Final Flashcards
For most students, what is the largest single cost of a university education?
The income given up to attend school
What has been the effect of a government imposed seatbelt law?
an increase in the number of accidents
Which of the following is true
a. diamonds are essential to survive
b. water is scarce but diamonds are not
c. The marginal benefit of an extra diamond is small
d. The marginal benefit of an extra diamond is large
d
Which of the following is not a benefit from trade
a. the ability to specialize
b. an increase in the variety of goods and services available
c. reduced competition
d. lower prices
c. reduced competition
What is the opportunity cost of the purchase of submarines by the government of Canada from the united states
the loss to the Canadian public of another item that could have been purchased with the money used for submarines
In a market economy what guides economic activity
prices as incentives to both buyers and sellers
What causes inflation
Growth in the quantity of money
Which of the following is most closely linked to the income of a typical worker in Canada
a. our population
b. the productivity of our workforce
c. the number of labor unions
d. government policies
b. the productivity of our workforce
What’s The value or cost of a good or service that is given up by choosing one alternative over another?
opportunity cost
What situation would be the most likely to result of market failure
a. the market fails to allocate resources efficiently
b. people fail to know what they like in a given market
c. the government fails to provide the goods and services voters want
d. producers fail to earn high profits
a. the market fails to allocate resources
why do economists make assumptions ?
Assumptions can simplify the complex world
Which of the following is a normative statement
a. minimum wage laws cause unemployment
b. in an economy, inequality between rich and poor should be reduced
c. households sell resources in the market for factors of production
d. firms earn revenue by selling goods and services
b. in an economy, inequality between rich and poor should be reduced
Which statement best describes an economic model ?
a. it is as confusing as possible
b. it is as complex as possible
c. it is a simplification of reality
d. it is designed for the general public
c. it is a simplification of reality
Which of the following best describes the primary study of microeconomics?
a. how households and firms make decisions and how they interact in the market
b. economy wide phenomena
c. inflation, unemployment, and economic growth
d. the impact of government actions on the economy
a. how households and firms make decisions and how they interact in the market
What kind of information does a production possibilities frontier illustrate?
a. the prices at which alternative goods will be produced
b. the input combinations that allow a country to produce a given amount of output
c. tax revenue a government receives at various tax rates
d. the various combinations of two goods a country can produce given the available production technology
d
Suppose a gardener produces both squash and peppers in her garden, and she must give up 13 bushels of peppers to get 5 bushels of squash. What would be the opportunity cost of 1 bushel of squash ?
2.6 bushels of pepper
How can trade make everybody better off ?
by allowing people to specialize according to comparative advantage
Which of the following statements are correct?
a. comparative advantage reflects the relative opportunity cost
b. absolute advantage reflects the relative opportunity cost
c. the producer that requires a greater quantity of inputs to produce a good is said to have an absolute advantage in producing that good
d. the producer that requires a smaller quantity of inputs to produce a good is said to have a comparative advantage in producing that good
a.
Why does Canada Not grow it’s own oranges
It’s cheaper to buy oranges from other countries that have warmer climates
The average worker in the united states can produce 20 tonnes od coal or 10 tonnes of iron per week. the average worker in Canada can produce either 10 tonnes of coal or 20 tons of iron per week. Which statement best summarizes this situation?
The united states has an absolute advantage in the production of coal
Which determines which goods two countries specialize in?
comparative advantage
The following chart indicates the production possibilities of food and clothing per worker day in Canada and Japan.
Production Possibilities of Food and Clothing Per Worker Day for Canada and Japan
Units of Output per Worker Day Canada Japan
Food 4 3
Clothing 12 6
Which statement best describes production possibilities?
a. Because Canadian workers produce more of both food and clothing than Japanese workers, no gains from trade are possible. b. Joint output would be maximized if Canada specialized in producing clothing and Japan in producing food. c. Mutual gains from trade could be realized if Canada specialized in food production and Japan in clothing production. d. The Japanese are the high-opportunity-cost producers of both food and clothing.
b
According to the principle of comparative advantage, what determines the price at which trade takes place?
a. Price of a good at which both parties trade must be determined by the country that has a comparative advantage on the good.
b. For both parties to gain from trade, the smaller economy must receive a favourable price.
c. For both parties to gain from trade, the price at which they trade must lie between the two opportunity costs.
d. Price of a good at which both parties trade must be determined by the country that has an absolute advantage on the good.
c
Which statement is most relevant if buyers and/or sellers are price takers?
a. They have no influence on market price.
b. They have ultimate control over market price.
c. Buyers will be able to find prices lower than the market price.
