

"Earmarks" refer to:

authorized expenditures that benefit a narrow, specifically designated group, that are included in more comprehensive spending legislation.

The unlawful misdirection of governmental resources for personal gain is known as:

political corruption.

The Road Runner Club contributes money to Senator Sly's reelection campaign fund, and Senator Sly helps pass legislation to add more jogging paths across the state. From this we can definitively conclude:

nothing about corruption; the Road Runner Club may have donated to Senator Sly because he already supported the jogging paths.

Political corruption occurs whenever:

government officials use unlawful misdirection of governmental resources for their own personal gain.

Insurance co-pays and deductibles are methods used by insurance companies to reduce moral hazard.

True

The paradox of voting is that under majority voting rules the median-voter decides the election outcome.

False

All of the following can file antitrust charges under the Sherman Act except:

the Federal Energy Regulatory Commission.

Which of the following laws prohibited mergers by stock acquisition if the effect was to lessen competition?

Clayton Act of 1914

Which of the following amended the Clayton Act's prohibition against mergers that substantially lessen competition?

Celler-Kefauver Act of 1950

Responsibility for enforcing the antitrust laws rests:

with both the Department of Justice and the Federal Trade Commission.

Suppose the courts declare that XYZ Corporation violated the antitrust laws and as a result the ABC Corporation lost $100 million of profits. XYZ Corporation will have to pay ABC Corporation a monetary award of:

$300 million.

The government was successful in gaining an antitrust conviction in the:

Alcoa case

In which of the following cases was the firm found not guilty of violating the Sherman Act?

DuPont cellophane case

In the Microsoft antitrust case, the Federal government said in essence that:

Microsoft was a "bad monopoly."

In the U.S. Steel case, the court ruled that:

only monopolies that unreasonably restrain trade are subject to antitrust action under the Sherman Act.

The decision in the U.S. Steel case:

reflected a behavioralist approach to antitrust.

A merger between an automobile manufacturer and a maker of automobile tires is an example of a

vertical merger.

A vertical merger involves a combining of one or more firms

operating at different stages of the production process in a particular industry.

Behavioralists believe that:

industries should be judged on the basis of their price-output behavior and their technological progressiveness.

Suppose the firms in a five-firm industry have market shares of 30, 30, 20, 10, and 10 percent, respectively. The Herfindahl index for the industry is:

2,400.

Suppose that two firms in an industry that has a Herfindahl index of 1,000 announce a merger. The U.S. Justice Department concludes the merger will boost the index to 1,050. The antitrust authorities will most likely:

ignore this merger because of the relatively small size of, and increase in, the Herfindahl index

The view that the antitrust laws need to be strongly enforced to prevent illegal business behaviors, monopolization of markets, and allocative inefficiency is known as the:

active antitrust perspective

Critics of the regulation of natural monopolies contend that:

the industry may "capture" or control the regulatory commission.

A market in which the entire demand for a good or service can be satisfied at the least cost by a single firm is a:

natural monopoly.

Which one of the following is concerned with industrial regulation, as distinct from social regulation?

Federal Communications Commission

Critics of industrial regulation say that such regulation:

perpetuates monopoly long after new technology has eroded natural monopoly.

Social regulation differs from industrial regulation in that:

social regulation applies to virtually all industries, while industrial regulation applies to a restricted number.

The optimal amount of social regulation occurs where the marginal benefit of such regulation:

equals the marginal cost.

(Consider This) The Consider This box "Of Catfish and Art (and Other Things in Common)" lists examples of recent antitrust cases involving:

price fixing.

(Consider This) According to the Consider This box on catfish and art, which of the following firms were recently convicted of price fixing?

Sotheby's and Christy's (art auction houses)

(Last Word) The final settlement of the United States v. Microsoft case:

requires that Microsoft provide technical information to competing companies so they can develop software programs that work as well with Windows as Microsoft's own products.

A Lorenz curve showing perfect equality in the distribution of income:

Is a straight line with a 45-degree angle

As the area between the Lorenz curve and diagonal gets larger, the Gini ratio:

Rises to reflect greater inequality

Which of the following is an example of a noncash transfer that is typically not included in the income-distribution data?

Medicare

Which of the following contributes most to the reduction in income inequality?

Transfer payments

When taxes and transfer payments are taken into account, the distribution of income in the United States:

Is more equally distributed

One of the major causes of income inequality is differences in:

Education

A cause of the unequal distribution of income in the United States is:

Differences in work preferences and risks

Which of the following is a major reason for the growing income inequality in the United States since 1970?

Import competition

Which of the following would be evidence of an increase in income inequality over time in the United States?

An increase in the percentage of total personal income received by the highest quintile

In 2008, the poverty line for a family of four was about:

$21,830

The percentage of the U.S. population living in poverty during the 1959 to 1969 period:

Decreased

The poverty rate in the U.S. from 2000 to 2008:

Increased slightly from 11.3% to 13.2%

Entitlement programs include:

Both public assistance programs and social insurance programs

Social Security payments are primarily made to assist:

Retired and disabled workers

Basic differences between Medicare and Medicaid include the following, except:

Medicare is a Federal program while Medicaid is a state-government program

A major criticism of the welfare system that led to reforms in the mid-1990s is that welfare payments:

Create dependency on government programs

In a supply and demand model of the labor market for non-preferred workers, a reduction in employer prejudice against non-preferred workers will:

Increase demand, raise the wage rate, and increase the employment of these workers

The judging of an individual on the basis of the average characteristics of the group to which the individual belongs rather than the individual's characteristics is:

Statistical discrimination

In statistical discrimination:

The average characteristics of the group are applied to individual members

The crowding model of occupational discrimination suggests that occupational segregation results in:

A lower domestic output than would otherwise be the case

The unequal distribution of wealth among households in the United States is one of the causes of income inequality.

True

If income inequality is increasing, it means that the income levels of the poor are falling while the income levels of the rich are rising.

False

U.S. income statistics indicate that more than one-eighth of the nation lived in poverty in 2008.

True

All social insurance programs are welfare or public charity programs.

False

The Supplemental Nutrition Assistance Program (formerly the food-stamp program) mostly pays out cash-vouchers to eligible households.

False

Approximately how many workers are employed in the U.S. health care industry?

16 million

Employer-provided private health insurance:

is unique to the United States and not typically found in other countries.

Approximately how many millions of Americans do not have health insurance (prior to gaining coverage through the Patient Protection and Affordable Care Act)?

46

As a percentage of GDP, health care spending in the United States has:

increased substantially since 1960.

The United States devotes about ______ percent of its domestic output to health care.

17

Between 1960 and 2009, U.S. health care spending as percentage of domestic output:

more than tripled.

Total U.S. health care spending in 2008 was approximately:

$2.3 trillion.

Roughly what portion of U.S. total health spending is paid for by private and public insurance?

four-fifths

Which of the following statements is correct?

Rising health care costs are a major cause of limited access to the health care system.

The perceived central economic problem associated with the U.S. health care system is:

an overallocation of resources to the system.

Approximately what percentage of U.S. health care spending is financed by public insurance?

48 percent.

Health care expenditures coming directly out of consumers' pockets, primarily in the form of deductibles and copayments, account for what percent of U.S. health care spending?

19 percent.

For many years the price of medical care in the United States has:

risen at a faster rate than the overall price level.

The number of Americans without health insurance (as of 2008) is approximately:

46 million or about 15 percent of the population.

The health care market is characterized by:

significant positive externalities.

The price elasticity of demand for health care is:

relatively inelastic.

Which of the following is a demand-increasing factor in the health care market?

all of these

If an individual is less careful about avoiding accidents or illness because she has health insurance, this is an example of:

the moral hazard problem.

Other things equal, increased emphasis on providing the best possible medical care for all, regardless of income, will:

increase the demand for health care.

Federal tax policy:

subsidizes health insurance and thereby increases the demand for health care.

Which of the following factors has contributed to rising health care prices in the United States?

The supply of physicians per 100,000 people has risen since 1975, but not as fast as the increase in the demand for physicians' services.

Health maintenance organizations (HMOs):

charge a fixed amount per member, hire many of their own physicians, and provide health services only to members.

The main purpose of HMOs and PPOs is to:

reduce health care costs for employers and their employees.

One of the main differences between PPOs and HMOs is that:

PPO physicians charge on a traditional fee-for service basis, while HMOs do not.

(Last Word) Singapore encourages competition in its health care market by:

requiring hospitals to post prices for services and by government publishing hospital performance records.

In 2007, approximately what percentage of people in the U.S. with private health insurance received it as an employer-provided benefit?

88

Employer-provided private health insurance in the U.S. has resulted in:

incentives that encourage the overuse of health care.

The twin problems of the U.S. health care industry are:

rapidly rising costs and unequal access to health care.

The price of medical care in the United States has:

risen faster than the overall price level.

Which of the following statements is true about health care costs in the United States?

Costs have risen because both the price of health care and the quantity provided have risen.

The major purpose of Medicare is to:

provide health care services to people on Social Security.

Total U.S. health care spending in 2008 was approximately:

$2.3 trillion.

Roughly what portion of U.S. total health spending is paid for by private and public insurance?

four-fifths

Approximately what percentage of U.S. health care spending is financed by public insurance?

48 percent.

For many years the price of medical care in the United States has:

risen at a faster rate than the overall price level.

Given the availability of the Medicaid program, why are so many poor people uninsured?

Because many poor people earn enough that they do not qualify for Medicaid.

Which of the following persons is most likely to be insured for health care?

A skilled worker employed by a large multinational corporation.

The price elasticity of demand for health care is:

relatively inelastic.

Which of the following is a demand-increasing factor in the health care market?

all of these

According to most experts, which of the following factors is most important in causing health care costs to rise?

fee-for-service health insurance and cost-increasing technology.

Economists argue that in treating patients:

both benefits and costs should be taken into account by physicians.

If an individual is less careful about avoiding accidents or illness because she has health insurance, this is an example of:

the moral hazard problem.

If the existence of health insurance increases one's incentive to use the health care system more intensively, this is an illustration of:

the moral hazard problem.

Sam decides to join the Gigantic State University's rugby team when he learns that his health insurance will pay for any subsequent injury. This illustrates:

the moral hazard problem.

Health care costs have tended to rise more rapidly in the United States than in Canada because:

state insurance regulators in the U.S. do not face the budget constraints that national regulators in Canada face.

Federal tax policy:

subsidizes health insurance and thereby increases the demand for health care.

A tax subsidy is involved in employer-financed health insurance because:

employer payments for health insurance are not subject to income or payroll taxes.

The two main types of managed care organizations are:

health maintenance organizations (HMOs) and preferred provider organizations (PPOs).

One of the main differences between PPOs and HMOs is that:

PPO physicians charge on a traditional fee-for service basis, while HMOs do not.

Mutual interdependence would tend to limit control over price in which market model?

