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132 Cards in this Set

  • Front
  • Back
Characteristics of an Oligopoly
Few closely related firms.
Interdependence among firms
Standardized products or differentiated products
Control over price limited by competitor's actions.
The essence of oligopolistic industry is what?
The need for each firm to consider how its own actions affect the decisions of its relatively few competitors.
Entry barriers to oligopolies
economies of scale
large capital investment required
patented production processes
brand loyalty
control of a raw material or resource
government franchise
Collusion
An explicit or implicit agreement between existing firms to avoid or limit competition with one another.
Cartel
A formal agreement among member firms to set a monopoly price and restrict output.
Collusion agrements are what in the us
Illegal in the US except in agricultural products.
When is collusion possible?
When there are few firms in the industry. (effective collusion becomes more difficult as the number of firms increases).
Demand for product is inealstic. Substitutes cannot exist for the product
Firms have similar cost structures (more difficult to collude when fixed costs are high percentage of total cost
Demand structure makes collusion possible
Demand structure-successful collusion more likely when demand for product is small, frequent, and received regularly. Large orders received infrequently make it more difficult for firms to collude on pricing and output decisions.
Collusion is possible if
Entry barriers exist- with increased prices and profits, cartels attract entry; thus collusion is more likely to be more successful if barriers to entry exist.
Excess capacity-More successful cartel if firms do not have excess capacity.
Additional costs of collusion
Cost of forming cartel.
Cost of monitorning cartel members and enforcing rules to minimize cheating.
Cost of punishment by authorities if get caught.
In the end, cartelization may not necessarily be profitable. Additional revenues obtained by cartel members due to collusion must exceed the costs.
Thus while profit maximization is the incentive that leads to collusion, it may also be the cause of a cartel's breakdown.
Price leadership
When collusive arrangements are not easily achieved, practice of price leadership may occur under oligoplistic market conditions.
No formal or tacit agreement among the firms to keep prices at same level, but when a price movement by one firm is initiated, others follow.
Barometric price leadership
Leader (not necessarily the largest firm in the industry) initiates a reaction to changing market conditions (demand, cost, ect.) and the other firms find it in their "best interest" to follow, or not. Not always the same firm.
Dominant firm price leadership
One firm establishes itself as industry leader (due to size, brand name, customer loyalty, economies of scale, ect.) and then acts as a monopolist in its segment of the market.
Price leadership pricing strategies
Small firms follow leaders prices--assure themselves a piece of the market without inviting the possibility of a price war, which they would surely lose.
Dominant price leadership arrangements tend to break down; as a market grows, new firms enter and decrease interdependence among firms.
Technological changes may also bring changes in pricing, and in the long run the leadership of the dominant firm is likely to erode.
Predatory pricing-
large powerful firms drive small firms out of the market by setting price artificially low (illegal in the US).
Game theory
Concerned with how individuals make decisions when they are aware that their actions affect each other and when each individual takes this not account.
Can help understand competitive reactions of firms in the pricing of products in the market and gain an insight into the establishment of a firm's long run strategy.
Can help provide3 insights into behavior of individuals in situations such as bidding for items at auctions, negotiations between suppliers and buyers, or unions and management.
Zero sum gains
One player's gain is the others loss and vice versa e.g. card games.
Non-zero sum gains
Both players may gain or lose depending on the actions each chooses to take.
Nash equilibrium
Result of all players playing their best strategy given what their competitors are doing.
Prisoner's dilemma
Two person-non-zero sum, noncooperative game with a dominant strategy.
Dominant strategy
One strategy exists that is best for a player no matter what the other player does.
Repeated games
What happens when firms don't set the price just once but rather set it every week for an indefinite period of itme, i.e. the game is repeated..
What happens in repeated games?
When a game is repeated, the threat of retaliation in future periods can offset each firm's incentive to "cheat" In this case, once the high price equilibrium is established, it can potentially be a stable equilibrium.
When is implicite cooperation most likely to occur?
In stable industries where cost and/or demand change often, it is difficult to recognize when a firm cheats because what might be a high price in certain circumstances may be a low price when cost and demand have changed. This leads to price wars.
Beach kiosk game
Two person, non cooperative, zero sum game. Two potential equilibriums in which the players are equally well off, but only one is stable.