d. They can somewhat influence the market price.
a
Which of the followings is NOT a characteristic of a perfectly competitive market?
a. All but one seller are price takers.
b. There are many buyers and sellers.
c. Buyers can buy as much as they want.
d. Sellers can sell as much as they want
a
Which statement is most relevant in the market for coffee when the price of tea, a substitute for coffee, increases?
a. The demand for coffee will decrease.
b. The market price of coffee will decrease.
c. The demand for coffee will increase.
d. The quantity demanded for coffee will increase
c
According to the law of demand,
a. other things equal, when the price of a good rises, the demand curve shifts to the right.
b. other things equal, when the price of a good rises, the demand curve shifts to the left.
c. other things equal, when the price of a good rises, there is upward movement along the demand curve.
d. other things equal, when the price of a good rises, there is downward movement along the demand curve.
c
Nitrogen is an important input in the production of vegetables. If the price of nitrogen decreases, all else being equal, what will happen in the market for vegetables?
a. The supply of vegetables will be unaffected.
b. The supply of vegetables will decrease.
c. The supply of vegetables will increase.
d. The supply of nitrogen will increase.
c
If buyers are expecting higher prices for apples in the near future, what is most likely to happen now in the market for apples?
a. Prices for apples will fall.
b. The demand for apples will increase.
c. The demand for apples will decrease.
d. The supply of apples will decrease.
b
Which statement is most relevant when there is a shortage of a good at the current price?
a. Sellers are producing more than buyers wish to buy.
b. The market must be in equilibrium.
c. The price is below the equilibrium price.
d. Quantity demanded equals quantity supplied
c
What will cause an increase in the price of homes and a decrease in the purchase of homes?
a. A rightward shift of the demand curve for housing..
b. A rightward shift of the supply curve for housing.
c. A leftward shift of the demand curve for housing.
d. A leftward shift of the supply curve for housing.
d
Which statement best describes a market that is in equilibrium?
a. The buying and selling decisions of buyers and sellers are not consistent with one another.
b. The price is below the level where quantity supplied equals quantity demanded.
c. The price is above the level where quantity supplied equals quantity demanded.
d. The price has reached the level where quantity supplied equals quantity demanded
d
If skis and ski boots are complementary goods, what is most relevant when the price of skis decreases?
a. decreased demand for skis
b. decreased demand for ski boots
c. no effect on the demand for skis
d. increased demand for ski boots
d
Suppose there is a shortage of parking spaces in downtown Toronto during weekdays. How can the shortage be eliminated?
a. government lowering the price
b. increasing the quantity demanded
c. allowing the price to rise
d. decreasing the supply
c
Which of the following will not shift the supply curve?
a. a change in the state of technology
b. a change in taxes
c. a change in expectations about future prices
d. a change in the price of the good
d
Which event shifts the demand curve for apple jelly to the right?
a. a decrease in the price of strawberry preserves, a substitute for apple jelly
b. a decrease in the price of apple jelly
c. an increase in income if apple jelly is a normal good
d. an increase in the price of peanut butter, a complement of apple jelly
c
Use the following to answer the question:
- an increase in price A. an increase in the quantity traded
- a decrease in price B. a decrease in the quantity traded
- no change in price C. no change in the quantity traded
What is the effect on an inferior product of an increase in incomes?a. 1 and A
b. 1 and B
c. 2 and A
d. 2 and B
d
Use the following to answer the question:
The demand for commodity X is represented by the equation QD = 50 – 5P and supply by the equation QS = 5P – 10.
What is the equilibrium price for X?
a. $2 b. $4 c. $6 d. $7
c
A change in the quantity demanded of cigarettes results from health consciousness.
a. True
b. False
b
Other things equal, an increase in demand will increase both the price of the product and the quantity sold.
a. True
b. False
a
An increase in demand accompanied by an increase in supply will increase the equilibrium quantity, but the effect upon equilibrium price will be indeterminate.
a. True
b. False
a
What is the effect of rent control on apartments?
a. There is an increase in the supply of apartments.
b. There is an improvement in housing quality.
c. The demand for apartments is held down.
d. There is a chronic shortage of apartments.
d
Which event is likely to create a surplus?
a. A price ceiling is set above the equilibrium price.
b. A price floor is set above the equilibrium price.
c. A price ceiling is set below the equilibrium price.
d. A price floor is set below the equilibrium price.
b
Suppose that the government imposes a $1 tax on a good that currently sells for a price of $5. Also, assume that after the tax is imposed, the good sells for $5.60. Which statement best explains the effect this has on the tax burden?
a. The tax burden is being passed on to buyers.