Oligopoly

The fast-food restaurant industry would be an example of which market model?

Monopolistic competition

Which idea is inconsistent with pure competition?

Product differentiation

If a firm has at least some control over the price of its product, then the firm cannot be in which market model:

Pure competition

Which is a reason why there is no advertising by individual firms under pure competition?

Firms produce a homogeneous product

Sam owns a firm that produces tomatoes in a purely competitive market. The firm's demand curve is:

A horizontal line

A profit-maximizing firm in the short run will expand output:

As long as marginal revenue is greater than marginal cost

A firm sells a product in a purely competitive market. The marginal cost of the product at the current output of 1,000 units is $2.50. The minimum possible average variable cost is $2.00. The market price of the product is $2.50. To maximize profit or minimize losses, the firm should:

Continue producing 1,000 units

T-Shirt Enterprises is selling in a purely competitive market. It is producing 3000 units, selling them for $2.00 each. At this level of output, the average total cost is 2.50 and the average variable cost is $2.20. Based on these data, the firm should:

Shut down in the short run

A purely competitive firm is in short-run equilibrium and its MC exceeds its ATC. It can be concluded that:

The firm is realizing an economic profit

If there are many firms in an industry, then it must be a purely competitive market.

False

Competitive firms are price takers largely because of intensive advertising by their competitors.

False

For a purely competitive firm, the demand curve facing it is the same as its marginal revenue curve.

True

In pure competition, the industry demand curve is infinitely price elastic.

False

The break-even point means that the firm is realizing economic profits.

False

The percentage of total before-tax income received by the lowest 20 percent of households in 2008 was about:

3 percent

The greater the degree of inequality in the distribution of income, the more bowed will be the Lorenz curve toward the:

Lower right-hand corner

A kingdom where only the king earns all income would have a Gini ratio of:

1

When the distribution of income is adjusted for noncash transfers, the income distribution shows:

Greater equality

Suppose that Jane earns $10,000 in year 1 and $15,000 in year 2, while Jim earns $15,000 in year 1 and $10,000 in year 2. Is there income equality for the two individuals?

The annual data indicate inequality, but the two-year data indicate equality

Earnings received from wealth:

Contribute to income inequality

Which of the following is a cause of growing income inequality in the United States since 1970?

A widening wage gap between skilled and unskilled workers

Greater income equality that is achieved through the redistribution of income is thought to:

Come at the opportunity cost of reduced production and income

Which of the following statements applies to the Social Security program?

It is financed by payroll taxes on employees and employers

Government programs that pay benefits to those who are unable to earn income because of permanent disabilities or to those who have very low incomes and dependent children are called:

Public assistance programs

The former food-stamp program is now the Supplemental Nutrition Assistance Program (SNAP) and eligible households now receive:

Specialized debit cards that get monthly deposits of electronic money from the government

The Temporary Assistance for Needy Families (TANF) program:

Put a limit on receiving welfare payments and required able-bodied adults to work after receiving assistance for two years

Suppose that a prejudiced white employer is willing to hire white workers at a rate of $16/hour, and this employer has a discrimination coefficient of $4. This implies that the employer would:

Hire a non-white worker only at a rate of $12/hour or less

Suppose that white workers are getting paid $21/hour, while similarly-productive African-American workers are getting paid $18/hour. A prejudiced white employer with a discrimination coefficient of $24/hour will:

Not hire African-Americans at all, even if they offer to work for free

About one-fifth of all U.S. households had incomes of $100,000 or more in 2008.

True

Differences in ability are one major reason for income differences in the United States.

True

The Temporary Assistance for Needy Families (TANF) that replaced the old Aid for Families with Dependent Children welfare program succeeded in reducing the number of welfare recipients and increasing the employment rate among single mothers.

True

Movie producers A, B, and C secretly meet and agree to release their summer blockbuster films in sequence, rather than at the same time. The U.S. Justice Department learns of the agreement and files an antitrust suit. The Federal government would most likely file charges under the:

Sherman Act, Section 1.

Which of the following is least likely to violate the Sherman Act or the Clayton Act?

Competitive firms F and G independently charge lower prices to frequent customers than to occasional customers.

The Clayton Act of 1914:

outlawed price discrimination, tying contracts, intercorporate stockholding, and interlocking directorates that lessen competition.

A function of the Federal Trade Commission is to:

investigate instances of faulty and misleading advertising.

Which of the following laws prohibited mergers by stock acquisition if the effect was to lessen competition?

Clayton Act of 1914

Which of the following made monopoly and restraints of trade criminal offenses against the Federal government?

Sherman Act of 1890

The government was successful in gaining an antitrust conviction in the:

Alcoa case.

In which of the following sets of antitrust cases did the government gain convictions?

the Alcoa case and the Microsoft case

The basic issue in the DuPont cellophane case was:

defining the relevant market.

In the U.S. Steel case of 1920 the courts held that:

although U.S. Steel possessed monopoly power, it had not violated the Sherman Act because it had not unreasonably used that power.

Structuralists take the position that:

an industry that is highly concentrated will behave monopolistically.

Price fixing is considered to be a per se violation of the antitrust laws because:

a guilty verdict requires proof that the activity was attempted, not that it unreasonably restrained trade.

Suppose the firms in a five-firm industry have market shares of 30, 30, 20, 10, and 10 percent, respectively. The Herfindahl index for the industry is:

2,400.

Suppose that two firms in an industry with a Herfindahl index of 5,000 announce a merger. The U.S. Justice Department concludes the merger will boost the index to 5,500. The antitrust authorities will most likely:

prevent the merger, contending that it violates the Clayton Act.

Suppose that two firms in an industry that has a Herfindahl index of 1,000 announce a merger. The U.S. Justice Department concludes the merger will boost the index to 1,050. The antitrust authorities will most likely:

ignore this merger because of the relatively small size of, and increase in, the Herfindahl index.

A firm is likely to be a natural monopoly:

if economies of scale are experienced over the full range of output.

Using antitrust law to split up an unregulated natural monopoly into several competing firms:

might either increase product price or reduce product price.

A market in which the entire demand for a good or service can be satisfied at the least cost by a single firm is a:

natural monopoly.

The legal cartel theory of regulation argues that:

firms in certain industries want to be regulated rather than face the rigors of competition.

Which one of the following is concerned with industrial regulation, as distinct from social regulation?

Federal Communications Commission

Social, as distinct from industrial, regulation is the major focus of the:

Consumer Products Safety Commission.

Defenders of social regulation point out that:

critics who stress the high administrative and compliance costs of social regulation underestimate the social benefits that the regulations produce.

(Last Word) In 2001, Microsoft was found guilty of violating:

Sections 1 and 2 of the Sherman Act.

(Last Word) In 2001, Microsoft was found guilty of:

using anticompetitive means to maintain and broaden its monopoly in Intel-compatible operating systems for personal computers.

(Last Word) The final settlement of the United States v. Microsoft case:

requires that Microsoft provide technical information to competing companies so they can develop software programs that work as well with Windows as Microsoft's own products.

Buyers will opt out of markets in which:

there is inadequate information about sellers and their products.

Suppose a firm offers its workers a cafeteria plan in which it allows workers to allocate a set amount of fringe benefit money toward specific insurance. Mary, who has five kids needing braces, selects the family dental coverage. This is an example of the:

adverse selection problem.

Upon buying a car with airbags, Indy begins to drive recklessly. This is an example of the:

moral hazard problem.

Public choice economists:

use the tools of economics to analyze decision making, politics, and elections in the public sector.

Which one of the following topics would be of most interest to a public choice economist?

rent-seeking behavior

"Government failure" is a prominent topic in:

public choice theory.

Because majority voting fails to incorporate the strength of the preferences of individual voters, it:

produces economically inefficient outcomes under some circumstances.

According to the paradox of voting:

majority voting fails under some circumstances to make consistent choices that reflect the community's underlying preferences.

As it relates to corporations, the principal-agent problem is that:

the goals of the corporate managers (the agents) may not match the goals of the corporate owners (the principals).

In corporations, owners are __________________ and managers are ______________.

principals; agents

As it relates to the political process, the principal-agent problem results from the:

inconsistency between voters' interest in programs and politicians' interest in re-election.

"Vote for my special local project and I will vote for yours." This political technique:

often accompanies pork-barrel politics.

Factors that impede the attainment of economic efficiency in the public sector are called:

government failures.

The idea of government failure includes all of the following except:

extensive positive externalities from public and quasi-public goods.

Suppose American winemakers convince the Federal government to issue a directive to serve only domestically produced wine at government functions. This would be an example of:

rent-seeking behavior.

In a sporting goods store, you can buy the equipment you want and forgo the rest. But in an election you "buy" the entire range of the candidate's positions, including some you may not agree with. This difference:

reflects limited and bundled choices in the public sector.

"Earmarks" refer to:

authorized expenditures that benefit a narrow, specifically designated group, that are included in more comprehensive spending legislation.

The unlawful misdirection of governmental resources for personal gain is known as:

political corruption.

The moral hazard problem is the tendency of some parties to a contract to alter their behavior as a result of the contract in ways which are costly to the other party.

True

Professor Gullible agreed to cancel the final examination if students promised to study for it anyway. The concept of moral hazard would predict that it is unlikely that students will study for the exam.

True

Insurance co-pays and deductibles are methods used by insurance companies to reduce moral hazard.

True

Logrolling can either increase or diminish economic efficiency.

True

Even if a majority of the population wants a law and the law is passed, the outcome may still be economically inefficient.

True

The paradox of voting is that under majority voting rules the median-voter decides the election outcome.

False

The pursuit through government of a transfer of wealth at society's expense is called "rent seeking."

True

Which is an illustration of a microeconomic question?

Will a new type of television set increase the number of buyers?

A tradeoff exists between two economic goals, X and Y. This tradeoff means that:

Getting more of X requires getting less of Y

Which one of the following would be a normative economic statement?

The worsening balance of trade must be corrected if this nation is to remain competitive in the world economy

In a graph of the marginal benefit (MB) and marginal cost (MC) of national defense goods, a rightward shift or increase in the MB curve will:

Increase the allocation of resources to national defense

Which question is an example of a macroeconomic question?

What policies would be recommended for stimulating national economic growth?

In a production possibilities graph with just two products in an economy, the graph shows the quantity of:

One product on the vertical axis and the quantity of the another product on the horizontal axis

Assume that a consumer purchases only two products and there is a decrease in the consumer's income. The prices of the two products stay the same. The change in income will result in a

Shift of the budget line inward to the left

The production possibilities curve represents:

The maximum combinations of products that can be produced with fixed resources and technology

Rational behavior implies that different people faced with similar choices will make the same decisions

False

Which is not a factor of production?

Money

Which expression is another way of saying "marginal cost"?

