Exam 3 - Sample 3

Question 1

A monopoly that exists because of economies of scale is a(n) ______________________
monopoly.

Answer 1

Natural

Question 2

A government created monopoly such as a power company operates through an
agreement known as a(n):

Answer 2

Public franchise

Question 3

A payment in excess of opportunity costs is called a(n) ___________________________

Answer 3

Rent

Question 4

When a business charges different prices to each consumer, it is using
________________ degree price discrimination

Answer 4

First

Question 5

When a business charges different prices based on quantity, it is using
________________ degree price discrimination.

Answer 5

Second

Question 6

A consumer buys products in one market and resells them in another. This person is
practicing ______________________________________________

Answer 6

Arbitrage

Question 7

The percentage of the market controlled by the top 4 businesses in an industry is referred
to as the _________________________________________________

Answer 7

Concentration ratio

Question 8

(True/False) The prisoner’s dilemma is used to explain why it is in the best interest of
oligopolies to work together rather than engage in price competition.

Answer 8

True, Lesson of the prison dilemma is to collude

Question 9

Marginal productivity theory says that workers should be paid based on:

Answer 9

Their economic contribution to the firm

Question 10

A Right to Work law:

Answer 10

Prevents union membership from being a requirement for employment

• Dont have to a union

Question 11

(True/False) It is illegal in all states to require union membership before a worker is hired, but in most states it is legal to require union membership after a worker is hired.

Answer 11

True

Question 12

(True/false) Nevada is a Right to Work state.

Answer 12

True

Question 13

For money to double in value every five years, it must earn _________ percent interest

Answer 13

14

Question 14

Money earning 2 percent interest will double in value in _________ years

Answer 14

35

Question 15

Which of the following is false?

a. Incomes are more equal in the U.S. today than at the turn of the century
b. Poverty rates are lower in the U.S. today than at the turn of the century
c. Poverty rates are lower in the U.S. today than in 1980
d. None of the above

Answer 15

C

Question 16

Which of the following is false?

a. The wealth distribution in the U.S. is more equal than the income distribution
b. Taxes are thought to help make the income distribution more equal
c. The U.S. uses a relative standard for poverty measurement
d. None of the above

Answer 16

a b c

ignore this question

Question 17

(True/False) The “veil of ignorance” suggests looking at the world as if you were about to
be born, but did not know whether you would be born rich and poor and then imaging
what type of world should exist.

Answer 17

True

Question 18

I take an action that increases the property value of your house. This is an example
of a(n) \_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_ externality.

Answer 18

Positive

Question 19

Making the creator of the externality pay the true costs of their actions is called:

Answer 19

Internalizing the externality

Question 20

For Coase’s theorem to work ___________________ costs must be low

Answer 20

Transaction

Question 21

Coase argues that environmental problems are:

Answer 21

Two sided and can be solved by negotiation between the parties

Question 22

A person who benefits from something, but gets someone else to pay for it is a(n)

Answer 22

Freerider

Question 23

Name something outlawed by the Sherman Act

Answer 23

Illegal to be monopoly,
conspire to be a monopoly,
attempt to be a monopoly

Question 24

I own one of two stores in a small town. The owner of the other store runs off to
Jamaica, leaving me the only store. What law have I violated?

Answer 24

None

Question 25

Name one group exempt from truth in advertising laws: ___________________________

Answer 25

Politicians

Question 26

The marginal cost in monopoly always falls _____ the demand curve.

Answer 26

c. twice as fast as

Question 27

Monopolies that charge one price to everyone capture consumer’s surplus from consumers by:

Answer 27

restricting quantity sold compared with perfect competition

Question 28

learn graphs

Answer 28

-

Question 29

If Microsoft is a natural monopoly, then splitting Microsoft into 10 smaller companies
would have what effect in the long term?

Answer 29

we would expect a monopoly firm to emerge over time (1 of the 10 survives)

Question 30

A single price monopoly would never price at the point of productive efficiency

Answer 30

true

Question 31

Firms in monopolistic competition get some monopoly power because they use

Answer 31

Product differentiation

Question 32

In the long run, a firm without strong barriers to entry will only be able to
earn normal profits.

Answer 32

True

Question 33

Because the actions of each firm in an oligopoly affects the others, the
businesses are said by economists to be:

Answer 33

Interdependent

Question 34

(True/False) In an oligopoly, there can be no more than 8 to 10 firms

Answer 34

False

olgo - few

Question 35

In an oligopoly, the innovation (new ideas) almost always come from:

Answer 35

the smaller “fringe” firms

Question 36

John Nash developed a theory called _______________________________ theory
that explains the behavior of oligopolies.

Answer 36

GAme

Question 37

In an oligopoly, we expect the firms to compete primarily through:

Answer 37

non-price competition

Question 38

John Nash’s theory of equilibrium is that equilibrium:

Answer 38

may be bad for all parties

Question 39

A(n) ___________________________________________________ union is made up
of people with the same skill.

Answer 39

Craft or trade

Question 40

A(n) ___________________________________________________ union is made up
of people who work in the same industry.

Answer 40

Industrial

Question 41

Explain how a worker’s pay should be determined, why that rule does not
apply to star singers, and what that means for star singers and record
companies

Answer 41

Marginal productivity. However that doesnt star singer since there is more people that will hire them than
star singers. There is small group bargaining. The singers will have an advantage over the companies. So that
means that star singers are going to get paid too much record companies are going to lose money lose money.
Records make their money from old artist.

Question 42

Explain the effects of discrimination on the wages of those who are
discriminated against and those who are not, and explain why the market does
not automatically end discrimination.

Answer 42

Draw two graphs. Demand is going to low wages are goign to be low = discriminated. The group that is
discriminated the demand is high
• 3 types - consumer, employer, employee. If those two exist the market wont end it. You have more than one
kind of discriminations market wont end it. If there is one discrimination the market will automatically end it.

Question 43

Explain how governments deal with the problems created by monopolies

Answer 43

1. Regulate. - government set the prices. The problem with regulation is that the company captures the
   agencies that are regulating them. The people are regulating are trying to be nice to them so they get hired
   from the businesses that are suppose to control. Another way we destroy a monopoly is kill. (Audio). Their is
   sherman act, clayton act, interlocking directories, etc.