b. The tax burden is being carried by sellers.
c. The tax burden is being shared between buyers and sellers.
d. The tax burden is precisely allocated between workers and employers.
c
What is the effect of a law requiring sellers to pay the government a tax on cigarettes?
a. It shifts the supply curve to the left.
b. It shifts the demand curve to the right.
c. It shifts the demand curve to the left.
d. It shifts the supply curve to the right.
a
Which statement best explains the situation where a tax burden falls more on consumers than on sellers?
a. The tax is paid at the point of sale.
b. The tax is hidden in the price of the good.
c. The demand curve is less elastic than the supply curve.
d. The supply curve is less elastic than the demand curve.
c
What is the likely effect of an effective price ceiling?
a. It results in a surplus of the product.
b. It results in a shortage of the product.
c. It clears the market.
d. It causes producers to supply more of the product.
b
What is the benefit of the minimum wage policy?
a. It increases employment.
b. It reduces prices.
c. It discourages teenagers from dropping out of school.
d. It raises the income of the working poor.
d
Parking permits at your university are $50 per semester, and students complain that they cannot find parking places in the university’s parking lot. Which statement best describes this situation in economic terms?
a. This is equilibrium in the market for university parking permits.
b. The market for university parking permits is below equilibrium.
c. The price of parking permits is above the equilibrium price.
d. The price of parking permits is below the equilibrium price.
d
Suppose the supply curve is elastic and the demand curve is inelastic. Who is likely to bear the greater part of a tax burden?
a. seller of the product
b. buyer of the product
c. government
d. employers
b
A tax is levied on buyers of goods. Which statement best describes the effects of the tax?
a. The demand curve shifts left.
b. The supply curve shifts left.
c. The demand curve remains stable.
d. The supply curve remains stable.
a
Which statement best describes tax burdens?
a. A tax burden falls most heavily on the side of the market that is more elastic.
b. A tax burden falls most heavily on the side of the market that is more inelastic.
c. A tax burden falls most heavily on the side of the market that is closer to unit elastic.
d. A tax burden is distributed independently of relative elasticities of supply and demand.
b
When the government imposes a binding price ceiling on a competitive market, a shortage of the good arises, and sellers must ration the scarce goods among the large number of potential buyers.
a. True
b. False
a
A surplus in the market would result when the quantity supplied is less than the quantity demanded.
a. True
b. False
b
A minimum wage set above the equilibrium wage will decrease the quantity of workers demanded and increase the quantity supplied, thus causing unemployment among teenagers.
a. True
b. False
a
Rent subsidies, unlike rent control, do not reduce the quantity of housing supplied and therefore do not lead to housing shortages.
a. True
b. False
a
A tax burden falls more heavily on consumers when demand is more elastic.
a. True
b. False
b
How does a tax on a good affect welfare?
a. It causes the market to expand production beyond the optimum quantity.
b. It causes sellers to produce more than they would in the absence of the tax.
c. It affects the behaviour of the buyers and the sellers.
d. It causes buyers to purchase more than they would in the absence of the tax.
c
What is a deadweight loss?
a. the transfer of resources from buyers to sellers
b. the decrease in total surplus that results from a tax
c. the increase in producer surplus that results from a tax
d. the increase in government revenue that results when a tax rate is increased beyond the optimum
b
What determines the distribution of the tax burden?
a. The equilibrium price level determines the distribution of the tax burden.
b. How the tax burden is distributed depends on how the tax is levied.
c. The position of the demand curve determines the distribution of the tax burden.
d. How the tax burden is distributed depends on the elasticities of supply and demand.
d
Suppose that the market for lumber is initially in equilibrium. Then government imposes a tax on lumber. What would we expect to happen?
a. The quantity of lumber traded after the tax will exceed the optimum quantity.
b. The welfare of participants in the lumber market will increase.
c. The quantity of lumber traded after the tax will be less than the optimum quantity.
d. The welfare of sellers in the lumber market will increase, and the welfare of buyers in the lumber market will decrease.
c
Why do taxes cause deadweight losses?
a. because taxes encourage mutually advantageous trades
b. because taxes prevent buyers and sellers from realizing gains from trade
c. because taxes prevent only buyers from realizing gains from trade
d. because taxes prevent only sellers from realizing gains from trade
b
What is the relationship between deadweight loss and the size of a tax?
a. As the size of a tax rises, the deadweight loss becomes smaller.
b. A small tax causes a large deadweight loss.
c. The deadweight loss is constant irrespective of the size of a tax.
d. The deadweight loss grows larger and larger as the size of a tax rises.
d
Which of the following explains the relationship between quantity supplied and the changes in the price?