Additional Cost

In the labor markets,

Job applicants are the "buyers" while employers are the "sellers"

Which of the following statements is true?

If demand decreases, then price will decrease

Which would have no effect on the demand for motorcycles?

A Change in the cost of steel

All markets involve the following elements, except:

Government

A decrease in supply, holding demand constant, will cause:

Higher prices and a smaller quantity sold

A plastics manufacturer can make either toys or containers. If the demand for toys increases, then the:

Supply of containers will decrease

The marginal utility of a second copy of today's newspaper taken from a newspaper vending machine is:

Close to zero

The income effect of a price-increase for a normal good causes an increase in the consumption of the good.

False

Understanding the water and diamond paradox is valuable because it explains why:

The prices of products are not necessarily measures of their usefulness

One reason for the increased health-care spending in our economy is that insurance companies pay the most of the cost of health care.

True

Assume a round of golf requires four hours of leisure time, and attending a concert requires two hours. If the price of a round of golf is $40 and the price of a concert is $80, ceteris paribus, Joe will play:

Relatively less golf and attend relatively more concerts whenever his leisure time becomes more scarce

A purely competitive firm can be identified by the fact that:

Its average revenue equals marginal revenue

Which market model assumes the least number of firms in an industry?

Pure Monopoly

In the short run, fixed costs are irrelevant in determining a firm's optimal level of output.

True

In short-run equilibrium, a competitive firm cannot earn economic profits.

False

Insurance tends to drive up health care costs by encouraging greater use of health care resources. Why has this occurred in the United States, but not in Canada or the United Kingdom?

Canada and the United Kingdom use nonprice rationing to contain costs.

The price elasticity of demand for health care is such that an increase in the price of health care will:

increase total health care expenditures

The major objective of Medicaid is to:

provide health care services to those receiving public assistance.

In the U.S., approximately how many doctors are there per 100,000 of population?

271

In the health care market:

demand has increasd relative to supply.

Aggregate U.S. health care spending in 2009 was just over:

17 percent of domestic output.

When economists say that health care services are overconsumed, they mean that:

some resources now used in the health care industry could produce alternative goods and services that society values more highly.

Employer-provided private health insurance began in the United States because:

during World War II, wage and price controls forced employers to use nonwage forms of compensation to attract workers.

Mergers of firms in an industry tend to:

Transform monopolistic competition into oligopoly

The kinked demand model of oligopoly assumes that

Rivals will ignore price increases but will match price cuts

Mutual interdependence means that:

A firm's behavior is affected by other firms' actions

The Herfindahl index is a measure of:

Market power in an industry

Compared to a purely competitive firm in long-run equilibrium, the monopolistic competitor has a:

Higher price and lower output

Collusion refers to a situation where rival firms decide to:

Agree with each other to set prices and output

The incentive to cheat within a cartel increases with an increase in the following factors, except:

Economic performance and industry sales

If oligopolistic firms facing similar cost and demand conditions successfully collude, price and output results in this industry will be most accurately predicted by which of the following models?

The pure monopoly model

Which industry would be considered to be oligopolistic based on the four-firm concentration ratio and the Herfindahl index data?

Beer

Which statement concerning monopolistic competition is false?

Firms may experience positive economic profits in the long run

In the kinked demand model of oligopoly, if one firm increases its price, the most likely reaction of the other firms will be to:

Not change their prices

The goal of product differentiation and advertising in monopolistic competition is to make:

Price less of a factor and product differences more of a factor in consumer purchases

A high concentration ratio indicates that:

Few firms produce most of the output in an industry

In the long run, a representative firm in a monopolistically competitive industry will end up:

Earning a normal profit, but not an economic profit

Product variety in monopolistic competition comes at the cost of:

Excess capacity

At long-run equilibrium in monopolistic competition, there is:

Neither allocative nor productive efficiency

Industry Y is dominated by five large firms that hold market shares of 20, 20, 25, 25, and 10. The Herfindahl index for this industry is:

2150

Which is not true for a monopolistically competitive industry?

The portion of the marginal-cost curve above the average-variable-cost curve is the short-run supply curve for the firm

In monopolistic competition, which of the following would make an individual firm's demand curve less elastic?

Increased brand loyalty toward the firm's product

The larger the Herfindahl index, the:

Greater the degree of market power in an industry

In an oligopolistic market there are:

Few Sellers

If an oligopolist's demand curve has a "kink" in it, then:

Over some interval, a change in the oligopolist's marginal cost will not cause a change in the oligopolist's profit-maximizing price

The downward-sloping demand curve of a monopolistic competitor:

Reflects some level of control over its own price

Other things being equal, a firm in a cartel will most likely cheat on a price-fixing agreement by:

Secretly lowering price and increasing sales to a few customers

The characteristic most closely associated with oligopoly is:

A few large producers

A major prediction of the kinked demand curve model is:

Price stability in oligopolies

Interindustry competition refers to the fact that:

In some markets the producers of a certain commodity might face competition from products of other industries

Monopolistically competitive firms are similar to monopolies in that they have:

Marginal revenues that are less than price

A monopolistically competitive firm is operating at a short-run level of output where price is $21, average total cost is $15, marginal cost is $13, and marginal revenue is $13. In the short run this firm should:

Make no change in the level of output

Congressional representatives have called for extensive ergonomics regulations to reduce strains and injuries from repetitive activities by workers. Such regulation, if passed, would be a good example of:

social regulation.

Price fixing:

is a per se violation of the antitrust laws.

Tying contracts are illegal under the:

Clayton Act of 1914

Which of the following findings would be the most likely to lead the U.S. Justice Department to block a corporate merger under terms of the Clayton Act?

a high pre-merger Herfindahl index in the industry and a large boost in the index because of the merger

The main purpose of the antitrust laws is:

to prevent the monopolization of industries.

The view that the antitrust laws should be enforced relatively leniently because of the tendency for monopoly power to erode over time is known as the:

laissez-faire perspective on antitrust.

In the Alcoa case of 1945 the courts held that:

the mere possession of monopoly power is a violation of the antitrust laws.

Antitrust authorities are least likely to take action against:

conglomerate mergers.

All of the following are regulatory commissions dealing with industrial regulation (as distinct from social regulation) except the:

Food and Drug Administration.

The Sherman Act was designed to:

make monopoly and acts that restrain trade illegal.

Economists who adhere to the laissez-faire antitrust perspective:

view competition as a long-run dynamic process in which firms battle for dominance of markets but rarely can sustain such dominance once it is achieved.

The antitrust laws are based on the:

idea that competition leads to greater economic efficiency than does monopoly.

The largest efficiency gains from deregulation have occurred in the:

airlines, trucking, and railroad industries.

(Consider This) According to the Consider This box on catfish and art, which of the following airlines in 2007 agreed to pay $300 million fines for fixing fuel surcharges on passenger tickets and cargo?

Korean Air and British Airlines

Econ 2010 - Subjecto.com

Econ 2010

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Economics is a social science that studies how individuals, institutions, and society may:

Best use scarce resources to achieve the maximum satisfaction of economic wants

The key economic concept that serves as the basis for the study of economics is:

Scarcity

The idea in economics that "there is no free lunch" means that:

There are opportunity costs involved when scarce resources are used up for free lunches

Opportunity cost is best defined as:

The value of the best forgone alternative

Tammie makes $150 a day as a bank clerk. She takes off two days off work without pay to fly to another city to attend the concert of her favorite music group. The cost of transportation for the trip is $250. The cost of the concert ticket is $50. The opportunity cost of Tammie’s attending the concert is:

$600

When a state government chooses to build more roads, the required resources are no longer available for spending on public education. This dilemma illustrates the concept of:

Opportunity cost

Henry wants to buy a book. The economic perspective suggests that Henry will buy the book if:

The marginal benefit of the book is greater than its marginal cost

The concept of "rational behavior" suggests that:

Different people make different choices because their circumstances and information differ

Economists have difficulty applying the scientific method because:

Controlled laboratory experiments are impossible or often infeasible

Which is an illustration of a macroeconomic question?

Are increasing wage demands by workers contributing to price inflation?

Microeconomics focuses on:

The individual units that make up the economy

Which of the following is a normative economic statement?

A trade deficit of 20 billion dollars will harm the economy

Clara states that "there is a high correlation between the level of people’s education and the level of their income." Ellie replies that the correlation occurs because "more education is the best way to earn more income in this country."

Clara’s statement is positive and Ellie’s statement is normative

Assume that a consumer purchases only two products. Suppose that the consumer’s money income doubles, and the prices of the two products also double. These changes in income and prices will result in

No change in the budget line

Which of the following is considered as an economic resource?

The land that are designated as national parks by the government

Which of the following is one of the four simplifying assumptions made in constructing the production possibilities model?

The economy is fully employed and is using least-cost methods of production

All of the following would affect the position of a country’s production possibilities curve, except:

The level of unemployment

A point inside the production possibilities curve is:

Attainable, but the economy is inefficient

A point on the production possibilities curve is:

Attainable and resources are fully employed

The production possibility curve:

Is the boundary between attainable and unattainable outputs

The law of increasing opportunity costs says that:

Along a production possibilities curve, increases in the production of one good require larger and larger sacrifices of the other good

Which statement is an economic rationale for the law of increasing opportunity costs?

Many economic resources are better at producing one product than another

In a production possibilities table, the most-valued or optimal point for society is determined by:

The equality of marginal benefits and marginal costs

When a society is under-allocating resources to the production of a good or service, then the:

Marginal benefit is greater than the marginal cost

To improve the rate of growth of labor productivity a number of economists have suggested that there needs to be:

An increase in investment relative to consumption

If the opportunity cost of producing extra units of one good (expressed in terms of the amount of another good that is sacrificed) remains constant, then the shape of the production possibilities curve is:

A straight downsloping line

The production possibilities curve bows outward from the origin because:

Opportunity costs increase as the production of a good increases

The role of the entrepreneur in society is to:

Bring the factors of production together and take the risks of producing

Which of the following is a factor of production?

Capital

Which is considered a factor of production?

An auto plant

Clara states that "there is a high correlation between the level of people’s education and the level of their income." Ellie replies that the correlation occurs because "more education is the best way to earn more income in this country."Which of the following is considered as an economic resource?

Clara’s statement is positive and Ellie’s statement is normative

The study of how a firm sets its prices in different regions of the nation would fall under:

Microeconomics

Microeconomics focuses on:

The individual units that make up the economy

Which question is an example of a microeconomic question?

Will the merger of two airlines likely lead to higher airline ticket prices?

