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74 Cards in this Set
- Front
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Which of the following is a primary differencebetween price searchers and price takers? |
Price searchers have to cut their priceto sell additional output, but price takers do not. |
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In competitive price-taker markets, firms |
can sell all of their output at the market price |
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When we say that a firm is a price taker, we areindicating that the |
firm can change output levels without having anysignificant effect on price. |
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In price-taker markets, individual firms have nocontrol over price. Therefore, the firm’s marginal revenue curve is |
constant at the market price of the product. |
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If marginal revenue exceeds marginal cost, a price-takerfirm should |
expand output. |
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When firms in a price-taker market aretemporarily able to charge prices that exceed their production costs, |
additional firms will be attracted into themarket until price falls to the level of per-unit production cost. |
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When market conditions in a price-taker marketare such that firms cannot cover their total costs, |
some firms will go out of business, causingprices to rise until the remaining firms can cover their total costs. |
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In a price-taker market, profits are |
a reward for creating value. |
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If occupational safety laws were changed so thatfirms no longer had to take expensive steps to meet regulatory requirements, wewould expect |
competition to force producers to pass the lowerproduction costs on to consumers in the long run. |
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Suppose a restaurant that is highly profitable during thesummer months is unable to cover its total cost during the winter months. If itwants to maximize profits, the restaurant should |
continue operating during the winter months ifit is able to cover its variable costs. |
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In a competitive price-searcher market, thefirms will |
be able to choose their price, and the entrybarriers into the market will be low. |
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Aprofit-maximizing price searcher will expand output to the point where |
marginal revenue equals marginal cost. |
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In the long run, neither competitive price takers norcompetitive price searchers will be able to earn economic profits because |
competition will force prices down to the level ofper-unit production costs. |
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If firms in a competitive price-searcher market arecurrently earning economic losses, then in the long run, |
some existing firms will exit the market, and theremaining firms will experience an increase in demand for their products untilzero economic profit is again restored. |
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As long as a market is contestable, then even if it hasonly a few sellers, the |
threat of new entrants will prevent the pricesfrom rising above the competitive level. |
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Entrepreneurial judgment |
is necessary to make business decisions when no fixeddecision rule can be used. |
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Compared to the outcome when the firms are pricetakers, competitive price-searcher markets will result in |
a wider variety of products and higher prices. |
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If a market is in long-run equilibrium, which ofthe following conditions will be present in a competitive price-taker marketbut absent from a competitive price-searcher market? |
P = MC |
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The strategy underlying price discrimination is |
to increase total revenue by charging higher prices tothose with the most inelastic demand for the product and lower prices to thosewith the most elastic demand. |
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If a government wanted to increase theprosperity of a nation, it could best serve this goal by |
reducing barriers that restrict the ability ofpotential competitors to enter markets. |
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When economists talk about a barrier to entry, they arereferring to |
a factor that makes it difficult for potentialcompetitors to enter a market. |
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A monopolist will maximize profits by |
selling at the price on the demand curve at theoutput rate where marginal revenue equals marginal cost. |
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Which one of the following is the best description of amonopolist? |
a firm that is the sole producer of a productfor which there are no good substitutes in a market with high barriers to entry |
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Assuming that firms maximize profits, how will the priceand output policy of an unregulated monopolist compare with ideal marketefficiency? |
The output of the monopolist will be too smalland its price too high. |
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An oligopolistic market |
has a small number of rival firms, and each is largerelative to the size of the market. |
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Oligopolistic agreements on price tend to beunstable because |
although the monopoly price maximizes the jointprofits of the firms, a secret price cut by any individual firm will increasethe profits of that firm; hence, collusive agreements tend to break down. |
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The price charged by oligopolists will |
generally fall between the monopoly andcompetitive market equilibrium prices. |
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When firms use resources in an attempt to secureand maintain grants of market protection from the government, it is called |
rent-seeking. |
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A monopolist has less to gain from cost-saving measuresin the production process when |
collusion. |
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Whennatural monopoly is present in an industry, the per-unit costs of productionwill be |
lowest when a single firm generates the entire output ofthe industry. |
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The opportunity cost of an action is |
the highest valued alternative forgone as the result of choosing an option. |