a. If the supply curve is relatively elastic, quantity supplied does not respond to changes in the price.
b. If the supply curve is relatively inelastic, quantity supplied does not respond to changes in the price.
c. If the supply curve is relatively elastic, quantity supplied responds substantially to changes in the price.
d. If the supply curve is relatively inelastic, quantity supplied responds substantially to changes in the price.
c
Which of the following explains the government’s tax revenue?
a. the size of the tax times the amount of the good supplied
b. the size of the tax times the amount of the good sold
c. the size of the tax times the amount of the good produced
d. the size of the good times the deadweight loss
b
In order to control the amount its citizens smoke, the government imposes a tax on cigarettes. Which consequence will ensue?
a. The price of cigarettes will increase, and the amount purchased will remain the same.
b. The price of cigarettes will decrease.
c. The supply of cigarettes will decrease.
d. The total market for cigarettes will be unchanged.
c
How long should the government continue to increase expenditures on a program and increase the taxes to finance it?
a. until the marginal benefit of public funds is zero
b. until the marginal benefit and cost of public funds are equal
c. until the marginal cost of public funds is greater than the marginal benefit of public funds
d. until the marginal cost of public funds is smaller than the marginal benefit of public funds
b
When a tax is placed on a good, it places a wedge between the price that buyers pay and the price that sellers receive. The quantity of the good sold will rise.
a. True
b. False
b
When a tax is placed on the sale of a good, if the total decrease in consumer and producer surplus is greater than the tax revenue collected by the government, then there is no deadweight loss.
a. True
b. False
b
When a tax raises the price to buyers and lowers the price to sellers, buyers will tend to consume less, and producers will tend to produce less. Therefore, taxes distort incentives and cause markets to allocate resources inefficiently.
a. True
b. False
a
The more elastic the supply, the larger the deadweight loss of the tax.
a. True
b. False
a
The more inelastic the demand, the larger the deadweight loss of the tax.
a. True
b. False
b
When the government places a tax on a good, the benefit of that tax actually accrues to the government.
a. True
b. False
b
A tax has a deadweight loss because it induces buyers, but not sellers, to change their behaviour.
a. True
b. False
b
What is the area of a rectangle?
a. its height
b. its width
c. multiplication of its height and width
d. summation of its height and width
c
What determines the deadweight loss?
a. the price elasticity of demand only
b. the price elasticity of demand and the price elasticity of supply
c. the amount of government spending and the price elasticity of supply
d. the amount of government spending and the price elasticity of demand
b
The demand and supply functions for pens with a tax imposed on the buyers are given by:
QD = 92 – 4 (Ps + T)
QS = –168 + 12 (Ps)
Initially the tax is $1, the price from sellers’ point of view is $16, buyers pay a $1.00 tax per unit and the quantity traded at this tax level is Q = 24.
Then the government decides to raise the tax to $2.00 per unit, which is expected to cause a drop in the quantity sold.
What is the deadweight loss of the new $2 tax?
a. 0 b. 1 c. 2 d. 6
d
What was the impact of COVID-19 on international trade?
a. International trade increased because supply increased.
b. International trade increased because demand increased.
c. International trade decreased because demand decreased.
d. International trade decreased because supply decreased.
d
Which term refers to taxes imposed on goods and services produced abroad and sold domestically?
a. quotas
b. import restrictions
c. import limits
d. tariffs
d
Which statement is an argument in support of free trade?
a. Free trade makes a country better off but another one worse off.
b. Free trade can threaten national security.
c. Free trade can destroy domestic jobs.
d. Free trade creates jobs, many of which pay more than the jobs lost.
d
Assume a country produces cars. If the domestic price of cars is high, we can argue that:
a. foreign countries have a comparative advantage in producing cars.
b. relative to the rest of the world, the country has a comparative advantage in producing cars.
c. the country has an absolute advantage in producing cars.
d. the opportunity cost of producing cars is low.
a
For an importing country, which of the following statements is correct?
a. Domestic consumers of the good are worse off.
b. Domestic producers of the good are worse off.
c. Domestic producers of the good are not impacted by trade.
d. Domestic consumers of the good are not impacted by trade.
b
Which type of goods can a country benefit most from specializing in the production of?
a. those that have the highest price
b. those that use the most labour
c. those for which a country has an absolute advantage
d. those for which a country has a comparative advantage
d
What is a function of the World Trade Organization (WTO)?
a. lowering trade barriers among the United States, Canada, and Mexico
b. lowering trade barriers among European countries
c. reducing high tariffs imposed during World War I
d. administering trade agreements
d
What happens when government imposes a tariff on a good?