The purpose of the ceteris paribus assumption used in economic analysis is to:

Focus on the effect of a single factor on a certain variable

The process of developing hypotheses, testing them against facts, and using the results to construct theories is called:

The scientific method

When an economist says that there is "too much of a good thing," the economist is suggesting that:

The marginal benefit of the thing is less than the marginal cost

The observation that people compare the marginal benefits with the marginal costs in making such decisions as how to spend time, which products to buy, whether or not to work, and which goods to produce and sell, is most closely associated with:

The economic perspective

One major assumption of the economic perspective is:

That individuals’ behavior reflect rational self-interest

A recurring theme in economics is that people:

Have unlimited economic wants, but limited resources

The satisfaction or pleasure one gets from consuming a good or service is:

Utility

The utility of a specific product:

Varies from person to person using the product

Total utility is best defined by which of the following?

The total satisfaction received from consuming a particular amount of a product

Which of the following statements is correct?

Total utility is the cumulation or summation of marginal utility

Which situation is consistent with the law of diminishing marginal utility?

The more pizza Henry eats, the less he enjoys an additional slice

Which statement is correct?

When marginal utility is positive, an increase in the quantity consumed will increase total utility

The reason why people are charged for an additional can of soda they get from a soda machine, but are not charged for an additional paper taken from a newspaper dispensing machine, is that the marginal utility of an additional:

Soda diminishes slowly, but the marginal utility of an additional paper is close to zero

The downward slope of the demand curve for a product shows the implications of:

Diminishing marginal utility

Which of the following is an assumption of the marginal-utility theory of consumer behavior?

Each good and service has a price

Which of the following is not an assumption of the marginal-utility theory of consumer behavior?

The consumer’s tastes and preferences change within the period studied

A consumer with a fixed income will maximize utility when each good is purchased in amounts such that the:

Marginal utility per dollar spent is the same for all goods

In deciding what to buy, the consumer will choose the good with the:

Highest marginal utility-to-price ratio

Assume that a consumer purchases a combination of products Y and Z and that the MUy/Py= 25 and MUz/Pz= 20. To maximize utility, without spending more money, the consumer should:

Purchase more of Y and less of Z

The goal of a rational consumer is to maximize:

Total utility from all goods consumed

The reason the substitution effect works to encourage a consumer to buy less of a product when its price increases is:

The product is now relatively more expensive than it was before

The fact that an ounce of gold is priced higher than an ounce of chocolate suggests that:

The marginal utility of the last unit of gold consumed is greater than the marginal utility of the last unit of chocolate consumed

An increase in the productivity of labor over time will:

Increase the value of time

Health insurance often pays 80 percent of health care cost. This situation will encourage the rational consumer to:

Use more medical services than they would if they had to paid the full price

From the viewpoint of potential criminals, the probability of being fined or imprisoned:

Raises the marginal cost or "price" of criminal behavior

One implication of the phenomenon described by economist Richard Easterlin as the "hedonic treadmill" is that:

People can only become happier if they are consuming more and more

Marginal utility is the accumulation of the total utility from successive units of a good or service consumed.

False

The law of diminishing marginal utility suggests that the total utility a consumer derives from a product will increase slower and slower as consumption of the product increases.

True

The income and substitution effects will both induce the consumer to buy more of a normal good when its price decreases.

True

Someone paying $800 to fly from one city to another instead of paying only $100 for a bus trip between the two cities is making an irrational choice and is thus not maximizing his utility.

False

Behavioral economics is still in the early stages of development and thus is not yet capable of being used as a basis for policy-making

False

When diminishing marginal utility starts happening as a person consumes more and more of a given good:

Total utility will increase at a diminishing rate

Children who dislike Brussels sprouts exemplify the notion that the marginal utility of Brussels sprouts is:

Negative

According to utility theory, when total utility reaches a maximum, then marginal utility is

Equal to zero

When the price of a product falls for a normal good, the:

Income and substitution effects will encourage consumers to purchase more of the product

When the price of a product rises for an inferior good, the

Substitution effect will encourage consumers to purchase less of the product but the income effect will encourage them to purchase more

An increase in the price of product X causes a decrease in the quantity demanded for product X. One basic explanation for this is:

The law of diminishing marginal utility

The price of diamonds is substantially greater than the price of water because:

The marginal utility of the last unit of a diamond is significantly greater than the marginal utility of the last unit of a gallon of water consumed by a typical person

The marginal utility of leisure time appears to:

Increase as the quantity of available leisure time decreases

The financing of health care through insurance has:

Resulted in consumers directly paying less than the full price of health care

The law of diminishing marginal utility implies that in order to induce a buyer to buy more of a product, the seller must lower its price.

True

The value of the next best alternative for a resource is called its opportunity cost

True

An industry is expected to expand if firms in the industry are earning positive:

Economic profits

Suppose a firm sells its product at a price lower than the opportunity cost of the inputs used to produce it. Which of the following statements is definitely true?

The firm may earn positive accounting profits, but will face economic losses

Normal profits are:

Considered an implicit cost by economists

Which of the following statements is false?

The short run refers to a period of less than one year

In the short run:

Output is raised or reduced by changing the levels of variable inputs

Which is most likely to be a long-run adjustment for a firm that manufactures cars on an assembly line basis?

A change in production to a redesigned and retooled facili

Marginal product of labor refers to the:

Increase in output resulting from employing one more labor

According to the law of diminishing marginal returns:

The additional output generated by additional units of an input will diminish

Which of the following statements is true?

Diminishing marginal returns means that in order to increase output at a constant rate, the firm must add larger and larger quantities of the variable inputs

The law of diminishing returns in a manufacturing plant of a fixed capacity implies that, eventually, employing one:

More worker will decrease the average amount of output per worker

Which statement best illustrates the law of diminishing returns?

The marginal product of the last unit of a resource used is less than the marginal product of the preceding unit of resource

The total product curve graphically shows the:

Maximum level of output that can be produced by a quantity of a variable resource holding constant the quantity of other resources

The marginal product of labor curve graphically shows the change in total product resulting from a:

One-unit increase in the quantity of a particular resource used, holding constant other resources

When a bakery manager reports that at her bakery, productivity of her 15 workers last month was 1,800 loaves per worker, she is referring to the:

Average product of labor

The range of diminishing marginal productivity begins when:

Marginal product reaches its maximum

At the Amarillo Piano Company, the average product of labor stays constant at 5, regardless of how much labor is employed. This implies that:

The marginal product of labor is constant

At the point where diminishing marginal returns of an input sets in, the:

Marginal product starts to decrease

With fixed costs of $400, a firm has average total costs of $3 and average variable costs of $2.50. Its output quantity must be:

800 units

If the long-run average total cost curve for a firm is horizontal in the relevant range of production, then it indicates that there:

Are constant returns to scale

When diminishing marginal returns starts occurring, the addition of successive units of a variable resource to a fixed resource will cause the firm’s production to diminish.

False

The law of diminishing marginal returns is another name for the law of diminishing marginal utility.

False

Marginal product is highest where marginal cost is lowest

True

When a firm increases its output, its average fixed costs will stay constant.

False

If a firm increases all its inputs by 10 percent and its output increases by 15 percent, the firm is experiencing diseconomies of scale.

False

In which market model would there be a unique product for which there are no close substitutes?

Pure monopoly

There would be some control over price within rather narrow limits in which market model?

Monopolistic competition

Under which market model are the conditions of entry into the market easiest?

Pure competition

Under which market model are the conditions of entry the most difficult?

Pure monopoly

Local electric or gas utility companies mostly operate in which market model?

Pure monopoly

The production of agricultural products such as wheat or corn would best be described by which market model?

Pure competition

The steel and automobile industries would be examples of which market model?

Oligopoly

Which is not a basic market model?

Free enterprise

Which characteristic would best be associated with pure competition?

Price takers

In a purely competitive industry, each firm:

Can easily enter or exit the industry

Which is a feature of a purely competitive market?

Products are standardized or homogeneous

Which is true under conditions of pure competition?

No single firm can influence the market price by changing its output

Price is constant or "given" to the individual firm selling in a purely competitive market because:

Each seller supplies a negligible fraction of total demand and supply

Which is not a required characteristic of a purely competitive industry?

Industry demand is highly elastic

A purely competitive firm does not try to sell more of its product by lowering its price below the market price because:

It can sell all it wants to at the market price

The demand curve faced by a purely competitive firm

Is the same as its marginal revenue curve

In pure competition, the demand for the product of a single firm is perfectly:

Elastic because many other firms produce the same product

If a firm is a price taker, then the demand curve for the firm’s product is:

Perfectly elastic

In pure competition, each extra unit of output that a firm sells will yield a marginal revenue that is:

Equal to the price

In a graph for a firm in pure competition with the quantity of output measured on the horizontal axis, the total revenue curve is:

Upward-sloping

The total revenue of a purely competitive firm from 8 units of output is $48. Based on this information, total revenue for 9 units of output must be:

$54

Which is necessarily true for a purely competitive firm in short-run equilibrium?

Marginal revenue less marginal cost equals zero

A purely competitive firm is in short-run equilibrium and its MC exceeds its ATC. It can be concluded that:

The firm is realizing an economic profit

In pure competition, the industry demand curve is infinitely price elastic.

False

The break-even point means that the firm is realizing economic profits.

True

Which is an example of a market failure?

Polio shots and chest x-rays provide widespread benefits to the community as a whole as well as to the individuals who get them

Which of the following situations is not an example of market failure?

Ben cannot afford to buy a high-end Mercedes Benz luxury car

Charlie is willing to pay $10 for a T-shirt that is priced at $9. If Charlie buys the T-shirt, then his consumer surplus is

$1

Consumer surplus arises in a market because:

The equilibrium market price is below what some consumers are willing to pay for the product

If the price of a product increases:

The consumer surplus will decrease

Deadweight losses occur when the quantity of an output produced is:

less than or greater than the competitive equilibrium quantity

When there is overproduction of a good:

The marginal cost of the good exceeds its marginal benefit

What are the two characteristics that differentiate private goods from public goods?

Rivalry and excludability

Private firms can hardly produce a public good profitably because of:

The free-rider problem

A public good:

Can’t be provided to one person without making it available to others as well

External benefits in consumption refer to benefits accruing to

Those other than the ones who consumed the product

If a good that generates negative externalities were priced to take into account these negative externalities, then its:

Price would increase and its output would decrease

If the production of a product or service involves external benefits, then the government can improve efficiency in the market by:

Providing a subsidy to correct for an underallocation of resources

When external benefits occur in the production of a particular product, the private market tends to provide:

Too little of the product

Where there are spillover (or external) costs from the production of a good, the government can make the quantity of the good approach the socially optimal level by doing the following except:

Subsiding the sellers of the product

Which antipollution policy would be least likely to make use of cost-benefit analysis?

Enacting legislation that bans pollution

An emission fee levied against polluters will tend to:

Internalize the external cost of pollution

Oftentimes, the socially optimal quantity for a product that imposes external costs on the society is not zero, but something greater than zero. This is because completely eliminating the externality involves:

A much greater marginal cost than marginal benefit

Sometimes, public goods whose benefits are less than their costs still get produced because:

The benefits accrue to politically powerful government officials and their constituents

Market failures refer to those situations where the sellers are not producing as much as the buyers are wanting to buy.