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Statistical data provided by the U.S. Department of Transportation showsthat the median income of individuals traveling on the nation's bus systems is$18,000 compared to $65,000 for those who normally travel by air. This findingis best explained by which of the following statements? |
Persons with high income are more likely to fly because the opportunitycost of their time is generally higher than those with lesser income. |
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Which of the following activities describes the opportunity cost ofattending an economics class? |
the value of the highest valued alternative that must be forgone becauseof attending the class |
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Which of the following would be most likely to increase your opportunitycost of attending college? |
receiving a very attractive offer to start a job today that would permityou to earn about 50 percent more than you expected to make after graduation |
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Tomaximize profits, any firm, regardless of whether it is a price-taker, acompetitive price searcher, or a monopoly should always produce the level ofoutput where |
marginal revenue equals marginal cost. |
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Whichof the following is a potential reason discussed in class regarding why it maybe important to take more math classes while in college? |
Success in mathematics sends a signal to potential employers about yourintelligence and analytical abilities since math is perceived to be harder thanmany other subjects. |
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Onekey characteristic that is distinctive of an oligopoly market is that |
the decisions of one seller often influence the price of products, the output, and the profits of rival firms. |
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Which of the following factors is most likely to be a barrier to entrythat limits the entry of potential competitors into a market? |
Having to satisfy an excessive amount of regulatory and licensingrequirements in order to operate your business |
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Thetwo conflicting tendencies that a firm has in an oligopolistic industry are theincentive to |
cooperate in a collusive agreement to maximize joint profits and the incentive to cheat on the agreement in order to increase the firm's share of the profit. |
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Which of the following accurately describes a major difference between a monopolist and firms in competitive price-searcher markets? |
A monopolist may be able to earn long-run economic profit, but firms incompetitive price-searcher markets will not be able to do so. |
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Which of the following is true when long-run equilibrium conditions arepresent in price-taker and competitive price-searcher markets? |
d. P = ATC in both price-taker and competitive price-searcher markets. |
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The process by which new products and methods of production arecontinuously replacing old ones is known as |
creative destruction. |
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Which of the following most closely approximates the conditions of acompetitive price-searcher market? |
the shoe industry, which is characterized by firms producing a differentiated product in a market with low entry barriers |
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Theprice-taker firm should discontinue production immediately if |
the market price is less than the firm's average variable costs. |
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Whichof the following is the best example of a business firm operating in acompetitive price-taker market? |
a Kansas wheat farmer |
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Whichone of the following statements is correct according to the economic way ofthinking? |
Government programs can be implemented with good intentions but can lead to undesirable outcomes because of unintended consequences. |
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Which of the following is a characteristic of a competitive price-takermarket? |
There are many firms in the market, each producing a small share oftotal market output. |
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Whichof the following is most consistent with economizing behavior? |
Even if you know how to paint, hiring someone to do the job isconsistent with economizing behavior, if your opportunity cost is high enough. |
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Economicsis primarily the study of |
how individuals make choices because of scarcity. |
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Which of the following is a positive economic statement? |
The government imposing a price ceiling on the rent of apartments decreases the number of new apartments constructed |
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Tosay that people make marginal decisions means that |
they weigh the additional costs and additional benefits of various activities before they make a decision |
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LeBron James is extremely tall and athletic and, therefore, can cleanhis house faster than any other one person. However, whenever he spends time cleaning his house he gives up hundredsof thousands of dollars in foregone earnings and so he hires a cleaning serviceto clean his house for him. Which of thefollowing economic principles does this best reflect? |
the law of comparative advantage. |
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Which of the following will most likely occur under a system of clearlydefined and enforced private property rights? |
Resource owners will conserve vital resources for the future, particularly if they expect the resource to increase in value. |
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Robindecides to buy a dress that Lily has for sale; they agree on a price of $20.Which of the following best describes who gains and who loses from thetransaction? |
Both parties expect to gain from this transaction. |
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InEurope during the 14th century, the Black Plague killed 24 million people orclose to 37 percent of the population. How would this affect the productionpossibilities curves for the countries of Europe at that time? |
The production possibilities curves for these countries would haveshifted inward. |
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Suppose the supply of nachos decreases. Ceteris paribus, whatwill happen to consumer surplus in the market for nachos? |
It decreases |
