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ECON 2113: FINAL
A perfectly competitive firm produces 3,000 units of a good at a total cost of $35,000. The fixed cost of production is $20,000. The price of each good is $10. Should the firm continue to produce in the short run?
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Yes, it should continue to produce because it is minimizing it's loss
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In the real world we don't observe countries completely specializing in the production of goods for which they have a comparative advantage. All of the following are reasons for this except
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some countries have more lands than other countries
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Which of the following is a reason why a firm would experience diseconomies of scale?
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As the size of the firm increases it becomes more difficult to coordinate the operations of its manufacturing plants/
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What is the variable cost of production when the firm produces 115 lanterns? (Refer to test 3 table 11-3
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1,157
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What is the marginal cost per unit of production when the firm produces 100 lanterns? (Refer to test 3 table 11-3)
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$32
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What is the average total cost of production when the firm produces 100 lanterns? (Refer to test 3 table 11-3)
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$14
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Trade that is within a country or between countries is based on the principle of
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comparative advantage
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A perfectly competitive firm has to charge the same price as every other firm in the market. Therefore, the firm
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is a price taker
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The curve labeled "E" is (Refer to test 3 figure 11-2)
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the marginal product curve
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Which of the following statements best describes the economic short run?
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It is a period during which at least one of the firm's inputs is fixed.
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What is Margie's total revenue if she sells 250 pounds of apples? (Refer to test 3 table 12-1)
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$750
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Which of the following describes the difference between the market demand curve for a perfectly competitive industry and the demand curve for a firm in the industry?
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The market demand curve is downward-sloping; the firm's demand curve is a horizontal line.
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How many pounds of apples should Margie sell to maximize her profit? (Refer to Test 3 Table 12-1)
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This cannot be determined without knowing Margie's total or marginal production costs.
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If a firm in a perfectly competitive industry experiences persistent losses, in the long run it should
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... |
The law of diminishing marginal returns states
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that at some point, adding more of a variable input to a given amount of a fixed input will cause the marginal product of the variable input to decline
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Assume that a perfectly competitive market is in long-run equilibrium. Suppose as a result of a health hazard associated with the industry's product, demand decreases drastically. What is the immediate result of this event?
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... |
Diminishing marginal returns sets in when the _______ worker is hired (Refer to Test 3 Table 11-1)
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3rd |
__________ is the ability to produce more of a good or service than competitors when using the same amount of resources.
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Absolute Advantage
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Domestic producers require time to gain experience and lower their unit costs; this will allow these producers to compete successfully in international markets.
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... |
Suppose the government allows imports of leather footwear into the United States. What happens to the market price and what is the quantity of imports? (Refer to Test 3 figure 9-1)
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The price equals $24 and imports equals Q2-Q0 units
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Under autarky, the equilibrium price is______, the consumer surplus is_______ and the producer surplus is _________. (Refer to Test 3 Figure 9-1)
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$30; consumer surplus = area R; producer surplus = area S+V
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Which of the following is common to both tariffs and quotas?
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Tariffs and quotas are both designed to reduce foreign competition faced by domestic firms.
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Once and industry becomes established in a certain area firms that locate in that area gain advantages over firms located elsewhere, leading to lower costs of production. Economists refer to the lower costs that result from increases in the size of an industry in certain area as
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external economies
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Dumping refers to
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selling a product for a price below its cost of production
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Identify the curves in the diagram. (Refer to Test 3 figure 11-4)
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E= marginal cost curve; F= average total cost curve; G= average variable cost curve; H= average fixed cost curve
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A quota is
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a limit placed on the quantity of goods that can be imported into a country
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When a firm produces more output using the same inputs or the same output using fewer inputs we say that the firm
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experiences positive technological change
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A perfectly competitive apple farm produces 1,000 bushels of apples at a total cost of $36,000. The price of each bushel is $50. Calculate the firm's short-run profit or loss
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profit of $14,000
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Which of the following costs will not change as output changes?