False

Demand-side market failures refer to those situations when there is a shortage in the market because buyers want to buy more than what is available in the market.

False

When the marginal benefits exceed the marginal costs of producing a product, then allocative efficiency is not achieved in the market.

True

Deadweight losses occur when there is overproduction of a product.

True

The free-rider problem refers to the local government’s problem of finding funds to subsidize public transportation.

False

Because in any period of time and in any region the quantity of pollutants that can be absorbed by nature is fixed, the supply of "pollution rights" in a cap-and-trade system will be perfectly elastic.

False

Which statement best illustrates the concept of diminishing marginal utility?

A typical consumer will receive less satisfaction from consuming the fourth hamburger per week than the third hamburger per week

As a result of a fall in the price of gasoline, consumers can afford to take more driving trips. This is an illustration of:

The income effect

A market demand schedule for a product would indicate that:

There is an inverse relationship between price and quantity demanded

The horizontal axis of a graph which shows a market demand curve indicates the:

Quantities which consumers will be willing and able to buy at various prices

Which of the following is a determinant of demand?

Income

An increase in the demand for computers indicates that:

More will be purchased even if prices stayed the same

Which is not a determinant of demand?

The cost of inputs in production

Which goods would usually be an inferior good?

Generic beer

If product Y is an inferior good, a decrease in consumer incomes will:

Shift the demand curve for product Y to the right

For most products, purchases tend to fall with decreases in buyers’ incomes. Such products are known as

Normal goods

If the price of gasoline increases and car dealers suffer a decrease in demand for sport utility vehicles, then gasoline and sport utility vehicles are:

Complements

All of the following would affect the position of the demand curve for personal computers, except the:

Price of personal computers

An increase in the price of product G will result in a

Movement up and to the left along the demand curve for G

Suppose that a more efficient way to produce a good is discovered, thus lowering production costs for the good. This will cause a(n):

Increase in supply, or a rightward shift of the supply curve

Which would cause a rightward shift in the supply curve for telephone service?

A decrease in the wages of telephone workers

A leftward shift of the supply curve for oil in the United States is most likely to result from:

An increase in the costs of exploration and drilling for oil

A fall in the price of milk, used in the production of ice cream, will:

Increase the supply of ice cream, causing the supply curve of ice cream to shift to the right

A movement along a given supply curve for a product is caused by a change in the:

Price of the product

There is a shortage in a market for a product when:

Quantity demanded is greater than quantity supplied

If the market price is above the equilibrium price:

A surplus will occur and producers will produce less and lower prices

When a shortage of a commodity occurs, we would expect to find that:

Buyers will tend to bid its price up

A television station reports that the price of coffee has increased but the quantity traded in the market has decreased. This situation would be caused by a(n):

Decrease in supply

A newspaper reports that the average price of new homes in a certain city had decreased, and the number of new homes sold had also decreased. This situation is probably caused by:

Declining incomes of people in that city

A decrease in the price of digital cameras would lead to a(n):

Increase in the price and quantity sold of memory cards

An increase in demand for oil along with a simultaneous increase in supply of oil will:

Increase quantity, but whether it increases price depends on how much each curve shifts

When economists describe "a market," they mean:

A system that allows buyers and sellers to interact with one another

When one speaks of "demand" in a particular market, this refers to:

The whole demand curve

A higher price reduces the quantity demanded for a product because:

ndividuals can afford less of the product and will switch to substitutes

As a result of a decrease in the price of MP3 music, consumers download more songs and buy fewer CDs. This is an illustration of:

The substitution effect

Which will not cause a change in the demand for product A?

A change in the price of A

If the price of ground beef increases, the demand for hamburger buns is predicted to:

Decrease

An increase in the price of product B leads to an increase in the demand for product C. This indicates that products B and C are:

Substitute goods

An increase in the price of product G will result in a:

Movement up and to the left along the demand curve for G

An increase in demand is shown graphically by a:

Shift of the demand curve to the right

Which of the following is a determinant of supply?

Technology

If farmers withhold some of their current corn harvest from the market because they anticipate a higher price of corn in the future, then this would cause a(n):

Decrease in the supply of corn

A leftward shift of the supply curve for oil in the United States is most likely to result from:Which would cause a rightward shift in the supply curve for telephone service?

An increase in the costs of exploration and drilling for oil

All of the following are assumed to be constant when the supply curve for a product is drawn, except the:

Price of the product

A market for a product is in equilibrium when:

Quantity supplied equals quantity demanded

A black market could arise as a result of:

The imposition of a legal price ceiling below the equilibrium price

Which would cause an increase in quantity supplied of product A?

An increase in the price of A

The primary force encouraging the entry of new firms into a purely competitive industry is:

economic profits earned by firms already in the industry.

In a purely competitive industry

there may be economic profits in the short run, but not in the long run

Which of the following is true concerning purely competitive industries?

In the short run, firms may incur economic losses or earn economic profits, but in the long run they earn normal profits

We would expect an industry to expand if firms in that industry are

earning economic profits

Which of the following statements is correct?

Economic profits induce firms to enter an industry; losses encourage firms to leave.

An increasing-cost industry is associated with:

an upsloping long-run supply curve.

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

of unimpeded entry to the industry.

Assume that a decline in consumer demand occurs in a purely competitive industry which is initially in long-run equilibrium. We can:

not compare the original and the new price without knowing about cost conditions in the industry.

Under what conditions would an increase in demand lead to a lower long-run equilibrium price?

The firms in the market are part of a decreasing-cost industry.

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

the LCD television industry is a decreasing-cost industry.

Suppose an increase in product demand occurs in a decreasing-cost industry. As a result:

the new long-run equilibrium price will be lower than the original long-run equilibrium price.

The MR = MC rule applies:

in both the short run and the long run.

A firm is producing an output such that the benefit from one more unit is more than the cost of producing that additional unit. This means the firm is:

producing less output than allocative efficiency requires.

The term productive efficiency refers to:

the production of a good at the lowest average total cost.

If the price of product Y is $25 and its marginal cost is $18:

resources are being underallocated to Y.

If for a firm P = minimum ATC = MC, then:

both allocative efficiency and productive efficiency are being achieved

Assume that society places a higher value on the last unit of X produced than the value of the resources used to produce that unit. With no spillovers, this information means that:

price is greater than marginal cost.

Which of the following conditions is true for a purely competitive firm in long-run equilibrium?

P = MC = minimum ATC

Allocative efficiency occurs whenever:

it is impossible to produce a net benefit for society by changing the combination of goods and services produced.

Which of the following outcomes is consistent with a purely competitive market in long-run equilibrium?

consumer and producer surplus will be maximized.

Entrepreneurs in purely competitive industries:

innovate to lower operating costs and generate short-run economic profits.

The process by which new firms and new products replace existing dominant firms and products is called:

creative destruction.

The theory of creative destruction was advanced many years ago by:

Joseph Schumpeter.

Creative destruction is least beneficial to:

workers in the "destroyed" industries.

(Last Word) When patents on new medications expire, the market for those drugs:

change from being monopolistic to being competitive.

Which of the following is a characteristic of pure monopoly?

barriers to entry

Which of the following is not a barrier to entry?

X-inefficiency

Barriers to entering an industry

are the basis for monopoly.

Large minimum efficient scale of plant combined with limited market demand may lead to:

natural monopoly.

What do economies of scale, the ownership of essential raw materials, and patents have in common?

They are all barriers to entry.

When a firm is on the inelastic segment of its demand curve, it can:

increase profits by increasing price.

With respect to the pure monopolist’s demand curve it can be said that:

price exceeds marginal revenue at all outputs greater than 1.

The demand curve faced by a pure monopolist:

is less elastic than that faced by a single purely competitive firm.

The pure monopolist’s demand curve is relatively elastic:

in the price range where marginal revenue is positive.

A nondiscriminating profit-maximizing monopolist:

will never produce in the output range where demand is inelastic.

For a pure monopolist marginal revenue is less than price because:

when a monopolist lowers price to sell more output, the lower price applies to all units sold

The vertical distance between the horizontal axis and any point on a nondiscriminating monopolist’s demand curve measures:

product price and average revenue.

Which of the following is incorrect? Imperfectly competitive producers

do not compete with one another.

A pure monopolist:

will realize an economic profit if price exceeds ATC at the profit-maximizing/loss-minimizing level of output.

A pure monopolist’s short-run profit-maximizing or loss-minimizing position is such that price:

may be greater or less than ATC.

Economic profit in the long run is:

possible for a pure monopoly, but not for a pure competitor.

An important economic problem associated with pure monopoly is that, at the profit maximizing outputs, resources are:

underallocated because price exceeds marginal cost.

There is some evidence to suggest that X-inefficiency is:

more likely to occur in monopolistic firms than in competitive firms.

Price discrimination refers to:

the selling of a given product at different prices that do not reflect cost differences.

The practice of price discrimination is associated with pure monopoly because:

monopolists have considerable ability to control output and price.

Which of the following is not a precondition for price discrimination?

The commodity involved must be a durable good.

Other things equal, in which of the following cases would economic profit be the greatest?

an unregulated monopolist which is able to engage in price discrimination

If a monopolist engages in price discrimination, it will:

charge a higher price where individual demand is inelastic and a lower price where individual demand is elastic

(Last Word) DeBeers Consolidated Mines markets about:

55 percent of the world’s rough-cut diamonds.

A pure monopolist will maximize profits by producing at that output where price and marginal cost are equal.

False

Which of the following is a measure of the degree of industry concentration?

Herfindahl Index

Demand and marginal revenue curves are downsloping for monopolistically competitive firms because:

Product differentiation allows each firm some degree of monopoly power

The demand curve faced by a monopolistically competitive firm:

Is more elastic than the monopolist’s demand curve

A monopolistically competitive firm is producing at a short-run output level where average total cost is $10.00, marginal cost is $5.00, marginal revenue is $6.00, and price is $12.00. In the short run, the firm should:

Increase the level of output

Firms in an industry will not earn long-run economic profits if:

There is free entry and exit of firms in the industry

Suppose some firms exit an industry characterized by monopolistic competition. We would expect the demand curve of a firm already in the industry to:

Shift to the right

In monopolistic competition there is an underallocation of resources at the profit-maximizing level of output, which means that:

Price is greater than MC

The economic inefficiency of monopolistic competition means that:

Producers produce at an output short of, and charge a price greater than, minimum average total cost

The variety of products and features which consumers may choose from in monopolistically competitive industries:

At least partially offsets the economic inefficiencies of this market structure

Which is true of pure competition but not of monopolistic competition?

Long-run equilibrium occurs at the minimum point on the ATC curve

Which is not a common form of nonprice competition in monopolistic competition?