a. producer surplus increases
b. consumer surplus increases
c. total surplus rises
d. producer surplus decreases
a
Under free trade, which argument best refutes the unfair-competition argument?
a. The gains of the consumers from buying at the low price would exceed the losses of the producers.
b. The gains of the consumers must match the gains from the producers to be equitable.
c. The government would never enter into an agreement unless consumers benefited.
d. The government would never enter into an agreement unless producers benefited.
a
If Canada wants domestic auto producers to benefit at the expense of domestic consumers while simultaneously raising more money for the government, what would the government most likely do?
a. place a tariff on imported autos
b. place import quotas on Japanese autos
c. have the Japanese government place tariffs on Canadian-produced autos
d. negotiate with Japanese auto producers to voluntarily restrict their export of autos to Canada
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a
When does an import quota work like an import tariff?
a. when import licence fees are zero
b. when import licence fees are same as the total profit of the license holders
c. when import quotas increase the quantity of imports
d. when deadweight losses due to import quotas are zero
b
The domestic price of a product reflects the opportunity cost of that product. It tells us how much a domestic consumer in that country must give up in order to obtain one unit of the product.
a. True
b. False
a
If the domestic price of a product is below the world price, trade forces the domestic price to rise to the world price. Domestic producers are better off because they can now sell the product at a higher price. However, domestic consumers are worse off because they now have to pay a higher price for the product.
a. True
b. False
a
An import quota reduces the quantity of imports and moves a domestic market closer to the equilibrium that would exist without trade.
a. True
b. False
a
Trade lowers the economic well-being of a nation in the sense that the gains of the winners must exceed the losses of the losers.
a. True
b. False
b
Which statement best applies to the long run?
a. All costs can vary.
b. There are both fixed costs and variable costs.
c. There are only fixed costs.
d. Firms cannot respond to price signals.
a
Which of the following is an example of explicit costs?
a. payments made by the firm to others
b. payments made to labour only
c. opportunity cost of resources owned by the firm
d. same as accounting profit
a
Which of the following is an example of implicit costs?
a. payments made to labour only
b. payments made by the firm to others
c. opportunity cost of resources owned by the firm
d. same as accounting profit
c
What is the difference between economic profit and accounting profit?
a. Economic profit is the firm’s total revenue minus implicit costs of producing the goods and services sold, whereas accounting profit is the firm’s total revenue minus only the firm’s explicit costs.
b. Economic profit is the firm’s total revenue minus explicit costs of producing the goods and services sold, whereas accounting profit is the firm’s total revenue plus the firm’s explicit costs.
c. Economic profit is the firm’s total revenue minus all the opportunity costs of producing the goods and services sold, whereas accounting profit is the firm’s total revenue minus only the firm’s implicit costs.
d. Economic profit is the firm’s total revenue minus all the opportunity costs of producing the goods and services sold, whereas accounting profit is the firm’s total revenue minus only the firm’s explicit costs.
d
Which statement applies when marginal cost equals average total cost?
a. Average cost is rising.
b. Average cost is falling.
c. Average total cost is at its maximum.
d. Average total cost is at its minimum
d
What would be subtracted from a firm’s revenue to measure economic profit?
a. variable costs
b. fixed costs
c. explicit costs
d. opportunity costs
d
A firm has $300 million in revenues and explicit costs of $100 million. Its owners have invested $100 million in the company. This could have been invested at 10 percent per year. What is the firm’s economic profit?
a. $0 million
b. $190 million
c. $200 million
d. $300 million
b
Which of the following is an example of variable cost in the short run?
a. raw materials, energy costs, and hourly labour
b. a new factory extension
c. purchase of new durable equipment
d. launch of a new product line
a
Which statement best characterizes fixed costs?
a. They always increase with output.
b. They are costs that do not vary with output in the long run.
c. They are costs that do not vary with output.
d. They decline as output expands in the long run
c
Which of the following best describes the property of diminishing marginal product?
a. As the number of workers increases, total output rises.
b. The production function is perpetually upward sloping.
c. The relationship between total input and total output is negative.
d. As the number of workers increases, the production function becomes flatter.
d
What is marginal cost?
a. the cost the firm pays in the margin of its accounts
b. the change in total cost that comes from a change in output
c. total cost divided by output
d. the change in quantity of output that minimizes average variable cost
b
Which statement best explains economies of scale?
a. Average fixed cost declines in the short run.
b. Marginal product rises in the short run.
c. Marginal cost rises in the short run.
d. Average cost declines in the long run.
d
Because no money flows out of the business to pay for opportunity costs, they never show up on the financial statements. Which of these statements is corrects?