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total fixed cost
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Golda Rush quit her job as a manager for Home Depot to start her own hair dressing salon,
Goldilocks. She gave up a salary of $40,000 per year, invested her savings of $30,000 (which was
earning 5 percent interest) and borrowed $10,000 from a close friend, agreeing to pay 5 percent
interest per year. In her first year, Golda spent $18,000 to rent a salon, hired a part-time assistant
for $12,000 and incurred another $15,000 on equipment and hairdressing material. Based on the information, what is the amount of her explicit costs?
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$45,500
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At the minimum efficient scale,
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the firm has achieved the lowest possible average cost of production
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An outward shift of a nation's production possibilities frontier can occur due to
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an increase in the labor force
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Allocative efficiency is achieved when
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firms produce the goods and services that consumers value most
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The income effect of a price change results in a
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movement along the demand curve due to a change in purchasing power brought about by the price change
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Which of the following is a positive economic statement?
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If the price of gasoline rises, a smaller quantity of it will be bought
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Individuals who have never been the best at doing anything
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can still have a comparative advantage in producing some product
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The production possibilities frontier shows
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the maximum attainable combinations of two products that may be produced in a particular time period with available resources
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Using marginal analysis terminology what is another economic term for the incremental revenue received from the sale of the last 3,000 cell phones
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Marginal revenue
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Had the firm not produced and sold the last 3,000 cell phones, would its profit be higher or lower, and if so by how much?
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Its profit will be $700
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Which of the following is a normative economic statement?
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Fashion designers should be allowed to copyright designs to promote innovation
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If an increase in income leads to in an increase in the demand for peanut butter, then the peanut butter is
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a normal good
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The branch of economics which studies how households and firms make choices, interact in markets and how government attempts to influence their choices is called
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microeconomics
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Table 2-2 shows the output per day of two gardeners, George and Jack. They can either devote their time to mowing lawns or cultivating gardens
Lawns mowed: George 10 Jack 6
Gardens cultivated: George 5 Jack 4
Which of the following statements is true?
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George has an absolute advantage in both tasks
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Refer to 2-2
Which of the following statements is true?
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Jack has a comparative advantage in garden cultivating and George in lawn mowing.
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What is Jack's opportunity cost of mowing lawns?
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two halves of a garden cultivated
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If the production possibilities frontier is linear, then
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opportunity costs are constant as more of one good is produced
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What is the difference between an "increase in demand" and an "increase in quantity demanded?"
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an "increase in demand" is represented by a rightward shift of the demand curve while an "increase in quantity demanded" is represented by a movement along a given demand curve.
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Which of the following is evidence of a surplus of bananas?
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The price of bananas is lowered in order to increase sales.
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At a price of $25, how many units will be sold? (Refer to test 1 figure 3-2)
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500
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If the price is $25 (Refer to test 1 figure 3-2)
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There would be a surplus of 300 units
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If the current market price is $25, the market will achieve equilibrium by (Refer to test 1 figure 3-2)
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a price decrease, decreasing the quantity supplied and increasing the quantity demanded
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The supply curve for watches
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Shows the relationship between the price of watches and the quantity of watches supplied
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Auctions in recent years have resulted in higher prices paid for letters written by John Wilkes Booth than those written by Abraham Lincoln. What is a reason for this difference in price?
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There are more letters available for collectors to buy that were written by Lincoln than there are letters that were written by Booth
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Which of the following statements is true about scarcity?
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Scarcity refers to the situation in which unlimited wants exceed limited resources
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Farmers can plant either corn or soybeans in their fields. Which of the following would cause the supply of soybeans to increase?
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a decrease in the price of corn
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Point A is (Refer to Test 1 figure 2-1)
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inefficient in that not all resources are being used.
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The internet has created a new category in the book selling market, namely the "barely used" book. How does the availability of barely used books affect the market for new books?
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the demand curve for new books shifts to the left
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Which of the following will not shift the demand curve for a good?
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an increase in the price of the good
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The table shows the demand schedules for loose-leaf tea of two individuals (Sunil and Mia) and the rest of the market. At a price of $5, the quantity demanded in the market would be
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63 lbs.