Cash rebates and discount coupons

A major distinction between a monopolistically competitive firm and an oligopolistic firm is that:

A recognized interdependence exists between firms in one industry but not in the other

In which market model is there mutual interdependence?

Oligopoly

The increased use of plastic bags instead of paper bags in grocery stores and retail shops is an example of:

Interindustry competition

Industry Y is dominated by five large firms that hold market shares of 20, 25, 15, 10, and 25 percent. The four-firm concentration ratio for this industry is:

85 percent

Industry A is composed of four large firms that hold market shares of 60, 20, 10, and 10. The Herfindahl index and four-firm concentration ration for this industry are:

4200 and 100, respectively

One major problem with concentration ratios is that they fail to take into account:

The localized market for products

When firms in an industry reach an agreement to fix prices, divide up market share, or otherwise restrict competition, they are practicing the strategy of:

Collusion

Game theory, which is used in studying oligopoly behavior, originated from the study of games such as the following, except:

Solitaire

In the kinked demand model, there will be a vertical break in the firm’s:

Marginal revenue curve

If output is set at the kink of the kinked demand model, then there:

Are several prices at which marginal revenue equals marginal cost

A prediction from the kinked demand curve model of oligopoly is that, for an individual firm, small changes in:

Marginal cost will not lead to changes in price or output

One shortcoming of the kinked demand curve model of oligopoly is that it does not explain:

How the current price gets determined

A cartel is:

A formal agreement among firms to collude

A major reason that firms form a cartel is to:

Maximize joint profits

Where there is asymmetric information between buyers and sellers.

markets can produce inefficient outcomes.

As it applies to insurance, the adverse selection problem is the tendency for:

those most likely to collect on insurance to buy it.

Firms are not likely to provide sufficient workplace safety if:

workers are unaware of workplace hazards.

Professional buyers of antiques often have more information about the value of antique objects than do the sellers. This illustrates:

asymmetric information.

In a television advertisement for AFLAC supplemental health insurance, an ice skater says to his skating partner, "Do you want to try a triple jump?" She responds, "Why not, I have AFLAC." This response illustrates the:

moral hazard problem.

An economic analysis of the relationship between proposed legislation affecting major employers in each state and the voting patterns of Senators and representatives in Congress on that legislation would fit within the subcategory of economics called:

public choice theory.

Because majority voting fails to incorporate the strength of the preferences of individual voters, it:

produces economically inefficient outcomes under some circumstances.

A situation in which society may not be able to rank its preferences consistently through paired-choice majority voting refers to:

the paradox of voting.

The principle that under some circumstances majority voting fails to make consistent choices reflecting the community’s underlying preference is best demonstrated by the:

paradox of voting.

Suppose that in a series of paired-choice votes a new park is preferred to new recreation center and a new recreation center is preferred to street widening. Also suppose that street widening is preferred to a new park. This set of votes is an example of the:

paradox of voting.

Suppose three roommates cannot agree on the size of a pizza to order. Domino argues for a medium pizza, Godfather contends a large pizza will be needed, and Little Caesar wants a super-large pizza. Assuming no paradox of voting, majority voting will result in a decision to order:

a large pizza.

Suppose a college economics department decides to use a single economics text for all sections of principles of economics. Also assume that the three individual members of the textbook selection committee have the following preferences.

selecting the M/B book.

In corporations, owners are __________________ and managers are ______________.

principals; agents

In representative democracy, voters are ____________ and politicians are ____________.

principals; agents

As it relates to the political process, the principal-agent problem results from the:

inconsistency between voters’ interest in programs and politicians’ interest in re-election.

Factors that impede the attainment of economic efficiency in the public sector are called:

government failures.

Public choice theorists point out that the political process:

differs from the marketplace in that voters and congressional representatives often face limited and bundled choices.

Pork-barrel" legislation that contains funding for hundreds of earmarks throughout numerous states often reflects:

logrolling.

In a sporting goods store, you can buy the equipment you want and forgo the rest. But in an election you "buy" the entire range of the candidate’s positions, including some you may not agree with. This difference:

reflects limited and bundled choices in the public secto

"Earmarks" refer to:

authorized expenditures that benefit a narrow, specifically designated group, that are included in more comprehensive spending legislation.

The unlawful misdirection of governmental resources for personal gain is known as:

political corruption.

The Road Runner Club contributes money to Senator Sly’s reelection campaign fund, and Senator Sly helps pass legislation to add more jogging paths across the state. From this we can definitively conclude:

nothing about corruption; the Road Runner Club may have donated to Senator Sly because he already supported the jogging paths.

Political corruption occurs whenever:

government officials use unlawful misdirection of governmental resources for their own personal gain.

Insurance co-pays and deductibles are methods used by insurance companies to reduce moral hazard.

True

The paradox of voting is that under majority voting rules the median-voter decides the election outcome.

False

All of the following can file antitrust charges under the Sherman Act except:

the Federal Energy Regulatory Commission.

Which of the following laws prohibited mergers by stock acquisition if the effect was to lessen competition?

Clayton Act of 1914

Which of the following amended the Clayton Act’s prohibition against mergers that substantially lessen competition?

Celler-Kefauver Act of 1950

Responsibility for enforcing the antitrust laws rests:

with both the Department of Justice and the Federal Trade Commission.

Suppose the courts declare that XYZ Corporation violated the antitrust laws and as a result the ABC Corporation lost $100 million of profits. XYZ Corporation will have to pay ABC Corporation a monetary award of:

$300 million.

The government was successful in gaining an antitrust conviction in the:

Alcoa case

In which of the following cases was the firm found not guilty of violating the Sherman Act?

DuPont cellophane case

In the Microsoft antitrust case, the Federal government said in essence that:

Microsoft was a "bad monopoly."

In the U.S. Steel case, the court ruled that:

only monopolies that unreasonably restrain trade are subject to antitrust action under the Sherman Act.

The decision in the U.S. Steel case:

reflected a behavioralist approach to antitrust.

A merger between an automobile manufacturer and a maker of automobile tires is an example of a

vertical merger.

A vertical merger involves a combining of one or more firms

operating at different stages of the production process in a particular industry.

Behavioralists believe that:

industries should be judged on the basis of their price-output behavior and their technological progressiveness.

Suppose the firms in a five-firm industry have market shares of 30, 30, 20, 10, and 10 percent, respectively. The Herfindahl index for the industry is:

2,400.

Suppose that two firms in an industry that has a Herfindahl index of 1,000 announce a merger. The U.S. Justice Department concludes the merger will boost the index to 1,050. The antitrust authorities will most likely:

ignore this merger because of the relatively small size of, and increase in, the Herfindahl index

The view that the antitrust laws need to be strongly enforced to prevent illegal business behaviors, monopolization of markets, and allocative inefficiency is known as the:

active antitrust perspective

Critics of the regulation of natural monopolies contend that:

the industry may "capture" or control the regulatory commission.

A market in which the entire demand for a good or service can be satisfied at the least cost by a single firm is a:

natural monopoly.

Which one of the following is concerned with industrial regulation, as distinct from social regulation?

Federal Communications Commission

Critics of industrial regulation say that such regulation:

perpetuates monopoly long after new technology has eroded natural monopoly.

Social regulation differs from industrial regulation in that:

social regulation applies to virtually all industries, while industrial regulation applies to a restricted number.

The optimal amount of social regulation occurs where the marginal benefit of such regulation:

equals the marginal cost.

(Consider This) The Consider This box "Of Catfish and Art (and Other Things in Common)" lists examples of recent antitrust cases involving:

price fixing.

(Consider This) According to the Consider This box on catfish and art, which of the following firms were recently convicted of price fixing?

Sotheby’s and Christy’s (art auction houses)

(Last Word) The final settlement of the United States v. Microsoft case:

requires that Microsoft provide technical information to competing companies so they can develop software programs that work as well with Windows as Microsoft’s own products.

A Lorenz curve showing perfect equality in the distribution of income:

Is a straight line with a 45-degree angle

As the area between the Lorenz curve and diagonal gets larger, the Gini ratio:

Rises to reflect greater inequality

Which of the following is an example of a noncash transfer that is typically not included in the income-distribution data?

Medicare

Which of the following contributes most to the reduction in income inequality?

Transfer payments

When taxes and transfer payments are taken into account, the distribution of income in the United States:

Is more equally distributed

One of the major causes of income inequality is differences in:

Education

A cause of the unequal distribution of income in the United States is:

Differences in work preferences and risks

Which of the following is a major reason for the growing income inequality in the United States since 1970?

Import competition

Which of the following would be evidence of an increase in income inequality over time in the United States?

An increase in the percentage of total personal income received by the highest quintile

In 2008, the poverty line for a family of four was about:

$21,830

The percentage of the U.S. population living in poverty during the 1959 to 1969 period:

Decreased

The poverty rate in the U.S. from 2000 to 2008:

Increased slightly from 11.3% to 13.2%

Entitlement programs include:

Both public assistance programs and social insurance programs

Social Security payments are primarily made to assist:

Retired and disabled workers

Basic differences between Medicare and Medicaid include the following, except:

Medicare is a Federal program while Medicaid is a state-government program

A major criticism of the welfare system that led to reforms in the mid-1990s is that welfare payments:

Create dependency on government programs

In a supply and demand model of the labor market for non-preferred workers, a reduction in employer prejudice against non-preferred workers will:

Increase demand, raise the wage rate, and increase the employment of these workers

The judging of an individual on the basis of the average characteristics of the group to which the individual belongs rather than the individual’s characteristics is:

Statistical discrimination

In statistical discrimination:

The average characteristics of the group are applied to individual members

The crowding model of occupational discrimination suggests that occupational segregation results in:

A lower domestic output than would otherwise be the case

The unequal distribution of wealth among households in the United States is one of the causes of income inequality.

True

If income inequality is increasing, it means that the income levels of the poor are falling while the income levels of the rich are rising.

False

U.S. income statistics indicate that more than one-eighth of the nation lived in poverty in 2008.

True

All social insurance programs are welfare or public charity programs.

False

The Supplemental Nutrition Assistance Program (formerly the food-stamp program) mostly pays out cash-vouchers to eligible households.

False

Approximately how many workers are employed in the U.S. health care industry?

16 million

Employer-provided private health insurance:

is unique to the United States and not typically found in other countries.

Approximately how many millions of Americans do not have health insurance (prior to gaining coverage through the Patient Protection and Affordable Care Act)?

46

As a percentage of GDP, health care spending in the United States has:

increased substantially since 1960.

The United States devotes about ______ percent of its domestic output to health care.

17

Between 1960 and 2009, U.S. health care spending as percentage of domestic output:

more than tripled.

Total U.S. health care spending in 2008 was approximately:

$2.3 trillion.

Roughly what portion of U.S. total health spending is paid for by private and public insurance?

four-fifths

Which of the following statements is correct?