a. An economist’s analysis of the business will include all opportunity costs.
b. An accountant’s analysis of the business will include all opportunity costs.
c. The business must have only profits as there are no costs.
d. The business does not owe any taxes to the Canada Revenue Agency.
a
As production increases, how does a unit’s share of fixed costs change?
a. It continually rises as output increases.
b. It remains constant as output increases.
c. It continually decreases as output increases.
d. It becomes negligible once variable costs are covered.
c
What is average total cost?
a. the cost that comes from a change in input
b. the cost of an average input
c. total cost divided by the quantity of output
d. variable cost divided by the quantity of output
c
What are diseconomies of scale?
a. the property whereby long-run average total cost falls as the quantity of output increases
b. the property whereby long-run average total cost falls as the quantity of output remains constant
c. the property whereby long-run average total cost rises as the quantity of output increases
d. the property whereby long-run average total cost stays the same as the quantity of output changes
c
Marginal cost equals average total cost when average total cost is at a minimum.
a. True
b. False
a
Diminishing marginal product occurs when the average product of an input declines as the quantity of the input increases.
a. True
b. False
b
Marginal cost is the increase in total cost that arises from an extra unit of production.
a. True
b. False
a
Diseconomies of scale arise when the long-run average total cost is diminishing as the quantity of output increases.
a. True
b. False
b
Which statement best applies to a perfectly competitive firm with a positive economic profit?
a. It will continue in the long run with a few efficient firms.
b. It will shift the industry demand function rightward.
c. It will result in an increase in long-run equilibrium price.
d. It will attract new firms into the industry in the long run.
d
What is the short-run supply curve for a perfectly competitive firm?
a. the firm’s average-variable-cost curve
b. the portion of the firm’s average-total-cost curve that lies above the average-variable-cost curve
c. the portion of the firm’s marginal-cost curve that lies above the average-variable-cost curve
d. the firm’s marginal-revenue curve
c
What is a characteristic of a perfectly competitive market?
a. Marginal revenue exceeds average revenue.
b. Average revenue exceeds total revenue.
c. Marginal revenue equals average revenue.
d. Average revenue exceeds marginal revenue.
c
When a perfectly competitive firm produces another unit of output, what equals its marginal revenue?
a. price
b. marginal cost
c. average variable cost
d. average total cost
a
In the short run, what is the level of output a profit-maximizing price taker should choose?
a. ATC is minimized
b. P = MC, but only if P ≥ ATC
c. P = MC, but only if P ≥ AVC
d. P = MC, but only if P ≥ AFC
c
Which of the following is the condition for a perfectly competitive market?
a. There are many sellers.
b. There are many sellers and buyers, and the products produced in the market are similar.
c. There are many buyers.
d. There is a high entry barrier into the market with many buyers.
b
Suppose that the price that Firm XYZ can receive for its output is $15 per unit. The average variable cost of production is $12 per unit. The average total cost of production is $17. In the short run, what conclusion can be reached about this firm?
a. It is earning an economic profit.
b. It should shut down.
c. It is earning zero economic profits.
d. It should continue producing.
d
What is a sunk cost?
a. a fixed cost that recurs every period
b. a fixed cost below a variable cost
c. a cost that has already been committed and cannot be recovered
d. a cost that has been recovered after a firm’s start-up price has been met
c
Mr. Smith’s apple farm operates in a competitive market. If Mr. Smith reduces production by 15 percent, which consequence should ensue?
a. no change in his prices
b. a reduction in demand for his apples and a reduction in his prices of 15 percent
c. an increase in demand for his apples and an increase in his prices of 15 percent
d. a decrease in his supply costs of 15 percent
a
The demand curve for a purely competitive industry is perfectly elastic, but the demand curve faced by the individual firm in a competitive market is downward sloping.
a. True
b. False
b
What is the practice of selling the same goods to different customers at different prices but with the same marginal cost known as?
a. price selection
b. price discrimination
c. arbitrage
d. monopoly pricing
b
At what level of output would a monopolist produce to maximize profit?
a. producing the output for which price is less than marginal cost
b. producing the output for which average total cost is minimized
c. producing the output for which price equals marginal cost
d. producing the output for which marginal revenue equals marginal cost
d
Which statement best describes a monopoly?
a. A single firm supplies the industry’s entire output.
b. Numerous firms supply the industry’s entire output.
c. The demand for the firm’s output is perfectly elastic.
d. The firm is the only buyer of a specific input.
a
What is the monopoly’s profit?