Asymmetric information
In all 4 market structures, economists assume buyers and sellers have perfect information about market prices and products however this doesn't ever exist. That's when assymetric info problem arises--
Asymmetric information definition
Market situation in which one party to the transaction has more info than the other party. Can lead to poorly functioning markets ie too much or too little of a product may be produced. Contracting may be difficult, and fraud is possible.
Asymmetric information leads to two types of problems
adverse selection
moral hazard
Adverse selection
occurs before a transaction takes place (prior to a transaction's occurrence one party may know more about the value of a good being offered than the other party. Complicates the transaction if it is impossible for info to be credibly conveyed to the other party or if there is a risk of cheating.
Moral Hazard
Occurs after a transaction has taken place...Problem occurs because it is difficult for one party to mointer the second party to the transaction
Search goods
Products and services whose quality can be detected through market search (clothing; sporting goods; furniture)
Experience goods
Products and services whose quality is undetectable when purchased. Example won't know if it is quality or not like a used car.
Problems wth expensive goods
unverifiablility of asymmetric info seller knows high quality from low quality hoewever cannot CREDIBLY convey that info to consumers. Fraudulent sellers will claim high quality when not; therefore, buyers rationally discount sellers info. The bad apples drive out the good apples. Buyers disbelieve sellers lciams and therefore,
moral hazard
occurs because it is difficult for one party to the transaction to moniter the second party. If the transaction itself changes the incentives of the second party, the problem of moral hazard may arise. Problem of moral hazard is particularly common in insurance because insurance co cannot moniter activities or conditions.
How do insurance companies mitigate problems?
By charging a deductible which is a negative incentive to go to the dr.
Market response to asymmetric info
buyers can purchase consumer reports and car faxes.
sellers can do credit reports.
Can rely on reputation of sellers.
Standardization like McDonald's u kno what ur getting.
Signaling one in which success in one activity is associated with success in another activity.
Signaling
Market signaling can occur if it is less costly for high quality agents to invest in the signal than low quality agents. A good signal is success in one activity is closely linked with success in another activity. Such as 2 types of workers high quality and low quality. Employer doesn't know whom to hire. Schooling is a strong sigal. Warrenties can be too cuz they show htey stand by their product.
Market "Failure"
If all else fails government steps in to correct for info problems. Example FTC and FDA
Private Good Characteristics
Rivalry in Consumption-When one person buys and consumes a product it is not available for others.
Excludability-Sellers can keep people who don't pay for a product from obtaining it's benefit.
Public Good
Nonrivalry in consumption- One person's consumption of a good does not preclude consumption by others.
Non-excludability-There is no cost effective way of excluding individuals who don't pay fromm the benefit. Example-Interstate hwy.
Free Rider problem
Benefit without paying. Solution you have to tax ppl because otherwise no revenue will be raised.
Externalities
Costs or benefits imposed or received by 3rd parties.
Negative externalities
Uncompensated costs imposed on 3rd parties as a result of consumption or production by other individuals or firms.
Problems with negative externalities
The supply curve does not take in uncompensated costs. If it did then they would have to internalize their external costs. This would cause a decrease in supply.
Tragedy of the commons
Air, rivers, lakes, oceans, and public land are all objects of pollution. Our fishing, over used, raining because of the right to use those resources are held in common by everyone. No private individual has a monetary incentive to maintain.
Solution-The govct has to regulate and if they find pollutionthey have to raise taxes to clean it up and maintain it.
Positive externalities
Benefits received but not paid for by 3rd parties as a result of production or consumption by others.
Example of positive externality
If you live in a neighborhood where most ppl have lo jack on their cars and you don't put it on ur car ur car is still less likely to be stolen because ppl think you may have it.
Problem of positive externalities
Demand is too low. Solution-Subsidize. When demand is up p is up. If we give you things to make it cheaper we encourage you to go by giving you incentives and help.
Which of the following is NOT an opportunity cost you incur if you see a Royals baseball game?
A. The parking fee, if you drive to the park.
B. The exorbidant price you paid for a hot dog.
C. The time spent after the game in traffic.
D. The $50 tickets you were given by a friend.
D
Which of the following is most likely an example of a macro economic topic?
A. An increase in the price of pizza
B. A decrease in the unemployment rate.
C. The entry of new firms into the software industry,
D. A decrease in the production of DVD's by a consumer electronics co.
B
Which is LEAST likely to shift production possibilities curve?
