Microeconomics Final

Front 1

Antibiotics may be ___________, since people only consider their _______________.

Back 1

Overused; private costs of consumption not the social costs

Front 2

Markets are often inefficient when when external costs are present because:

Back 2

Social costs exceed social benefits at the private market solution

Front 3

When external benefits are present, the market price is __________, however when external costs are present, the market price is ______________.

Back 3

too high; too low

Front 4

An eternal benefit in a market will cause the market to produce:

Back 4

less than is socially desirable

Front 5

To maximize profit, firms should keep producing as long as marginal revenue is:

Back 5

greater than marginal cost

Front 6

Which of the following statements is correct?

1. When the marginal cost curve is below the average cost curve, the average cost curve must be rising

2. When the marginal cost curve is above the average cost curve, the average cost curve must be rising.

Back 6

2. When the marginal cost curve is above the average cost curve, the average cost curve must be rising.

Front 7

The oil industry is an increasing-cost industry because:

Back 7

Expanding output requires firms to use more expensive production methods to find and extract oil from less desirable locations.

Front 8

A firm should exit the industry if which of the following conditions apply?

1. TR > TC

2. Lifetime expected profit is positive.

3. Prices are low now but expected to rise.

4. P < AC

Back 8

4. P < AC

Front 9

The elimination principle, a general feature of competitive markets, tells us that:

Back 9

above normal profits are temporary

Front 10

For a competitive firm, which of the following conditions describes the profit maximization condition?

1. P = MC

2. MR = MC

3. TR = TC

Back 10

1. P = MC

&

2. MR = MC

Front 11

A monopolist can sell 300 units of output for $29.00 per unit. Alternatively, it can sell 301 units of output for $28.25 per unit. The marginal revenue of the 301st unit of output is:

Back 11

- $196.75

Front 12

If the quantity demanded for a hand-carved pineapple is 2 at a price of $16, and the quantity demanded will increase to 3 if the seller lowers the price to $14, what is the seller's marginal revenue from selling 3 units of pineapple?

Back 12

10

Front 13

Natural monopolies exist when one firm can:

Back 13

produce the market output at a lower cost than two or more firms.

Front 14

To maximize profit, Calvin Klein wants to set a higher price for their pants in Europe than in Africa because the demand curve in Africa is:

Back 14

Lower and/or more elastic

Front 15

Arbitrage is ___________ in one market and ____________ in another market.

Back 15

buy low; sell high

Front 16

Perfectly price discriminating monopolists charge:

Back 16

each consumer his or her maximum willingness to pay, so consumer surplus is zero.

Front 17

Which of the following would NOT be considered a network good?

1. Facebook

2. quiet study rooms

3. online player versus player games

4. cell phones

Back 17

2. Quiet study rooms

Front 18

The prisoner's dilemma describes situations where the pursuit of:

Back 18

individual interest lead to a group outcome that in the interest of no one.

Front 19

A strategy that has a higher payoff than any other strategy no matte what the other player does is called a:

Back 19

dominant strategy

Front 20

Compared to private goods, the free market would ___________ public goods.

Back 20

underproduce

Front 21

Why is national defense a public good?

Back 21

1. Because people who don't pay for national defense still benefit from having it.

2. Because one person's use of national defense doesn't reduce anyone else's ability to use it.

Front 22

What is an explanation for why wild animals are often hunted to the point of extinction?

Back 22

The tragedy of the commons

Front 23

Tuna fish are being driven to extinction because of overfishing. If all the fishermen know about this, why don't they fish less to slow down the extinction?

Back 23

A lack of property rights over the tuna fish stock in the sea.

Front 24

Which list below contains only common resources?

1. national defense, sunshine, smog reduction

2. online video games, public beaches, soup kitchen meals, public roads

3. public beaches, soup kitchen meals, public roads

Back 24

3. Public beaches, soup kitchen meals, public roads

Front 25

Overutilization and lack of conservation are more likely a problem for:

Back 25

goods that are not owned

Front 26

A cost paid by the consumer or the producer

Back 26

Private Cost

Front 27

A cost paid by people other than the consumer or the producer trading in the market.

Back 27

External Cost

Front 28

The cost to everyone (private cost + external cost)

Back 28

Social Cost

Front 29

External costs or external benefits that fall on bystanders.

Back 29

Externalities

Front 30

Consumer surplus + producer surplus + everyone else's surplus

Back 30

Social Surplus

Front 31

The price and quantity that maximizes social surplus

Back 31

Efficient Equilibrium

Front 32

The quantity that maximizes social surplus

Back 32

Efficient Quantity

Front 33

A tax on a good with external costs (negative externality)

Back 33

Pigouvian tax

Front 34

A benefit received by people other than the consumers or producers trading in the market

Back 34

External Benefit

Front 35

A subsidy on a good with external benefits

Back 35

Pigouvian Subsidy

Front 36

All the costs necessary to reach an agreement

Back 36

Transaction Costs

Front 37

The principle that if transaction costs are low and property rights are clearly defined, private bargains will ensure that the market equilibrium is efficient even when there are externalities.

