Exam 3 Flashcards
Which of the following price regulations is most commonly accepted for natural monopolies?
The intersection of demand and average total cost
Relative to the optimal production for society, an unregulated natural monopoly…
Produces a quantity less than and a price greater than the social optimum
In the monopolistic outcome of a natural monopoly, relative to public ownership (or other forms of regulation), what could we expect to occur in that market?
Prices increase
Deadweight loss increase
Producer surplus increase
Which of the following is not a characteristic of monopolistic competition
Profits in the long-run
Suppose that a firm in monopolistic competition is making positive economic profits. For a specific firm, it can be expected that…
The demand for that particular firm’s product will decrease
Which of the following best describes monopolistically competitive firms in the long-run?
P>MR, MR=MC, P=ATC
One of the beneficial results of monopolistic competition is that…
We have increased product differentiation
For monopolistic competition, as fixed costs go to zero, average total costs approach…
Marginal Costs
With high travel costs, we will have…
More small stores with higher prices
Different models of advertising suggest that advertisements are intended to…
Provide information about a product
Persuade public opinion in favor of the firm’s product
Induces craving for products that are already known
Signal quality
11. Jack and Jill are considering making a donation to a public well so that they can both fetch pales of water. Each individual has $100 and both Jack and Jill gain $.80 of benefit per dollar that they spend on the well. If Jack donates to the well, Jill benefits from his donation; Jack also benefits from Jill’s donation to the well. Alternatively, Jack or Jill could spend their own $100 on a personal shiny bucket to use for when the well is built (they get $1 of benefit per dollar if they buy their own bucket). Use the following figure to answer questions about this scenario: Jill Jack Donate to Well Buy Bucket Donate to Well 160 , 160 80 , 180 Buy Bucket 180 , 80 100, 100
Jack buys his bucket, Jill buys her bucket
Consider the following game where the payoffs are measured in “years sentenced to prison.” Identify the Nash Equilibrium: Jason Freddie Don’t Confess Confess Don’t Confess 3, 3 5,2 Confess 2,5 4,4
Freddie confesses, Jason confesses
A Nash Equilibrium…
Is self-sustaining
Is the result of self-interested parties
You have successfully joined a cartel of oil producers (congratulations?). You and your competitors share equal shares in the market under sustained collusion. However, you expect that one of the members will cut their prices soon. What should you do?
a. Cut prices
c. Increase quantity
Which of the following are true about cartels?
a. They are hard to sustain because of a strong incentive to cheat
b. They are formed to sustain high prices
You realize that your Econ 110 class is based on a curve. After the discussion on game theory, you decide to host a class meeting where you all agree to score low on the final so that the curve significantly boosts everyone’s grades. What is the likely outcome of this scenario?
Your agreement will break down as students recognize the potential gains from cheating
OPEC is a cartel of oil and gas producers. Which of the following relates to OPEC?
a. Fluctuating prices can be partially explained by cycles of cheating among OPEC members
b. We expect that there could be more oil and gas produced if OPEC was not allowed to operate as a cartel
c. There exists deadweight loss due to OPEC’s production decisions
It is determined that the value of Joe’s marginal product of labor is $15. Which of the following is certain to occur?
a. Joe will be hired if the wage is $10\c. Joe will be the last worker hired if the wage is $15 and the next worker’s VMPL is $10
What might cause an increase in the wage for labor in the tomato industry?
a. the price of ketchup increases
c. an increase in the number of tractors on the tomato field
Raising the minimum wage (a binding price-floor) certainly…
d. decreases consumer surplus
e. generates deadweight loss
Profit-Maximizing firms will hire…
c. labor until VMPL=W
The BYU Economics Department experiences a wage increase for all Econ 110 TA’s. Collin, an Econ 110 TA, will now be making $20 an hour! Which of the following is certainly true?
j. None of the above
The table represents a firm that is able to sell its product for $5.
If the wage is $20, how many units of labor will the firm hire?
d. 4
We expect oil rig workers to make more money than teachers if…
b. the price of oil is higher than the price of a teacher’s
d. working as a teacher is generally safer than working on an oil rig
Which of the following is certainly true about unions when they behave as a monopolist?
a. unions lead to a wage that is higher than equilibrium
b. in the absence of externalities, unions always create deadweight loss
f. unions always decrease consumer surplus
The theory of ________ explains, at least in part, why wages are higher for more dangerous careers.
c. compensating differentials
The Spence Signaling model predicts that…
a. High productivity students will attend college
d. Low productivity students will not attend college
If the the parameters for acceptable GPAs and test scores were lowered at Harvard, which of the following statements could be true, according to the Spence Signaling model?
b. Wages of Harvard graduates might decrease due to a decrease in the signal value of a Harvard education.
c. Wages of Harvard graduates might decrease even though the amount of skills acquired at Harvard by Harvard graduates increases or stays the same.
e. The number of low-productivity applicants applying to Harvard will increase.
Unions that are able to negotiate with the firms to maximize total welfare and choose L* tend to
b. renegotiate for a higher wage after the contract is set up for L*
e. reduce consumer surplus relative to the competitive outcome
Relative to the competitive outcome, unions as monopolists tend to…
b. hire fewer laborers.
c. pay a higher wage.