A. The discovery of new natural resources.
B. A change in preferences away from one good and oawrd another.
C. A reducto in ppl's preferences for leisure. I.e. ppl wanna work more.
D. An invention that reduces the amount of natural resources necessary for producing a good.
B
Which of the following is a normative statement?
A. The main goal of the govt should be to achieve annual growth rate for the economy.
B. Due to advances in healthcare ppl live longer.
C. Unemploment has increased over the past year.
D. A 5% decrease in ppl's incom will lead to a 3% decrease in ppl's consumption of pizza.
A
Inmaking choices ppl find that:
A. The resources are scarce and they cannot do everything or have everything they want.
B. the real cost of a choice is what you give up.
C. People make choices that will make them better off.
D. All of the above
D
A point inside the PPC indicates:
A. A growing economy
B. A fully employed economy
C. A situation of unemployed or inneficient use of resources.
D. None of th above
C
In a market based economy like the US the question of "how to produce" is determined by:
A. The least cost method of production
B. The distribution of income
C. Consumer demand
D. none of the above
A
A co. believing that offering airline frequent flyer miles with the purchase of their producwt will lead to increased sales is following which key economic idea?
A. Ppl think at the margin
B. People respond to incentives
C. Information is important
D. Markets are efficient
B
When Ross decides whether he should eat another dessert,an econoimise twould say that :
A. Considers how much additional exercise he'd hafta tdo to avoid getting fat.
B. Consider whether he can do so without anyone noticing.
C. Considers the cost/benefit
D. Only considers price
C
Which of the following statements is true?
A. People usually make choices without regard to Cost/benefit.
B. The incentives, ore rewards for behavior rarely influence ppl's decisions.
C. If ppl wasted less we could eliminate problem of scarcity of resources.
D. People consider the opportunity costs of choices.
D
Why would the US want to trade with spain, given that the US is so much larger and more productive?
A. Spain leads the world in technological change and innovation.
B. The US wants to acquire Spanish land
C. Comparative advantage.
D. Absolute advantage
C.
Specialization and trade are beneficial to two countries:
A. provided their opportunity costs of production are not the same for all goods that they produce.
B. When each country specializes in producing the good that it can product at the lowest opportunity cost.
C. Even when one country can absolutely produce more than the other country.
D. All of the above
D
When a country expands its trade with other countrys which of the following occurs?
A. Most consumers in the country will complain and refuse to buy imported products.
B. Unempolyment will rise in both countries over a long period
C. Some job losses will occur in some industires.
D. Incomes will drop in both countires.
C
Markets:
A. Are typiclaly the same size
B. bring buyers and sellers together.
C. are institutions in whcj selleser always have the advantage.
D. areinstitutions where sellers offer only a physical product.
B
Which of the following will NOT impact the demand for orange juice.
A. consumer income.
B. price of apple juics
C. medical reserach on benefits of OJ
D. Agricultural subsidies to farmers to grow more oranges.
D
The law of demand states:
A. Peopple always want more.
b. You can't always get what you want at the price you want.
C. quantity demanded inceases as price falls other things being equal.
d. more of a good will be demanded as price icnrases.
C
the price of peanut butter falls and as a result the price of jelly increases. What type of good are these:
A. substitutes
B. complements
C. normal goods
D. inferior goods
B
The demand curve will likely shift out to the Right if :
A. the price of the godo is expected to rise in the future.
B. the price of a substitute good falls
C. the good goes outta style.
D. societys income falls
A
Suppose a price floor is set on sugar cane that is approximately three times higher than the equilibrium price. One of the effects is a(n):
A. shortage of sugar.
B. Drop in the quantity of sugar consumed.
C. increase in the efficiency of the market.
D. shift by food manufacturers from the use of corn syrup to sugar cane.
B
If the demand for cable tv is price elastic and a number of new cable TV providers enter the market, the price for cable tv should_______, other things being equal, the total revenue of the cable proividers should:
A. fall, increase
B. rise, increase
C. fall , decrease.
D. rise, decrease.
A
The price elasticity of demand for herbal tea is estimated to be equal to .5. It is expected, therefore, that a 10% increase in price would lead to a _____ increase in the quantity of herbal tea demanded:
A. 5% decrease
B. 5% increase.
C. 10% increase
D. .5% decrease
A
When demand is inelastic:
A. Price elasticity of demand is less than 1
B. Consumers are not very responsve to changes in price.
C. The percentage change in quantity demanded resulting from a price change is less than the percentage change in price.
D. All of the above.
D
You were just elected Governor of the state of "Financially Bankrupt". Because your state is bankrupt you are in need of large increase in tax revenue. You have the option of taxiing luxury vehicles orincreasing tax on gas. Which should you chools and who would pay for the increase?