Back 37

Coase Theorem

Front 38

Most obvious (but not always the best) method to reduce the external cost of electricity generation is for the government to order firms to us (or make) less electricty. This is an example of:

Back 38

Command and control

Front 39

The time after all exit or entry has occurred

Back 39

Long Run

Front 40

The period before exit or entry can occur

Back 40

Short Run

Front 41

Price times quantity sold (PxQ)

Back 41

Total Revenue

Front 42

The cost of producing a given quantity of output

Back 42

Total Cost

Front 43

A cost that requires a monetary expenses

Back 43

Explicit Cost

Front 44

A cost that does not require an expense of money

Back 44

Implicit Cost

Front 45

Total revenue minus total costs including implicit costs

Back 45

Economic Profit

Front 46

Total revenue minus explicit costs

Back 46

Accounting profit

Front 47

Costs that do not vary with output

Back 47

Fixed costs

Front 48

Costs that vary with output

Back 48

Variable costs

Front 49

The change in total revenue from selling an additional unit

Back 49

Marginal Revenue

Front 50

The change in total cost from producing an additional unit

Back 50

Marginal Cost

Front 51

The total cost of producing a given quantity divided by that quantity (TC/Q)

Back 51

Average Cost

Front 52

The condition when P = AC; at this price the firm is covering all of its costs including enough to pay labor and capital their ordinary opportunity costs

Back 52

Zero Profit

Front 53

A cost that once incurred can never be recovered

Back 53

Sunk Cost

Front 54

A industry in which costs increase with greater output; shown with an upward sloped supply curve

Back 54

Increasing Cost Industry

Front 55

An industry in which industry costs do not change with greater output; shown with flat supply curve; shown with a flat supply curve

Back 55

Constant Cost Industry

Front 56

An industry in which the industry costs decrease with an increase in output; shown with a downward sloping supply curve

Back 56

Decreasing Cost Industry

Front 57

The principle that in a competitive market, above-normal profits are eliminated by entry and below-normal profits are eliminated by exit.

Back 57

Elimination principle

Front 58

The power to raise price above marginal cost without fear that other firms will enter the market.

Back 58

Market Power

Front 59

A firm with market power

Back 59

Monopoly

Front 60

The advantages of large-scale production that reduce average cost as quantity increases.

Back 60

Economies of Scale

Front 61

A situation when a single firm can supply the entire market at a lower cost than two or more firms

Back 61

Natural Monopoly

Front 62

Factors that increase the cost to new firms of entering an industry

Back 62

Barriers to entry

Front 63

The selling of the same product at different prices to different customers.

Back 63

Price Discrimination

Front 64

The practice of taking advantage of price differences for the same good in different markets by buying low in one market selling high in another market.

Back 64

Arbitrage

Front 65

The situation that exists when customer is charged his or her maximum willingness to pay

Back 65

Perfect Price Discrimination

Front 66

A form of price discrimination in which one good, called the base good, is tied to a second good called the variable good.

Back 66

Tying

Front 67

The requirement that products be bought together in a bundle or package.

Back 67

Bundling

Front 68

A group of suppliers that tries to act as if they were a monopoly

Back 68

Cartel

Front 69

A market dominated by a small number of firms

Back 69

Oligopoly

Front 70

A market with a large number of firms selling similar but not identical products

Back 70

Monopolistic competition

Front 71

Decision making in situations that are interactive

Back 71

Strategic Decision Making

Front 72

A strategy that has a higher payoff than any other strategy no matter the strategies of other players

Back 72

Dominant Strategy

Front 73

Situations where the pursuit of individual interest leads to a group outcome that is in the interest of no one

Back 73

Prisoner's Dilemma

Front 74

Laws that give the government the power to regulate or prohibit business practices that may be anticompetitive

Back 74

Antitrust Laws

Front 75

A good whose value to one consumer increases the more that other consumers use the good

Back 75

Network good

Front 76

A situation in which no player has an incentive to change strategy unilaterally

Back 76

Nash equilibrium

Front 77

Game in which the players are better off if they choose the same strategies than if they choose different strategies and there is more than one strategy on which to potentially coordinate

Back 77

Coordination Game

Front 78

A market with many potential entrants

Back 78

Contestable Market

Front 79

The costs of switching purchases from one firm to another. Firms sometimes try to raise these costs

Back 79

Switching Costs

Front 80

When people who don't pay cannot easily be prevented from using the good, the good is non-excludable

Back 80

Non-excludable

Front 81

When one person's use of the good does not reduce the ability of another person to use the same good, the good is non-rival

Back 81

Non-rival

Front 82

Goods that are excludable and rival

Back 82

Private good

Front 83

Goods that are non-excludable and non-rival

Back 83

Public good

Front 84

Someone who consumes a public good without paying a share of the costs

Back 84

Free rider

Front 85

Someone who must pay a share of the costs of public good but does not enjoy the benefits

Back 85

Forced rider

Front 86

Goods that are excludable but non-rival

Back 86

Non-rival private good

Front 87

Goods that are non-excludable but rival

Back 87

Common resources

Front 88

The tendency of any resource that is unowned and hence non-excludable to be overused and under maintained

Back 88

Tragedy of the Commons