Final

Question 1

Increase in excise tax…

Answer 1

Initial tax rate very high

Decrease in tax revenue

Question 2

Similarities between perfectly competitive industries and monopolistically competitive industries

Answer 2

Economic profits are zero

Many producers

Free entry and exit

Question 3

Properties of PPF curve

Answer 3

Straight line, downward sloping

Question 4

Individuals can internalize externalities…

Answer 4

Among themselves if transaction cost is low

Question 5

A monopolistically competitive firm produces…

Answer 5

Differentiated products

Question 6

Demand for good is income elastic if..

Answer 6

The income elasticity of demand for that good is greater than one

Question 7

Nash equilibrium

Answer 7

An outcome that is the best decision for both parties

No player benefits by switching their strategy

Question 8

Dominant strategy

Answer 8

Player will always play a strategy regardless of opponent’s move

Sometimes there isn’t one in game theory

Question 9

Monopolistic competition

Answer 9

Many producers and consumers

Few barriers to entry and exit

Producers have some degree of control

Differentiated goods

Long run profits are zero

Question 10

Pigouvian tax

Answer 10

Designed to reduce external costs

Question 11

Compared with a perfectly competitive industry, a monopolist…

Answer 11

Charges a higher price

Question 12

When a good is subject to a network externality

Answer 12

It exhibits positive feedback and if large numbers of people buy it, other people become more likely to buy it too

Question 13

Second hand smoke is a negative externality because…

Answer 13

Imposes external costs on family members

Negatively affects unborn children’s health when pregnant women smoke

Question 14

In oligopolistic industries

Answer 14

How competitive the industry is can be measured by the Herfindhal-Hirshmann index

Question 15

Sources of comparative advantage

Answer 15

Differences in climate, technology and factor endowment

Question 16

Strategy of tit for tat

Answer 16

Involved playing cooperatively at first, then following the other player’s moves

Rewards good behavior and punished bad behavior

Can lead to successful tacit collusion if all firms choose this same strategy

Question 17

Demand is unit elastic if

Answer 17

Changed in price have no effect on total revenue

Question 18

Long run average total cost curve

Answer 18

Is the average total cost when fixed cost had been chosen to minimize average total cost for each level of output

Question 19

US trends of income inequality

Answer 19

Rising inequality over past 30 years

Stable inequality for about 35 years after WW2

Falling inequality during the 1930s and 40s

Question 20

Disparity of US healthcare spending

Answer 20

Suffers from serious inefficiencies

Private insurance companies expend resources in marketing and try to identify high risk patients

Question 21

Major US non means-tested welfare state programs

Answer 21

Social security and Medicare

Question 22

Deadweight loss created by tax is smaller if

Answer 22

The demand curve is more inelastic

Question 23

Gini coefficient

Answer 23

Summarizes a country’s level if income inequality based on how unequally income is distributed across quintiles

Question 24

Coase theorem

Answer 24

Even in the prescience of externalities an economy can always reach an efficient solution as long as transaction costs are sufficiently low

Question 25

Externalities

Answer 25

Positive- Benefits

Negative- Costs

Question 26

Oligopoly

Answer 26

Industry with few sellers

Question 27

Duopoly

Answer 27

Industry with two sellers