A. Gas, producers
B. gas, consumers
C. luxury vehicles, producers
D. luxury vehicles, consumers.
B
Suppose price elasticity of demand is less than 1 when an excise tax is put on it what happens to price, quanitiy and total revenue.
Price Quantity TR
A. decrease increase increase
B. decrease decrease decrease
C. increase decrease increase
D. increase decrease decrease
C
Which of the following is a correct distinction between fixed and variable costs in the short run?
A. Fixed costs are inversely related to the level of output.
B. Variable costs are inversely related to the level of output.
C. Variable costs are positively related to the level of output.
D. Fixed costs include all inputs vital to production such as labor and energy costs.
C
In the short run AFC:
A. are u shaped
B. decline continually
C. first increase then fall
D. increase as the firm hires more workers.
B
John mows lawns during the summer. In mowing 4 laws per week, he incurs weekly average variable costs of $20 and weekly fixed costs of $50. John's weekly total of mowing 4 lawns is:
A. $70
B. $130
C. $280
D. $930
B
A typical firm's average total cost must fall with expansion of output if its marginal cost is
A. above it and falling
B. below it and falling
C. below it, whether rising or falling.
D. falling, whether above it or below it.
C
Sunk costs:
A. have already been incurred and cannot be recovered
B. are relevant to future decisions and should be carefully considered.
C. should be included when weighing the marginal costs of production against the marginal benefits received.
D. none of the above
A
If a firm is operating at a levcel of production where diseconomies of scale are present, why isn't the firm operating efficiently?
A. the firm is operating at a scale where TFC are not minimized.
B. The firm has grown so large that ATC increase as output expands.
C. The firm is operating at a scale where average fixed costs are not as low as possible.
D. the firm is operating at a scale where average total cost is constant as output expands.
B
The demand curve for a perfectly competitive firm's product is:
A. perfectly elastic
B. perfectly inelastic
C. the same as the firm's marginal cost curve
D. downward sloping and equal to the market demand curve.
D
A firm operating in a perfectly competitive industry will maximize profits by producing that level of output where:
A. marginal costs are falling
B. average variable costs are lower.
C. marginal revenue is equal to marginal cost.
D. price exceeds marginal cost by the greatest margin.
C
A monopolist will max profits by producing the level of output where:
A. marginal costs are falling
B. average variable costs are lowest.
C. marginal revenue is equal to margainal cost
D. price exceeds marginal cost by the greatest margin.
C
If at some level of output, price exceeds average total cost for a perfectly competitive firm:
A. the firm is making a normal profit.
B. the firm is making an economic profit.
C. profits must increase if the firm expands output.
D. the firm is making an economic loss, but covering AVC
B
Jason cleans swimming pools in a perfectly competetive local market. A profit maximizer, he can charge $10 per pool to clean 9 pools per day. Jason has total variable costs of $80 and total fixed costs of $20. Which of the following is true?
A. jason should shut down in the short run with economic losses of $20.
B. should shut down in short run with economic losses of $10
C. should clean 9 pools with economic losses of $10
D. should clean 9 pools with economic profits of $10.
C
Which of the following is true of monopoly markets?
A. allocative efficiency is guaranteed because marginal revenue equals marginal cost.
B. barriers to entry allow for the power to set prices above marginal cost.
C. A homogenous product allows for long run entry of competing firms
D. Collusion between close rivals creates pricing above marginal cost.
B
Firms will continue to enter a competitive industry until:
A. the supply curve is vertical,
B. all resources are fully employed.
C. any economic profits have been competed away.
D. The market price falls below average variable cost.
C
Why does the govt. allow some markets to be monopolized by granting patents?
A. to promote technological progress.
B. to correct for negative externalities.
C. to promote a more equal distribution of income.
D. to ensure lower prices for consumers in the short run.
A
Which of the following explains why the US Post Office is unlikely to continue to operate as a monopoly?