a. Profit = TC – TR
b. Profit = (TC/Q – TR/Q) × Q
c. Profit = (P – ATC) / Q
d. Profit = (P – ATC) × Q
d
What is the simplest way for a monopoly to arise?
a. own a key resource
b. reduce production to increase demand for its product
c. make pricing agreements with other firms
d. reduce its prices without consulting other firms
a
What is the primary reason for a government-created monopoly?
a. The critical resource is owned by a single company.
b. The government gives a firm the exclusive right to sell some good or service.
c. The government exercises its market control by encouraging competition among sellers.
d. Government spending in a certain industry gives rise to monopoly power.
b
Which statement is the most accurate for a natural monopoly?
a. A single firm can supply a good or service to an entire market at a smaller cost than two or more firms could.
b. Total revenue will always increase when it increases the price of its product.
c. A key resource is owned by a single firm.
d. Governments may issue exclusive rights of production to a specific firm.
a
How does the marginal-revenue curve for a monopoly appear?
a. It lies below its demand curve.
b. It is upward sloping.
c. It is greater than the average-revenue curve.
d. It can never be negative
a
Which of the following is NOT an example of price discrimination?
a. discount coupons that distinguish consumers’ willingness to pay
b. airline prices that separate business travellers and leisure travellers
c. financial aid to students
d. a movie theatre that charges the same price for all customers
d
When firms are competitive, they exhibit downward-sloping demand curves; however, as monopoly is the sole producer in its market, it exhibits a horizontal market-demand curve.
a. True
b. False
b
What are the characteristics of an oligopoly?
a. a market with many sellers, each offering a product that is similar or identical to the products offered by other sellers in the market
b. a market with a few sellers, each offering a product that is similar or identical to the products offered by other sellers in the market
c. a market with many sellers, each offering a product that is different from the products offered by other sellers in the market
d. a market with a few sellers, each offering a product that is different from the products offered by other sellers in the market
b
Which of the following is NOT an attribute of monopolistic competition?
a. one buyer
b. free entry and exit
c. many sellers
d. product differentiation
a
Which condition is required for a monopolistically competitive firm to be in its long-run equilibrium?
a. P = MC
b. P = MR
c. MR = MC
d. P = AVC
c
What is a characteristic of a monopolistically competitive industry?
a. product differentiation
b. a high barrier to entry and exit
c. a single seller with no competition
d. inelastic demand curve
a
What is product differentiation?
a. product price differences between sellers
b. differences in location, customer service, packaging, and style
c. a negative characteristic of monopolistic competition
d. a decrease in the elasticity of demand in the industry demand curve
b
Which of the following statements is NOT correct?
a. Firms are said to have excess capacity under monopolistic competition.
b. For a monopolistically competitive firm, price exceeds marginal cost because the firm always has some market power.
c. In the long-run equilibrium, monopolistically competitive firms operate on the declining portion of their average-total-cost curves.
d. In the long run, monopolistically competitive firms produce at the efficient scale.
d
What is a characteristic of monopolistic competition?
a. homogeneous output throughout the industry
b. a large number of sellers in the industry
c. the inability of firms to influence the price of output
d. high barriers to entry
b
What do monopolistic competition and monopoly have in common?
a. barriers to entry
b. product demand curves that are upward sloping
c. differentiated products among the industry’s producers
d. product demand curves that are downward sloping
d
Which statement best describes a monopolistically competitive firm?
a. In the short run, a monopolistically competitive firm can earn an economic profit.
b. In the long run, a monopolistically competitive firm can earn an economic profit.
c. In the short run, a monopolistically competitive firm will shut down if price is greater than average variable cost.
d. A monopolistically competitive firm produces at the point where marginal revenue equals average total cost.
a
At the present level of production, a monopolistically competitive firm observes that P = $100, MR = $50, MC = $50, and ATC = $75. On the basis of these figures, what can we conclude?
a. The firm is maximizing its profit.
b. The firm should shut down.
c. The firm should continue to produce but should reduce its rate of output.
d. The firm should expand production.
a
Which of the following is a criticism of advertising?
a. Firms advertise to manipulate consumers’ taste.
b. Advertising only provides information.
c. Firms advertise to create awareness among consumers.
d. Advertising creates additional competition.
a
In a monopolistically competitive market, which outcome does the free entry of firms ensure?
a. Both economic profits and losses evaporate over the long term.
b. The market will always operate at full capacity.
c. Firms will never make economic or accounting profits.
d. Firms will shut down once too many new firms enter the market.
a
What are examples of markets with many firms?
a. perfect competition and monopolistic competition
b. monopolistic competition and oligopoly
c. perfect competition and oligopoly
d. monopoly
a
Monopolistically competitive firms maximize profits by equating price and marginal revenue.