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In a competitive market, free of an price controls, |
the total gains from trade (the combined area of producer and consumer surplus) are maximized at the market equilibrium. the market equilibrium is consistent with economic efficiency in that all units creating more benefit than cost have been produced. the market will automatically move toward the price and quantity where the quantity supplied and the quantity demanded are in balance. |
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The government imposes a tax on the production or orange juice. At thesame time, an advertisement announces that the price of orange juice willdouble next week. Given these twoeffects, what would happen to the current equilibrium price and quantityof orange juice? |
Equilibrium price will increase, the effect on quantity is ambiguous. |
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Which of the following could be considered an example of Adam Smith’sInvisible Hand Principle |
In an effort to maximize his tips, a waiter treats his customers exceptionally well and makes sure they have a great dining experience even though he does not particularly care for them. Thousands of strangers around the world who are just trying to make a living work really hard to get steak to your grocery store in Tallahassee as cheaply as possible so that you can have steak for dinner tonight if you prefer. When exiting a grocery store, people will often get into the shortest line just to get themselves through the checkout process as quickly as possible. In doing this, all of the check-out lines even out which makes the entire process go more smoothly for everyone. |
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Pleaseevaluate the following statements(I) "a price gouginglaw which sets a price ceiling for electric generators above the equilibriumprice will create a shortage of generators."(II) "A minimum wagelaw which sets a price floor below the equilibrium wage rate will create asurplus of labor, also known as unemployment." |
Both statements I and II are false |
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If Taylor Swift’s income increases from $60,000 to $80,000 and her taxliability increases from $12,000 to $16,000, which of the following is true? |
Her marginal tax rate is 20 percent in this income range. |
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Atax on the buyers of coffee will |
increase the price of coffee paid by buyers, decrease the net price of coffee received by sellers, and decrease the equilibrium quantity of coffee causing deadweight loss. |
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Thefederal government levies a 15.3 percent payroll tax (7.65 percent on both theemployer and employee) on the wages of all workers. If the demand for labor isrelatively inelastic when compared to the elasticity of the supply of labor,the burden of this tax will |
fall primarily on employers. |
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Youare trying to convince your state government to reduce its incredibly highbusiness taxes in an effort to promote the economic climate of your state. Your government officials respond by sayingthat reducing business taxes will cause tax revenue to plummet and the statecan’t afford to reduce tax revenue at this time. You point out to the government officialsthat according to the Laffer curve you studied in economics class, |
when tax rates are high, a rate reduction may lead to an increase in taxrevenue as it will encourage more tax paying businesses to locate in the state. |
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Economic efficiency indicates that |
it nearly always makes sense to stop an activity well before perfection is achieved. |
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Amarket is unlikely to provide an efficient quantity of public goods because |
the nature of public goods makes it difficult for producers to withhold them from nonpaying consumers, and so free-riders will try to obtain the public good without paying for it. |
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Consider two goods--one that generates external benefits (positiveexternality) and another that generates external costs (negative externality).A competitive market economy would tend to produce |
too little of the good that generates external benefits and too much of the good that generates external costs. |
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If a 40 percent increase in income induced a group of consumers toreduce their yearly purchases of potatoes by 10 percent, for these consumers, |
potatoes are an inferior good. |
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When comparing goods that more broadly defined (such as all cereal) withgoods that are more narrowly defined (such as one type of cereal, like Kellog’sCornflakes), the goods that are more broadly defined have |
fewer substitutes and so its demand is less elastic |
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If the quantity demanded increases by 10 percent in response to a 20percent decrease in price, The price elasticity of demand for the product is |
0.5, making the demand for this product inelastic. |
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Nathan loves Sonny’s BBQ and especially loves their all you can eatpulled-pork special where you pay $12 and eat as much pulled-pork and sidedishes as you want. If Nathan goes intoSonny’s and orders the all you can eat pulled-pork special, which of the followingwill most likely be true? |
The law of diminishing marginal utility will ensure that Nathan’sutility from each additional plate of food will eventually decline all the waydown to zero, at which point Nathan will stop eating. |
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Which one of the following decisions most clearly reflects a lack ofunderstanding of the economic way of thinking concerning sunk costs? |
When talking to her mother about her boyfriend’s recent marriageproposal, Jennifer says “I’m not really optimistic about my future with him,but we have been together so long that we might as well get married”. |
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If a firm has a U-shaped long-run average costcurve, |
it must be exhibiting economies of scale at lower levels of production and, after reaching its cost-minimizing point, it starts to exhibit diseconomies of scale at higher levels of production. |
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Peter Griffin quit his job at the toy factory to become a fisherman Hegave up his $34,000 salary and invested his retirement fund of $50,000 (whichwas earning 10 percent interest) in this venture. His fishing boat generated$120,000 in total revenue and had $70,000 in explicit costs. Peter Griffin’s economic profits were |
$11,000. |