Rising health care costs are a major cause of limited access to the health care system.

The perceived central economic problem associated with the U.S. health care system is:

an overallocation of resources to the system.

Approximately what percentage of U.S. health care spending is financed by public insurance?

48 percent.

Health care expenditures coming directly out of consumers’ pockets, primarily in the form of deductibles and copayments, account for what percent of U.S. health care spending?

19 percent.

For many years the price of medical care in the United States has:

risen at a faster rate than the overall price level.

The number of Americans without health insurance (as of 2008) is approximately:

46 million or about 15 percent of the population.

The health care market is characterized by:

significant positive externalities.

The price elasticity of demand for health care is:

relatively inelastic.

Which of the following is a demand-increasing factor in the health care market?

all of these

If an individual is less careful about avoiding accidents or illness because she has health insurance, this is an example of:

the moral hazard problem.

Other things equal, increased emphasis on providing the best possible medical care for all, regardless of income, will:

increase the demand for health care.

Federal tax policy:

subsidizes health insurance and thereby increases the demand for health care.

Which of the following factors has contributed to rising health care prices in the United States?

The supply of physicians per 100,000 people has risen since 1975, but not as fast as the increase in the demand for physicians’ services.

Health maintenance organizations (HMOs):

charge a fixed amount per member, hire many of their own physicians, and provide health services only to members.

The main purpose of HMOs and PPOs is to:

reduce health care costs for employers and their employees.

One of the main differences between PPOs and HMOs is that:

PPO physicians charge on a traditional fee-for service basis, while HMOs do not.

(Last Word) Singapore encourages competition in its health care market by:

requiring hospitals to post prices for services and by government publishing hospital performance records.

In 2007, approximately what percentage of people in the U.S. with private health insurance received it as an employer-provided benefit?

88

Employer-provided private health insurance in the U.S. has resulted in:

incentives that encourage the overuse of health care.

The twin problems of the U.S. health care industry are:

rapidly rising costs and unequal access to health care.

The price of medical care in the United States has:

risen faster than the overall price level.

Which of the following statements is true about health care costs in the United States?

Costs have risen because both the price of health care and the quantity provided have risen.

The major purpose of Medicare is to:

provide health care services to people on Social Security.

Total U.S. health care spending in 2008 was approximately:

$2.3 trillion.

Roughly what portion of U.S. total health spending is paid for by private and public insurance?

four-fifths

Approximately what percentage of U.S. health care spending is financed by public insurance?

48 percent.

For many years the price of medical care in the United States has:

risen at a faster rate than the overall price level.

Given the availability of the Medicaid program, why are so many poor people uninsured?

Because many poor people earn enough that they do not qualify for Medicaid.

Which of the following persons is most likely to be insured for health care?

A skilled worker employed by a large multinational corporation.

The price elasticity of demand for health care is:

relatively inelastic.

Which of the following is a demand-increasing factor in the health care market?

all of these

According to most experts, which of the following factors is most important in causing health care costs to rise?

fee-for-service health insurance and cost-increasing technology.

Economists argue that in treating patients:

both benefits and costs should be taken into account by physicians.

If an individual is less careful about avoiding accidents or illness because she has health insurance, this is an example of:

the moral hazard problem.

If the existence of health insurance increases one’s incentive to use the health care system more intensively, this is an illustration of:

the moral hazard problem.

Sam decides to join the Gigantic State University’s rugby team when he learns that his health insurance will pay for any subsequent injury. This illustrates:

the moral hazard problem.

Health care costs have tended to rise more rapidly in the United States than in Canada because:

state insurance regulators in the U.S. do not face the budget constraints that national regulators in Canada face.

Federal tax policy:

subsidizes health insurance and thereby increases the demand for health care.

A tax subsidy is involved in employer-financed health insurance because:

employer payments for health insurance are not subject to income or payroll taxes.

The two main types of managed care organizations are:

health maintenance organizations (HMOs) and preferred provider organizations (PPOs).

One of the main differences between PPOs and HMOs is that:

PPO physicians charge on a traditional fee-for service basis, while HMOs do not.

Mutual interdependence would tend to limit control over price in which market model?

Oligopoly

The fast-food restaurant industry would be an example of which market model?

Monopolistic competition

Which idea is inconsistent with pure competition?

Product differentiation

If a firm has at least some control over the price of its product, then the firm cannot be in which market model:

Pure competition

Which is a reason why there is no advertising by individual firms under pure competition?

Firms produce a homogeneous product

Sam owns a firm that produces tomatoes in a purely competitive market. The firm’s demand curve is:

A horizontal line

A profit-maximizing firm in the short run will expand output:

As long as marginal revenue is greater than marginal cost

A firm sells a product in a purely competitive market. The marginal cost of the product at the current output of 1,000 units is $2.50. The minimum possible average variable cost is $2.00. The market price of the product is $2.50. To maximize profit or minimize losses, the firm should:

Continue producing 1,000 units

T-Shirt Enterprises is selling in a purely competitive market. It is producing 3000 units, selling them for $2.00 each. At this level of output, the average total cost is 2.50 and the average variable cost is $2.20. Based on these data, the firm should:

Shut down in the short run

A purely competitive firm is in short-run equilibrium and its MC exceeds its ATC. It can be concluded that:

The firm is realizing an economic profit

If there are many firms in an industry, then it must be a purely competitive market.

False

Competitive firms are price takers largely because of intensive advertising by their competitors.

False

For a purely competitive firm, the demand curve facing it is the same as its marginal revenue curve.

True

In pure competition, the industry demand curve is infinitely price elastic.

False

The break-even point means that the firm is realizing economic profits.

False

The percentage of total before-tax income received by the lowest 20 percent of households in 2008 was about:

3 percent

The greater the degree of inequality in the distribution of income, the more bowed will be the Lorenz curve toward the:

Lower right-hand corner

A kingdom where only the king earns all income would have a Gini ratio of:

1

When the distribution of income is adjusted for noncash transfers, the income distribution shows:

Greater equality

Suppose that Jane earns $10,000 in year 1 and $15,000 in year 2, while Jim earns $15,000 in year 1 and $10,000 in year 2. Is there income equality for the two individuals?

The annual data indicate inequality, but the two-year data indicate equality

Earnings received from wealth:

Contribute to income inequality

Which of the following is a cause of growing income inequality in the United States since 1970?

A widening wage gap between skilled and unskilled workers

Greater income equality that is achieved through the redistribution of income is thought to:

Come at the opportunity cost of reduced production and income

Which of the following statements applies to the Social Security program?

It is financed by payroll taxes on employees and employers

Government programs that pay benefits to those who are unable to earn income because of permanent disabilities or to those who have very low incomes and dependent children are called:

Public assistance programs

The former food-stamp program is now the Supplemental Nutrition Assistance Program (SNAP) and eligible households now receive:

Specialized debit cards that get monthly deposits of electronic money from the government

The Temporary Assistance for Needy Families (TANF) program:

Put a limit on receiving welfare payments and required able-bodied adults to work after receiving assistance for two years

Suppose that a prejudiced white employer is willing to hire white workers at a rate of $16/hour, and this employer has a discrimination coefficient of $4. This implies that the employer would:

Hire a non-white worker only at a rate of $12/hour or less

Suppose that white workers are getting paid $21/hour, while similarly-productive African-American workers are getting paid $18/hour. A prejudiced white employer with a discrimination coefficient of $24/hour will:

Not hire African-Americans at all, even if they offer to work for free

About one-fifth of all U.S. households had incomes of $100,000 or more in 2008.

True

Differences in ability are one major reason for income differences in the United States.

True

The Temporary Assistance for Needy Families (TANF) that replaced the old Aid for Families with Dependent Children welfare program succeeded in reducing the number of welfare recipients and increasing the employment rate among single mothers.

True

Movie producers A, B, and C secretly meet and agree to release their summer blockbuster films in sequence, rather than at the same time. The U.S. Justice Department learns of the agreement and files an antitrust suit. The Federal government would most likely file charges under the:

Sherman Act, Section 1.

Which of the following is least likely to violate the Sherman Act or the Clayton Act?

Competitive firms F and G independently charge lower prices to frequent customers than to occasional customers.

The Clayton Act of 1914:

outlawed price discrimination, tying contracts, intercorporate stockholding, and interlocking directorates that lessen competition.

A function of the Federal Trade Commission is to:

investigate instances of faulty and misleading advertising.

Which of the following laws prohibited mergers by stock acquisition if the effect was to lessen competition?

Clayton Act of 1914

Which of the following made monopoly and restraints of trade criminal offenses against the Federal government?

Sherman Act of 1890

The government was successful in gaining an antitrust conviction in the:

Alcoa case.

In which of the following sets of antitrust cases did the government gain convictions?

the Alcoa case and the Microsoft case

The basic issue in the DuPont cellophane case was:

defining the relevant market.

In the U.S. Steel case of 1920 the courts held that:

although U.S. Steel possessed monopoly power, it had not violated the Sherman Act because it had not unreasonably used that power.

Structuralists take the position that:

an industry that is highly concentrated will behave monopolistically.

Price fixing is considered to be a per se violation of the antitrust laws because:

a guilty verdict requires proof that the activity was attempted, not that it unreasonably restrained trade.

Suppose the firms in a five-firm industry have market shares of 30, 30, 20, 10, and 10 percent, respectively. The Herfindahl index for the industry is:

2,400.

Suppose that two firms in an industry with a Herfindahl index of 5,000 announce a merger. The U.S. Justice Department concludes the merger will boost the index to 5,500. The antitrust authorities will most likely:

prevent the merger, contending that it violates the Clayton Act.

Suppose that two firms in an industry that has a Herfindahl index of 1,000 announce a merger. The U.S. Justice Department concludes the merger will boost the index to 1,050. The antitrust authorities will most likely:

ignore this merger because of the relatively small size of, and increase in, the Herfindahl index.

A firm is likely to be a natural monopoly:

if economies of scale are experienced over the full range of output.

Using antitrust law to split up an unregulated natural monopoly into several competing firms:

might either increase product price or reduce product price.

A market in which the entire demand for a good or service can be satisfied at the least cost by a single firm is a:

natural monopoly.

The legal cartel theory of regulation argues that:

firms in certain industries want to be regulated rather than face the rigors of competition.

Which one of the following is concerned with industrial regulation, as distinct from social regulation?

Federal Communications Commission

Social, as distinct from industrial, regulation is the major focus of the:

Consumer Products Safety Commission.

Defenders of social regulation point out that:

critics who stress the high administrative and compliance costs of social regulation underestimate the social benefits that the regulations produce.

(Last Word) In 2001, Microsoft was found guilty of violating:

Sections 1 and 2 of the Sherman Act.

(Last Word) In 2001, Microsoft was found guilty of:

using anticompetitive means to maintain and broaden its monopoly in Intel-compatible operating systems for personal computers.