a. True
b. False
b
Monopolistically competitive firms produce efficiently because they realize zero economic profits in the short run.
a. True
b. False
b
What is a duopoly?
a. a form of perfect competition
b. a form of monopoly
c. a form of monopolistic competition
d. a form of oligopoly
d
What is the intention of collusion?
a. to increase the market share of all firms in an industry
b. to punish consumers
c. to reduce the number of sellers in the cartel
d. to boost the profits of firms in an industry
d
Which statement best describes collusive arrangements?
a. There is an opportunity for firms to make economic profits.
b. The larger the number of firms in an industry, the easier it is to maintain collusion.
c. There is no tendency to cheat on agreements.
d. It is always easy to detect in the business sector.
a
What is characteristic of the Nash equilibrium?
a. oligopolists cooperate with one another
b. economic actors who are interacting choose their best strategy given the strategies chosen by others
c. efficient allocation of resources is achieved by setting marginal revenue equal to marginal cost
d. a monopolist is forced to produce the efficient level of output
b
What is a distinguishing characteristic of market structure?
a. unionization
b. female percentage of the workforce
c. level of executive compensation
d. number of firms
d
What would be a major threat to a cartel?
a. increases in input prices
b. members cheat on their agreements by increasing production
c. kinked demand curves
d. cost reductions
b
In which case will an oligopolist NOT raise production?
a. when the output effect and the price effect are equal
b. when the price effect is smaller than the output effect
c. when the output effect is smaller than the price effect
d. when both the price effect and output effect are zero
c
Which of the following statement is correct about an oligopolistic market?
a. As the number of sellers in an oligopoly grows smaller, an oligopolistic market looks more and more like a competitive market and the price approaches marginal cost.
b. As the number of sellers in an oligopoly grows larger, an oligopolistic market looks more and more like a competitive market and the price approaches marginal cost.
c. As the number of sellers in an oligopoly grows smaller, an oligopolistic market looks more and more like a competitive market and the price approaches total cost.
d. As the number of sellers in an oligopoly grows larger, an oligopolistic market looks more and more like a competitive market and the price approaches total cost.
b
In the prisoner’s dilemma game, neither Bonnie nor Clyde has any information about the other’s decision. What is the best possible outcome for Clyde?
a. Both confess.
b. Neither confesses.
c. Clyde remains silent, and Bonnie confesses.
d. Clyde confesses, and Bonnie remains silent.
d
In the prisoners’ dilemma game, neither Bonnie nor Clyde has any information about the other’s decision. What is the Nash equilibrium outcome?
a. Both confess.
b. Neither confesses.
c. Clyde remains silent, and Bonnie confesses.
d. Clyde confesses, and Bonnie remains silent.
a
In the prisoners’ dilemma game, neither Bonnie nor Clyde has any information about the other’s decision. What is Clyde’s dominant strategy?
a. to confess when Bonnie confesses
b. not to confess
c. to remain silent when Bonnie confesses
d. to confess irrespective of what Bonnie does
d
If the Organization of the Petroleum Exporting Countries (OPEC) is to be successful, what should each member state do?
a. efficiently produce the most possible while minimizing costs
b. agree on the set price, but be free to produce any amount
c. agree on both the price and the amount to produce individually
d. agree on the amount to produce but not on the price
c
The shaving industry has a multitude of products, including razors and blades. Which market best illustrates this industry?
a. perfectly competitive market
b. monopoly
c. monopolistically competitive market
d. oligopoly
d
As the number of sellers in an oligopoly grows larger, an oligopolistic market looks more and more like a competitive market. The price approaches marginal cost, and the quantity produced approaches the socially efficient level of output.
a. True
b. False
a
The prisoners’ dilemma is a particular “game” between two captured prisoners that illustrates why cooperation is difficult to maintain, even when it is mutually beneficial.
a. True
b. False
a
Oligopolies have no trouble maintaining monopoly profits because there is no evidence of self-interest in this type of market structure.
a. True
b. False
b
Predatory pricing occurs when firms with market power use that power to raise prices above the competitive level.
a. True
b. False
b
The cartel model of oligopoly assumes that oligopolies act as if they were monopolists that have assigned output quotas to individual member firms of the oligopoly so that total output is consistent with joint-profit maximization.
a. True
b. False
a
In an oligopoly, the actions of any one seller in the market do not have a significant impact on the profits of all the other sellers.
a. True
b. False
b
As members of a cartel, individual firms must consider two basic effects of price and output levels before making any decisions.
a. True
b. False
a