A. the widespread use of the internet and e-mail
B. the growing popularity of facsimile (fax) machines
C. The increaae use of home phone and wireless services
D. all of the above.
D.
Thelma with no money in her bank account estimates that there is a 25% chance that she will get caught stealing a Porsche. According to an economist, it may be rational for Thelma to steal the porsche if:
A. the expected marginal costs outweigh the expected marginal benefit from doing so.
B. The expected marginal benefits outweigh the expected marginal costs from doing so.
C. The total benefits of all of themla's actions outweigh the expected marginal costs of her actions
D. None of the above because it's not rational for her to steal the Porsche.
A.
Airlines that restrict the use of frequent flyer miles during holiday periods likely do so because:
A. passengers ave more transport options avaiable
B. opp cost to filling seats with frequent flyers is low at this time
C. opp cost of filling seats with frequent flyers is high at this time
D. Airlines want to protect loyal customers from over crowded flights.
C
When economists look at a particlar segement of the economy, such as market for choc ice cream they are looking at:
A. micro econ
B, macro econ
C. positive econ
d/ normative econ.
A
Because of scarcity:
A the opp cost of consumption is zero
B shortages of goods prevail at current market prices
C society must always sacrifice valuable alternatives to obtain more goods and services it desires.
D both A and B
C
Opportunity cost is:
A purchase price of a good or service
B. next best alternative to the option given
C. value of leisure time plus out of pocket expenses
D. undesirable sacrifice required to purchase a good.
B
Which of the following is an example of a positive incentive?
A. you expect to receive a scholarship if your grades remain high
B. you expect to be grounded if your grades slip below a B average.
C. Desserts will be unavailabe at the cafeteria if you arrive after 7 PM
D. Campus police institute a policy of impounding cars packed in faculty parking zones.
A
The marginal benefit to Sam of drinking bottled ice tea is $1.50. The price of a bottle of iced tea is $1.25. Based on this info, which of the following is true?
A. Sam would never purchase the tea acting rationally.
B. If sam purchases a bottle of iced tea, he will suffer a net loss of 25 cents per bottle.
C. If Sam purchases a bottle of iced tea, the net gain to him from doing so will be 25 cents.
D. If sam were acting rationally, he would purchase iced tea, until the marginal benefit of doing so falls to 25 cents.
C
Which of the following produces at a faster rate of economic growth for the US?
A. institution of higher tariffs on imported goods.
B. Elimination of mandatory school attendance laws.
C. Annual limits on teh number of foreighners immigrating into the US.
D. More investments in capital infrastructure and less consumption of consumer goods and services.
D
Several political leaders have proposed that parents be granted a substantially larger reduction in their annual personal income taxes for each child they parent. An economist would say that this type of legislation would:
A. Make it more expensive for parents to proveid for their children.
B, Reduce the after tax rate off raising childrena nd therefore increase the birth rate.
C. Reduce value of children and lead to reduction of birth rate.
D;dd. Exert no impact on either cost of raising or birth rate b/c parenting is a noneconomic activity.
B
The ability to produce a product at a lower opp cost than someone else is referred to as:
A. absolute advantage
B. fallacy of composition
C. comparative advantage.
D. other things being equal
C
If resources are not equally substitutable across users ( or resources are specialized):
A. the PPC will be a straight line
B. the PPC will be bowed (or concave)
C. The law of increasing opp costs holds.
D. Both B and C
D
Assuming steak and potatoes are complements, a decrease in the price of steak will:
A. decrease the demand for steak
B. increase the demand for steak
C. Decrease the demand for potatoes
D. increase the demand for potatoes.
D
Which of the following represents a normative statement?
A. People will buy less butter at $1.50 per pound than they will at $1 per pound
B. The study of economics is more important than the study of history.
C. A decrease in price leads to an increse in quantity demanded.
D. As an economy develops, the nation's birth rate tends to fall.
B
Nancy has the choice to spend one hour studying for an exam, mowing the law for oe hour at a wage of $6, or baby sitting for one hour at a wage of $8. If we know nanxy has chosen to study for the exam:
A. Nancy is indifferent btwn studying and mowing.
B. The benefit received from studying is greater than the opp cost of $8
C. Nancy is irrational bc bbsitting was clearly superior to other options.
D. Opp cost of studying is $14 whchis less than benefit received by studying.
B
If the price of a textbook rises and then students purchase fewer textbooks, an economic model can show a cause effect relationship if whcih of the following conditions hold:
A. tuition decreases
B. Students incomes fall
C. Everything else remains constant
D. The bookstore no longer accepts used book trade ins.
C
Assuming soy beans and tobacco can be grown on the same land, an increase in the price of tobacco, other things equal causes
A. downward movement along the supply curve for soybeans
B. Upward movement along the supply curve for soybeans.
C. rightward shift in the supply curve for soybeans
D. leftward shift in supply curve for soybeans.
D
Skateboards international was ale to sell 20,000 skateboards at a price of $60 in 2007, in 2008 they only sold 12,000 at the same price. Evidently, they experienced
A. increase in supply
B. increase in demand
C. decrease in demand
D. Increase in quantity demanded.
C
What would be the effect on equilibrium price and Q of new housing if mortgage rate and interest rates rise and cost of building rise.
A. the equilibrium price cannot be predicted but equilibrium Q will fall
B the equilirbium price will fall but Q cannot be predicted.
C. Teh equilirbuim price will rise and Q will fall
D. the equil price and Q will fall.
A
The downward sloping demand curve is explained by which of the following?
A. the least cost principle
B. the substitution and income effects
C. the law of increasing marginal costs.
D. the principle of comparative advantage.
B
A more efficient process for refining oil into gas is developed. As a result, the market price for gasoline:
A. and the quantity of gas purchased both decrease.
B. increases and the quantity of gas purchased falls.
C. Decreases and the quantity of gas purchased rises.
D. decreases and the demand curve for gas shifts to the right.
C
During 2007, the price of gas increased while gas consumption also increased. Which of the following can explain what happened:
A. Evidence contradicts law of demand
B. Consumers prefer larger cars shifting the demand for gas to the right.
C. The price of cars has increased shifring demand for gas left.
D. none of the above
B
Medical authorities announced in th late 1980s that an acne medication named Retin-A also had previously unknown wrinkle reducing properties. An economist would expect to find that, afrer this announcement, the price of Retin-A_______and the quantity sold____________.
A. rose; rose
B. rose; fell
C. fell; fell
d. fell; rose
A
Suppose the county govt decides to send each parent a coupon that can be used to subsidize the cost of sending each child to day care. What would you expect to occur in the market for daycare?
A. the supply of daycare rises, lowering the price.
B. The demand for daycare falls, lowering the price.
C. The demand for daycare rises, increasing the price.
D. A permanant shhortage of daycare services will be created.
C
Aldo's makes the greatest pizza in town and delivers to all houses in the Northland. Last week, Aldo's supplier of pepperoni informed aldo of a 25% increase in price of pepperoni. Which variable determining the position of the supply curve has changed, and what effect does it have on supply?
A. future expectations; supply decreases
B. input costs; supply decreases
C. input costs; supply increases
D. technology; supply increases.
B
The price of a good will tend to rise when:
A. supply increases
B. Demand decreases
C. A temporary surplus at the current price occurs.
D. A temporary shortage at teh current price occcurs.
D
Suppose the quantity of steak purchased by the Jones family is 110 pounds per year when the price is $2.10 per pound and 90 pounds a year when the price is $3.90. The price elastitcy of demand is:
A. .33
B. .5
C. 1
D. 2
A
The cross price elasticity of demand for good D and E is -.68. D and E are:
A. substitutes
B. complements
C. normal goods
D. unrelated goods.
B
As the manager of a hotel, you would like to increase the number of occupancies by 12%. If you estimate the price elasticity of demand for your hotel rooms to be 2.0 then:
A. the demand for rooms is inelastic,
B. if you increase your rates TR will increase.
C. if you lower ur rates by 6% then you will increase the number of occupancies by 12%.
D. All of the above.
C
If the supply curve for housing is perfectly inelastic, a reduction in demand for housing will cause the equilibrium price to:
A. fall and Q to fall
B. fall and Q to stay the same
C. rise and Q to stay the same
D. stay the same and Q to fall
B
Because for most ppl eating in restaurants is a luxury while eating at home is a necessity, the demand forfood eaten at home:
