Final

Question 1

Which of the following is not a solution to problems caused by asymmetric information?

Answer 1

Innovation on quality

Question 2

When the bad drives out the good in the face of asymmetric information, it is known as the?

Answer 2

Market for lemons

Question 3

Market failure describes a situation in which the market itself _________ in a way that balances social costs and benefits.

Answer 3

fails to allocate resources efficiently

Question 4

In the ____________, households work and receive payment from firms.

Answer 4

labor market

Question 5

What makes it extremely difficult for cartels to function effectively without government assistance?

Answer 5

High prices encourage cartel members to offer discounts, and they attract new entrants to the industry.

Question 6

When quantity demanded decreases in response to a change in price:

Answer 6

there is a movement up along the demand curve.

Question 7

Idaho farmers can sell as large a quantity of their potato crop as they wish,

Answer 7

provided each is willing to accept the prevailing market price.

Question 8

The demand curve for a typical good has a(n):

Answer 8

negative slope because some consumers switch to other goods as the price rises

Question 9

It is said that in a perfectly competitive market, raising the price of a firm’s product from the prevailing market price of $179.00 to $199.00,___________

Answer 9

could likely result in a notable loss of sales to competitors

Question 10

A geologist tells the ACME Mining Company she’s certain there is a gold vein one thousand feet below the surface of its property, but ACME still decides not to mine for that gold. How would an economist explain their decision?

Answer 10

The owners of ACME feel the additional costs of mining for gold outweigh the additional benefits.

Question 11

Suppose the government establishes a price support for soybeans. The new government program will tend to

Answer 11

increase a farmer’s opportunity cost of producing other commodities (such as corn), which could be grown on the same land used to grow soybeans.

Question 12

For a perfectly competitive firm, the marginal

cost curve is identical to the firm’s

Answer 12

supply curve

Question 13

____________ describes a situation where a third party, outside the transaction, suffers from a market transaction by others.

Answer 13

Negative externality

Question 14

In the circular flow diagram model:

Answer 14

Both (a) and (b) are correct.

Question 15

If a city suddenly and unexpectedly abolishes all property taxes on residential property, which consequence is most likely to be observed first?

Answer 15

Higher sale prices for residential property

Question 16

Marginal thinking is best demonstrated by:

Answer 16

choosing to spend one more hour studying economics because you think the improvement in your score on the next quiz will be worth the sacrifice of time

Question 17

A price searcher can move its marginal revenue curve closer to its demand curve if it can

Answer 17

charge different buyers different prices for the same good.

Question 18

Which of the following is viewed as a fundamental building block of the U.S. economic way of thinking?

Answer 18

the principle that a system of voluntary exchange benefits both parties

Question 19

Gomer can make either 200 gallons of corn liquor (L) or 200 gallons of strawberry wine (W) every six months. Goober can make only 100 gallons of corn liquor (L) or 50 gallons of strawberry wine (W) every six months. Which statement below is true?

Answer 19

It costs Gomer 1 L to make 1 W.

Question 20

If a firm’s efforts to be technologically innovative will create a positive externality, then that firm will likely ______________

Answer 20

have less incentive to innovate to the extent that the whole of society desires.

Question 21

If no externalities of pollution exist in a particular industry, the interaction of demand and supply ______________.

Answer 21

will coordinate social costs and benefits

Question 22

A business __________occurs when, for practical purposes, one firm purchases another.

Answer 22

acquisition

Question 23

Which of the following would be classified as a positive externality?

Answer 23

converting a derelict empty lot to a public vegetable garden

Question 24

Cathy can take either of two separate roads to drive to work. The first is a lightly used new toll road that is rarely congested. The second road is a local road with no tolls, but it is often congested and has many potholes. In this instance, the toll road is

Answer 24

rivalrous and nonexcludable

Question 25

Strong form market efficiency suggests ____________

Answer 25

The market capitalizes on all private, public, and past market information

Question 26

A substantial increase in the legal minimum wage will tend to

Answer 26

reduce employment by raising the cost of hiring some employees above their expected worth to potential employers.

Question 27

If a government chooses a system of marketable permits as its environmental managing tool, the reduction in pollution will

Answer 27

take place in the firms where it is least expensive to do so.

Question 28

Economists refer to the relationship that a higher price leads to a lower quantity demanded as the

Answer 28

law of demand

Question 29

Suppose the market clearing price for apples rises from $2.00 to $3.00 per pound, and the overall market clearing output increases from 1 million to 2 million pounds. How can we explain the increase in price and increase in market output?

Answer 29

Demand increased and supply remained unchanged

Question 30

Marginal revenue is less than price for price searchers

Answer 30

when they cannot charge all customers the maximum they are willing to pay for each unit purchased.

Question 31

Why do U.S. economists commonly refer to externalities as an example of market failure?

Answer 31

externalities present a case where markets only consider some social costs

Question 32

“If I didn’t have class tonight, I would save the $4 campus parking fee and spend four hours at work where I earn $10 per hour.” The opportunity cost of attending class this evening is:

Answer 32

$44

Question 33

If no beautification projects were undertaken in a city except by private individuals or firms, the city would almost surely be less beautiful than otherwise comparable cities because

Answer 33

it is extremely difficult to induce people to pay on a voluntary basis for the pleasure they receive from urban beautification projects.

Question 34

Which of the following is most likely to be a monopoly?

Answer 34

local electricity distributor

Question 35

As depicted in _____________, it is necessary to give up some of one good to gain more of the other good.

Answer 35

the production possibilities frontier

Question 36

Lisa decided to give up being on the soccer team for piano lessons. Her opportunity cost of pursuing piano lessons is

Answer 36

the satisfaction Lisa had enjoyed by being on the soccer team

Question 37

Which of the following will present the least amount of concern to a firm that has a monopoly over a particular industry?

Answer 37

the competitive actions of other business firms

Question 38

Rent controls unintentionally create

Answer 38

shortages of rental units

Question 39

If you buy more Folgers coffee when your income goes down, then Folgers is a

Answer 39

inferior good

Question 40

Scarcity can be eliminated by

Answer 40

none of the above

Question 41

If political unrest abroad substantially reduces the supply of copper to the United States, the price of copper will rise by a larger amount

Answer 41

the more inelastic the demand for copper.

Question 42

If a steel manufacturer considers the costs of labor and materials, as well as the broader costs of environmental injuries resulting from its manufacturing processes,

Answer 42

it is factoring in the social costs of the pollution it generates

Question 43

“Lady Gaga concert sells out. 60,000 tickets sold.” What can an economist conclude from the above headline?

Answer 43

Both C and D above
(The quantity supplied is 60,000.
The quantity demanded is at least 60,000.)

Question 44

According to the economic way of thinking, it is efficient to support a system of law and order through taxation because

Answer 44

law and order create significant spillover benefits.

Question 45

Movie theaters usually set lower prices for children than for adults because

Answer 45

they think the price elasticity of demand for movie tickets is quite elastic for children at the regular or adult price

Question 46

If new manufacturers enter the computer industry, then (ceteris paribus):

Answer 46

the supply curve shifts to the right