(Last Word) The final settlement of the United States v. Microsoft case:

requires that Microsoft provide technical information to competing companies so they can develop software programs that work as well with Windows as Microsoft’s own products.

Buyers will opt out of markets in which:

there is inadequate information about sellers and their products.

Suppose a firm offers its workers a cafeteria plan in which it allows workers to allocate a set amount of fringe benefit money toward specific insurance. Mary, who has five kids needing braces, selects the family dental coverage. This is an example of the:

adverse selection problem.

Upon buying a car with airbags, Indy begins to drive recklessly. This is an example of the:

moral hazard problem.

Public choice economists:

use the tools of economics to analyze decision making, politics, and elections in the public sector.

Which one of the following topics would be of most interest to a public choice economist?

rent-seeking behavior

"Government failure" is a prominent topic in:

public choice theory.

Because majority voting fails to incorporate the strength of the preferences of individual voters, it:

produces economically inefficient outcomes under some circumstances.

According to the paradox of voting:

majority voting fails under some circumstances to make consistent choices that reflect the community’s underlying preferences.

As it relates to corporations, the principal-agent problem is that:

the goals of the corporate managers (the agents) may not match the goals of the corporate owners (the principals).

In corporations, owners are __________________ and managers are ______________.

principals; agents

As it relates to the political process, the principal-agent problem results from the:

inconsistency between voters’ interest in programs and politicians’ interest in re-election.

"Vote for my special local project and I will vote for yours." This political technique:

often accompanies pork-barrel politics.

Factors that impede the attainment of economic efficiency in the public sector are called:

government failures.

The idea of government failure includes all of the following except:

extensive positive externalities from public and quasi-public goods.

Suppose American winemakers convince the Federal government to issue a directive to serve only domestically produced wine at government functions. This would be an example of:

rent-seeking behavior.

In a sporting goods store, you can buy the equipment you want and forgo the rest. But in an election you "buy" the entire range of the candidate’s positions, including some you may not agree with. This difference:

reflects limited and bundled choices in the public sector.

"Earmarks" refer to:

authorized expenditures that benefit a narrow, specifically designated group, that are included in more comprehensive spending legislation.

The unlawful misdirection of governmental resources for personal gain is known as:

political corruption.

The moral hazard problem is the tendency of some parties to a contract to alter their behavior as a result of the contract in ways which are costly to the other party.

True

Professor Gullible agreed to cancel the final examination if students promised to study for it anyway. The concept of moral hazard would predict that it is unlikely that students will study for the exam.

True

Insurance co-pays and deductibles are methods used by insurance companies to reduce moral hazard.

True

Logrolling can either increase or diminish economic efficiency.

True

Even if a majority of the population wants a law and the law is passed, the outcome may still be economically inefficient.

True

The paradox of voting is that under majority voting rules the median-voter decides the election outcome.

False

The pursuit through government of a transfer of wealth at society’s expense is called "rent seeking."

True

Which is an illustration of a microeconomic question?

Will a new type of television set increase the number of buyers?

A tradeoff exists between two economic goals, X and Y. This tradeoff means that:

Getting more of X requires getting less of Y

Which one of the following would be a normative economic statement?

The worsening balance of trade must be corrected if this nation is to remain competitive in the world economy

In a graph of the marginal benefit (MB) and marginal cost (MC) of national defense goods, a rightward shift or increase in the MB curve will:

Increase the allocation of resources to national defense

Which question is an example of a macroeconomic question?

What policies would be recommended for stimulating national economic growth?

In a production possibilities graph with just two products in an economy, the graph shows the quantity of:

One product on the vertical axis and the quantity of the another product on the horizontal axis

Assume that a consumer purchases only two products and there is a decrease in the consumer’s income. The prices of the two products stay the same. The change in income will result in a

Shift of the budget line inward to the left

The production possibilities curve represents:

The maximum combinations of products that can be produced with fixed resources and technology

Rational behavior implies that different people faced with similar choices will make the same decisions

False

Which is not a factor of production?

Money

Which expression is another way of saying "marginal cost"?

Additional Cost

In the labor markets,

Job applicants are the "buyers" while employers are the "sellers"

Which of the following statements is true?

If demand decreases, then price will decrease

Which would have no effect on the demand for motorcycles?

A Change in the cost of steel

All markets involve the following elements, except:

Government

A decrease in supply, holding demand constant, will cause:

Higher prices and a smaller quantity sold

A plastics manufacturer can make either toys or containers. If the demand for toys increases, then the:

Supply of containers will decrease

The marginal utility of a second copy of today’s newspaper taken from a newspaper vending machine is:

Close to zero

The income effect of a price-increase for a normal good causes an increase in the consumption of the good.

False

Understanding the water and diamond paradox is valuable because it explains why:

The prices of products are not necessarily measures of their usefulness

One reason for the increased health-care spending in our economy is that insurance companies pay the most of the cost of health care.

True

Assume a round of golf requires four hours of leisure time, and attending a concert requires two hours. If the price of a round of golf is $40 and the price of a concert is $80, ceteris paribus, Joe will play:

Relatively less golf and attend relatively more concerts whenever his leisure time becomes more scarce

A purely competitive firm can be identified by the fact that:

Its average revenue equals marginal revenue

Which market model assumes the least number of firms in an industry?

Pure Monopoly

In the short run, fixed costs are irrelevant in determining a firm’s optimal level of output.

True

In short-run equilibrium, a competitive firm cannot earn economic profits.

False

Insurance tends to drive up health care costs by encouraging greater use of health care resources. Why has this occurred in the United States, but not in Canada or the United Kingdom?

Canada and the United Kingdom use nonprice rationing to contain costs.

The price elasticity of demand for health care is such that an increase in the price of health care will:

increase total health care expenditures

The major objective of Medicaid is to:

provide health care services to those receiving public assistance.

In the U.S., approximately how many doctors are there per 100,000 of population?

271

In the health care market:

demand has increasd relative to supply.

Aggregate U.S. health care spending in 2009 was just over:

17 percent of domestic output.

When economists say that health care services are overconsumed, they mean that:

some resources now used in the health care industry could produce alternative goods and services that society values more highly.

Employer-provided private health insurance began in the United States because:

during World War II, wage and price controls forced employers to use nonwage forms of compensation to attract workers.

Mergers of firms in an industry tend to:

Transform monopolistic competition into oligopoly

The kinked demand model of oligopoly assumes that

Rivals will ignore price increases but will match price cuts

Mutual interdependence means that:

A firm’s behavior is affected by other firms’ actions

The Herfindahl index is a measure of:

Market power in an industry

Compared to a purely competitive firm in long-run equilibrium, the monopolistic competitor has a:

Higher price and lower output

Collusion refers to a situation where rival firms decide to:

Agree with each other to set prices and output

The incentive to cheat within a cartel increases with an increase in the following factors, except:

Economic performance and industry sales

If oligopolistic firms facing similar cost and demand conditions successfully collude, price and output results in this industry will be most accurately predicted by which of the following models?

The pure monopoly model

Which industry would be considered to be oligopolistic based on the four-firm concentration ratio and the Herfindahl index data?

Beer

Which statement concerning monopolistic competition is false?

Firms may experience positive economic profits in the long run

In the kinked demand model of oligopoly, if one firm increases its price, the most likely reaction of the other firms will be to:

Not change their prices

The goal of product differentiation and advertising in monopolistic competition is to make:

Price less of a factor and product differences more of a factor in consumer purchases

A high concentration ratio indicates that:

Few firms produce most of the output in an industry

In the long run, a representative firm in a monopolistically competitive industry will end up:

Earning a normal profit, but not an economic profit

Product variety in monopolistic competition comes at the cost of:

Excess capacity

At long-run equilibrium in monopolistic competition, there is:

Neither allocative nor productive efficiency

Industry Y is dominated by five large firms that hold market shares of 20, 20, 25, 25, and 10. The Herfindahl index for this industry is:

2150

Which is not true for a monopolistically competitive industry?

The portion of the marginal-cost curve above the average-variable-cost curve is the short-run supply curve for the firm

In monopolistic competition, which of the following would make an individual firm’s demand curve less elastic?

Increased brand loyalty toward the firm’s product

The larger the Herfindahl index, the:

Greater the degree of market power in an industry

In an oligopolistic market there are:

Few Sellers

If an oligopolist’s demand curve has a "kink" in it, then:

Over some interval, a change in the oligopolist’s marginal cost will not cause a change in the oligopolist’s profit-maximizing price

The downward-sloping demand curve of a monopolistic competitor:

Reflects some level of control over its own price

Other things being equal, a firm in a cartel will most likely cheat on a price-fixing agreement by:

Secretly lowering price and increasing sales to a few customers

The characteristic most closely associated with oligopoly is:

A few large producers

A major prediction of the kinked demand curve model is:

Price stability in oligopolies

Interindustry competition refers to the fact that:

In some markets the producers of a certain commodity might face competition from products of other industries

Monopolistically competitive firms are similar to monopolies in that they have:

Marginal revenues that are less than price

A monopolistically competitive firm is operating at a short-run level of output where price is $21, average total cost is $15, marginal cost is $13, and marginal revenue is $13. In the short run this firm should:

Make no change in the level of output

Congressional representatives have called for extensive ergonomics regulations to reduce strains and injuries from repetitive activities by workers. Such regulation, if passed, would be a good example of:

social regulation.

Price fixing:

is a per se violation of the antitrust laws.

Tying contracts are illegal under the:

Clayton Act of 1914

Which of the following findings would be the most likely to lead the U.S. Justice Department to block a corporate merger under terms of the Clayton Act?

a high pre-merger Herfindahl index in the industry and a large boost in the index because of the merger

The main purpose of the antitrust laws is:

to prevent the monopolization of industries.

The view that the antitrust laws should be enforced relatively leniently because of the tendency for monopoly power to erode over time is known as the:

laissez-faire perspective on antitrust.

In the Alcoa case of 1945 the courts held that:

the mere possession of monopoly power is a violation of the antitrust laws.

Antitrust authorities are least likely to take action against:

conglomerate mergers.

All of the following are regulatory commissions dealing with industrial regulation (as distinct from social regulation) except the:

Food and Drug Administration.

The Sherman Act was designed to:

make monopoly and acts that restrain trade illegal.

Economists who adhere to the laissez-faire antitrust perspective:

view competition as a long-run dynamic process in which firms battle for dominance of markets but rarely can sustain such dominance once it is achieved.

The antitrust laws are based on the:

idea that competition leads to greater economic efficiency than does monopoly.

The largest efficiency gains from deregulation have occurred in the:

airlines, trucking, and railroad industries.

(Consider This) According to the Consider This box on catfish and art, which of the following airlines in 2007 agreed to pay $300 million fines for fixing fuel surcharges on passenger tickets and cargo?

Korean Air and British Airlines

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