Final Flashcards
What is an absolute advantage?
the ability to produce a good using fewer inputs than another producer
What is a comparative advantage?
the ability to produce a good at a lower opportunity cost than another producer
What is the poverty rate?
the percentage of the population whose family income falls below an absolute level called the poverty line
What is the poverty line?
an absolute level of income set by the federal government for each family size below which a family is deemed to be in poverty
What are in-kind transfers?
transfers to the poor given in the form of goods and services rather than cash
What is the conclusion of an exporting country?
- domestic producers of the good are better off
- domestic consumers of the good are worse off
What is the conclusion of an importing country?
- domestic producers of the good are worse off
- domestic consumers of the good are better off
What is a Tariff?
a tax on goods produced abroad and sold domestically
What does a tariff do?
reduces the quantity of imports and moves the domestic market closer to its equilibrium without trade
What are some other benefits of international trade?
- increased variety of goods
- lower costs through economies of scale
- increased competition
- enhanced flow of ideas
What are two features that all three market structures share?
1) Rule for maximizing (MR = MC)
2) Can earn economic profits in the short run
Is a Perfect Competition market a price taker?
Yes
Is a Monopolistic Competition market a price taker?
No
Is a monopoly market a price taker?
No
What is the price in a perfect competition market?
P = MC
What is the price in a monopolistic competition market?
P > MC
What is the price in a monopoly market?
P > MC
Does a perfectly competitive market produce welfare maximizing level of output?
yes
Does a monopolistic competitive market produce welfare maximizing level of output?
no
Does a monopoly market produce welfare maximizing level of output?
no
Can you earn economic profits in the long run in an perfectly competitive market?
no
Can you earn economic profits in the long run in an monopolistic competitive market?
no
Can you earn economic profits in the long run in an monopoly market?
yes
Income inequality in an economy is traditionally measured by
Calculating the percentage of families that fall into broad income classifications
If income were equally distributed among households,
50% of the households would receive 50% of the income
US income data over the last 60 years suggests that the distribution of income:
Gradually became more equal until about 1970, and then it reversed itself
In the US, the poverty rate is a measure of the percentage of people whose income falls below:
An identified income standard
Assume that there are only two goods and two countries and only one input, labor. The output produced by one unit of labor was twenty flags or 120 TVs in the U.S., while the output produced by one unit of labor in Thailand was 10 flags or 40 TVs. On the basis of this information, which of the following is true?
- Thailand has a comparative advantage in flags
- US has an absolute advantage in flags
The term opportunity cost refers to the:
a) market price of a good
b) market price net of any subsidies
c) best foregone alternative
d) average cost including the normal return to invested capital
e) marginal private plus marginal external costs
c) best foregone alternative
Workers specialize in jobs where they have
comparative advantage
A group of firms that has entered into a collusive agreement to restrict output and increase prices and profits is called a:
a) cartel
b) duopoly
c) complier
d) oligopoly
e) dominant strategy
a) cartel
The following is true of a monopolistic competition industry but NOT of a perfectly competitive industry:
a. ) freedom of entry of exit
b. ) each firm produces a differentiated product
c. ) each firm produces the same product
d. ) a large number of firms compete
e. ) each firm is a price taker
b) each firm produces a differentiated product
- The following is true of a monopolistic competition industry but NOT of a monopoly:
a. ) freedom of entry of exit
b. ) downward sloping demand line
c. ) a large number of firms compete
d. ) both a and c are true
e. ) a, b, and c are true
d) both a and c are true
Wheat Baskets
United States 50 20
Chile 30 20
- Which of the following statements is true?
a. ) Chile has an absolute advantage in producing wheat
b. ) United States has an absolute advantage in producing baskets
c. ) Chile has a comparative advantage in producing wheat
d. ) United States has a comparative advantage in producing wheat
e. ) None of the above
d) United States has a comparative advantage in producing wheat
What is true of an oligopoly?
a. ) a small number of producers compete
b. ) in some markets one firm dominates the others
c. ) In some markets, firm are tempted to collude and fix prices
d. ) The quantity sold by anyone producer does depend on that producer’s price and the other producer’s price.
e. ) All of the above are true
e) all of the above are true
What the value of the marginal product of labor (VMP) equal to?
(marginal product of labor)(price)
- What is true of a firm in monopolistic competition in the long run?
a. ) produce zero economic profits
b. ) produce at the minimum long run average cost
c. ) produce at a level of output that results in excess capacity
d. ) produce at a level of output that results in excess demand
e. ) both a and c are correct
e) both a and c are correct
Explain the gini coefficient.