Let’s analyze a simple economy that only produces apples and oranges. While you are grocery shopping, you notice that the prices for apples and oranges have both individually increased by 25%. The quantity of apples and oranges bought and sold has not changed. Which of the following must certainly result from this change?
b. Nominal GDP will increase by 25%
d. Real GDP will increase by less than 25%
Suppose that your economy experiences a relatively large increase in real GDP. Which of the following is certainly true concerning GDP per capita?
c. real GDP per capita will increase as long as the economy grows faster than population growth
Which of the following would be included in the U.S. GDP for 2015?
b. a computer built in the United States during 2015 purchased by a Norwegian-U.S. citizen
The CPI fails to measure the cost of living accurately when individuals switch from purchasing bananas to apples when the prices of bananas increases faster than the price of apples according to:
b. The Substitution bias
Which of the following is certain to contribute to productivity per worker in an economy?
c. A medical breakthrough that improves health and is easily accessible to the general public
The concepts of diminishing returns and the catch-up effect imply that…
b. A corporation considering to build a factory would place more value on investing in a poorer economy than in a richer economy
d. Less developed countries can piggyback on the technologies developed in more developed countries
Your friend asks for you to lend them $1,000 with the promise that they will repay you within the next 3 years. You know that the annual market interest rate is 10%. You should…
b. Not loan the money to your friend if they repay you with $1000
d. Not loan the money to your friend if they repay you with $1200
e. Loan the money to your friend if they repay you with $1400
Currently Amazon makes very little money yet the stock price is very high. If the pricing of this asset is based on market expectations of future worth, we know:
b. The market expects Amazon to make a large amount of money in the future
d. Either the market expects Amazon to make a large amount of money soon or an even larger amount of money in the future
Someone who is risk averse would…
b. require a higher interest rate for risky assets than individuals who are risk seeking
Which of the following individuals would qualify to be labeled as unemployed?
d. John, a worker recently released from his position at Deer-R-Us and is currently looking for another job.
Which of the following could increase the unemployment rate?
a. a large population of stay-at-home dads, who weren’t looking for work, returns to the labor force and some of them find jobs.
b. a large population of stay-at-home dads, who weren’t looking for work, returns to the labor force and an equal amount of them find jobs and are unable to find jobs.
d. many workers who currently have jobs are laid off due to a recession and none of them start looking for new jobs.
e. many workers who currently have jobs are laid off due to a recession and they start looking for jobs.
Which of the following could increase the amount of time that someone spends looking for a job?
a. a new government policy allows workers to apply for more unemployment benefits
c. after much debate, the government passes a bill to raise the minimum wage
Which of the following forms of unemployment accounts for deviations from the natural rate of unemployment?
a. cyclical
Monopolistic Competitive Market has
Many sellers
Product differentiation
Free entry
Monopolistic Price =
Average total cost
When a firm spend a large amount on advertising
Advertising can be construed as a signal of quality
Common critique of advertising
Brand names can manipulate people’s tastes and artificially increase their willingness to pay
Characteristics of oligopoly
A few large sellers
Either homogeneous or differentiated products
Mutual interdependence
Difficult entry
Oligopoly output =
Produce an output level at which marginal revenue = marginal cost
Nash Equilibrium
a set of strategies (one for each player) in which each player’s strategy is the best option for that player, given the chosen strategy of the player’s opponent
Dominant Strategy
if it exists, is a strategy that is best for a player, regardless of the strategies chosen by the other players
Collusion
an agreement among agents in a game about which strategies to implement
Tit-for-tat Strategy
cooperates until his or her opponent defects (cheats) and then defects until the opponent cooperates again
Payoff matrix
a diagram used to describe all the elements of a game
Prisoners’ Dilemma
maintain cooperation among its members without enforceable punishments, A case in which individually rational behavior leads to a jointly inefficient outcome
illegal communication
The Sherman Antitrust Act of 1890
Tying
Occurs when a producer offers retailers two goods together at a single price, rather than separately
Resale Price Maintenance
Occurs when a producer makes a contractual agreement with a retailer that they are not allowed to sell their product for less than a certain amount
Predatory Pricing
A firms price cut is intended to drive a competing firm out of the market
Factors that Determine Labor Supply
Changes in tastes
Changes in alternative opportunities
Immigration
Nominal GDP =
Value of current output using current prices
Real GDP =
Value of output in the current year using base prices
GDP Deflator =
(Nominal / Real) x 100
Inflation Rate =
100 x (GDP Def C - GDP Def P) / DGP Def P
Price index =
100 x (Cost Current / Cost Original)
Adjusting for Inflation =
Nominal x (Current Index / Original Index)
Purchasing Power =
Initial Deposit / Price
Average income in n Years =
Current Average Income x (1+g)n
Human capital =
Knowledge and skills
Technological Knowledge =
How the world works
Natural Resources =
Inputs into the production of goods
Physical Capital =
Stock of tools, machinery, equipment
Bonds/Stock
Debt finance - bonds, get paid first
Equity finance - stock
Formula Savings/Investment/GDP
GPD = Government Purchases + Consumption + Investment
National savings =
Investments (PS + PS)
Private Savings =
GDP - Consumption - Tax
Public Saving =
Tax - Government Purchases
Savings =
Using unspent income
Investment =
Spending on new capital
Future Value =
Present Value x (1+r)n
Present Value =
Future Value / (1+r)n
Rule of 70 =
70 / r
Labor force participation Rate
100 x (num in / adult population)
Unemployment Rate
100 x (Num unemployed / labor force)
Describe discouraged workers
Not looked for a job in 6 weeks, but would like a job and can work, or have given up
Three types of unemployment
Cyclical - Associated with business cycles
Structural - Mismatch between jobs available and skills of workers
Frictional - Job seekers and employers need time to find one another
Why might firms voluntarily pay workers a wage above equilibrium
Encourages more productivity
Helps workers to be healthier in developing countries
Can reduce a firm’s training costs
Attract more competent workers