A. is less sensitive to changes in prices than demand for food eaten in a restaurant.
B. is more sensitive to changes in prices than the demand for food eaten in a restaurant
C. has a higher price elasticity of demand than the demand for food eaten at a restuarnat.
D. cannot be compared to demand for food eaten in a restaurant
A
If the income elasticity of demand for good X is .5 and the income elasticity of demand for good Y is 1.5 then:
A. X and Y are both normal goods
B. X is a necessity while Y is a luxury.
C. X is an inferior good, but Y is anormal good.
D A and B
D
As soon as the price of a good goes up, suppliers would like to produce more but may not be able to because they cannot immediately hire more skilled workers and/or purchase more machinery. Over time they can adjust. Consequently the price elasticity of supply:
A. increases over time
b. decreases over time
C. remains constant over time
D. May increase or decrease over time.
A
The recent health care bill paseed contains a provision that places a 10% excise tax on tanning in tanning beds. This tax will likely:
A. bring in a large amount of tax revenue bceause the demand for tanning is likely to be price inealstic.
B. fail to bring in a large amount of tax revenue because the demand for tanning is likely to be price elastic.
C, bring about a decrease in the demand for tanning and depress employment in tanning industry.
D. B and C
D
Which of the following statements is true of consumer utility maximizing behavior?
I. Total utility from consumption of good X is maximized when the marginal utility is equal to zero.
II. The consumer spends limited income until the quantity of good X consumed is equal to the quantity of good Y
A. I only
B. II only
C. I and II
D. Neither I nore II is true
A
The law of diminishing marginal utility helps explain:
A. why consumers incur credit card debt
B. Why marginal utility falls when total utility falls.
C. Why most individual demand curves are straight lines
D. Why most individual demand curves slope downward.
D
An increase in the price of product A will:
A increase the marginal utitltiy per dollar spent on A
B. Decrease the marginal utility per dollar spent on A
C. Not affect the marginal utility per dollar spent on A
D. CAuse utility maximizing consumers to buy more of A.
B
A university cafeteria changes from offering all you can eat meals for one low price to selling each food item separately. After this change one would expect that the marginal utility of the last food item consumed would be:
A. Not change b/c the same quantity wil be consumed at each meal.
B. Decrease becaus less food is likely to be consumed
C Increase bcause less food is likely to be consumed
D. Decrease because more food is likely to be consumed.
C
heidi is deciding where to spend her spring break. If she voes to Vail her trip will igive her 10000 units of utility and cost her 500 if she goes to padre island she'll get 6000. and cost her 400. Where should she go:
A. Padre island b/c it's cheper
B. Vail because her total utility will be greater.
C. Vail because her utility per dollar will be greater.
D. Pader island because her utility per dollar will be greater.
C
The fact that a gallon of gas commands a higher merket price than a gallon of water indiciates:
A. gas is a scarce good while water is not.
B. The total utility of gas exceeds the total utility of water.
C. The average utility of a gallon of gas is greater than avg utility of galon of water.
D. the MU of a gallon of gasis greater than the MU of a gallon of water.
D
If a firm has TR of 100 mil, explicit costs of 35 mil, and implict of 20 mil it has:
A. an accounting profit of 75 mil and an econ of 95
B. accounting 95 and econ of 75
C. accounting 80. econ 75
D. accounting 75, econ 80
B
An example of an implicit cost of production is:
A. the income an entrepreneur could have earned working for someone else
B. the cost of raw materials used to produce bread ina bakery
C. the cost of albor in a factory assembling DVD players
D. all of the above
A
"if a variable input is added to some fixed input, beyone some point in the resulting extra output will decline" This statement describes:
A. the law of dimiinishng marginal utiltiy
B. The law of diminishing returns
C. diseconomies of scale
D. econiomies of scale.
B
in the short run, Fern's floral shop has a 1000 square foot floral shop, two computers, 2 full time employees, and one part time employee. Which of the following is most likely a fixed input?
A. 2 computers
B. 1000 ft shop
C. 2 full timers
D. 1 part timer
B
To economists the main difference btwn "the short run" and "the long run" is that:
A. the law of diminishing returns applies in the long run, but not in the short run.
B. In the short run all resources are fixed, whilein the long run all resources are variable.
C. In the long run all resources are variable, while in the short run at least one resource is fixed.
D. Fixed costs are more important to decision making in the long run than they are in the short run.
C
Which of the following is NOT correct?
A. where marginal product is greater than average product, average product is rising.
B. ttotal product is at a max when marginal product is zero.
C. when marginal product equals average prodcut, average product is at it's max
D. all of the above.
D