- 0-1
- closer to one means all income goes to one person
- Choose the correct statement
a. ) The distribution of income in the U.S. became more equal since 1980
b. ) The percentage of income earned by the highest fifth decreased steadily since 1980
c. ) The percentage of income earned by the lowest fifth decreased sharply since 1980
d. ) The percentage of income earned by the highest fifth increased sharply since 1980
e. ) None of the above
d) The percentage of income earned by the highest fifth increased sharply since 1980
The U.S. law that prohibits price mergers that substantially reduces competition:
a. ) Sherman Act -Section 1
b. ) Sherman Act -Section 2
c. ) Clayton Act
d. ) Wagner Act
e. ) None of the above
c) Clayton Act
Which of the following would NOT be considered price discrimination?
a. ) a firm charging the same price to a child and an adult
b. ) airlines making discounted prices to leisure travelers
c. ) movie theaters offering a student discount on tickets
d. ) dumping
e. ) none of the above
a) a firm charging the same price to a child and an adult
Which of the following is true about labor unions?
a. ) Membership has recently been increasing
b. ) The Taft-Hartley Act of 1947 strengthened the power of unions
c. ) The Wagner Act guaranteed the right for formation of unions
d. ) They are currently allowed the right to hold a closed shop
e. ) all of the above
c) The Wagner Act guaranteed the right for formation of unions
If the U.S. imposes a tariff what would be the most likely results?
a. ) an increase in the volume of imports
b. ) an increase in U.S. consumer’s surplus compared to free trade
c. ) a decrease in U.S. consumer’s surplus compared to free trade
d. ) an additional loss must be endured by the government
e. ) none of the above
c) a decrease in US consumer’s surplus compared to free trade
Game theory is most applicable to markets with
a. ) few firms
b. ) many firms
c. ) cartels
d. ) one firm
e. ) all of the above
a) few firms
What area is producers surplus?
area under the price along the supply curve
What is the good if the world price is lower than the equilibrium price?
an import
What is the good if the world price is higher than the equilibrium price?
an export
The official poverty level for a family of four in the U.S.:
a. ) was roughly $5,000 in 2009
b. ) was roughly $10,000 in 2009
c. ) was above $ 20,000 in 2009
d. ) has not changed since the 1960’s.
e. ) is lower than in developing countries
c) was above $20,000 in 2009
The cross-price elasticity of demand between Toyota cars and an unknown good “X” is 0.5. This unknown “X” could be:
a) Ford cars
b) income
c) workers
d) gasoline
e) none of the above
d) gasoline
Economic profit:
will never exceed accounting profit
When the law of diminishing marginal product is operating then
a) additional units of output become less costly as more output is produced
b) marginal cost increases as more output is produced
c) the firm must be at full capacity, it cannot produce any more
d) the total product of the firm must be declining as more output is produced
e) the firm is experiencing dis-economies of scale
b) marginal cost increases as more output is produced
How is average variable cost (AVC) calculated?
AVC = total variable cost / quantity of input
In the short run for economic analysis
at least one input is fixed
The long run average cost curve of the company producing MSU flags decreases as more flags are produced. This reflects:
a) the law of diminishing marginal productivity
b) the spreading of its fixed costs
c) diseconomies of scale
d) economies of scale
e) problems with management and organization
d) economies of scale
In the long run, the primary reason that the long run average cost curve might rise with increases in output is:
a) problems of managing and organizing a large org
b) specialization and division of labor
c) the law of diminishing marginal productivity
d) very large fixed costs relative to variable costs
e) none of the above
a) problems of managing and organizing a large org
The supply curve of a firm in perfect competition is its:
a) average total cost curve
b) average variable cost curve
c) average fixed cost curve
d) marginal cost curve
e) marginal cost curve equal to or above its average variable cost curve
e) marginal cost curve equal to or above its average variable cost curve
If a perfect competitive firm’s marginal revenue exceeds its marginal cost, the firm:
a) can increase its economic profit (or minimize losses) by increasing output
b) should increase its price so as to increase revenue and profits
c) cannot affect its economic profit by changing output
d) should not change its output level
a) can increase its economic profit (or minimize losses) by increasing output
In a perfectly competitive firm, where the total profits be maximized at?
where the price is equal to marginal cost