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Specializing in the production of a good or service in which one has a comparative advantage enables a country to do all of the following except
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produce a combination of goods that lies outside its own production possibilities frontier
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If a firm expects that the price of its product will be lower in the future than it is today
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the firm has an incentive to increase supply now and decrease supply in the future
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Economists assume that individuals
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are rational and respond to incentives
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Soo Jin shares a one-bedroom apartment with her classmate. Her share of rent is $700 per month. She is considering moving to a studio apartment which she will not have to share with anyone. The studio apartment rents for $950 per month. Recently, you ran into Soo Jin on campus and she tells you that she has moved into the studio apartment. Soo Jin is as rational as any other person. As an economics major, you rightly conclude that
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Soo Jin figures that the additional benefit of having her own place (as opposed to sharing) is at least $250
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Suppose that when the price of hamburgers increases, the Ruiz family increases their purchases of hot dogs. To the Ruiz family,
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hamburgers and hotdogs are substitutes
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The free rider problem refers to a situation in which
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people consume a pure public good without payment, even though the good may not be produced if no one chooses to pay
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If demand for a product is perfectly inelastic a change in price will not change total revenue.
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false |
If the absolute value of the price elasticity of demand for pizza equals 2.5 then
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the demand for pizza is elastic
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Which of the following would result in a positive externality?
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Medical research results in cure for malaria.
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Why is there a deadweight loss? (Refer to test 2 figure 5-2)
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Because the marginal social benefit for each additional unit between Qo and Q1 exceeds the marginal cost
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What is the economically efficient output level? (Refer to test 2 figure 5-2)
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Q1 |
Assume that production from an electric utility caused acid rain and that the government imposed a tax on the utility equal to the cost of the acid rain. This is an example of
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a Pigovian tax
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If equilibrium is achieved in a competitive market
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There will is no deadweight loss
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The actual division of the burden of a tax between buyers and sellers in a market is called
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tax incidence
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Pollution is an example of a
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negative externality
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An efficient tax is
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a tax that imposes a small excess burden relative to the tax revenue that it raises
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Holding everything else constant, the demand for a good tends to be more elastic
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the more substitutes there are for the good
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Ronald Coase was awarded the 1991 Nobel Prize in Economics primarily for addressing problems related to externalities. Which of the following describes Coase's work?
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Ronald Coase was awarded the 1991 Nobel Prize in Economics primarily for addressing problems related to externalities. Which of the following describes Coase's work?
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If the price elasticity of demand for insulin is equal to zero then the demand curve for insulin is
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vertical
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Suppose there are two cities that have rent controlled apartments. In one city (Albany) all apartments are subject to rent control; in the other city (Halftrack) one-half of the apartments are rent controlled. Which of the following is most likely to be true?
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It will be difficult to find a rent-controlled apartment in Albany or Halftrack; rents for the Halftrack apartments not subject to controls will be higher than they would be without rent control.
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How much of the tax is paid by producers? (Refer to Test 2 figure 4-9)
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$2
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What is the size of the unit tax? (Refer to Test 2 figure 4-9)
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$5
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Which of the following is true?
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When a firm lowers its price its total revenue may either increase or decrease
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In order to prove that Motrin and Ibuprofen are substitutes, one should measure the _______
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cross-price elasticity; positive number
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The table above lists the highest prices three consumers, Tom, Dick, and Harriet, are willing to pay for a short-sleeved polo shirt. If the price of one of the shirts is $28 dollars (Refer to Test 2 table 4-1)
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Tom will receive $12 of consumer surplus from buying one shirt
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Haiti was once a heavily forested country. Today, 80% of Haiti's forests have been cut down, primarily to be burned to create charcoal. The reduction in the number of trees has lead to devastating floods when it rains heavily. This is an example of
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the Tragedy of the Commons
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Last year, Joan bought 50 pounds of Hamburger when her household income was $40,000. This year, her household income was only $30,000 and Joan bought 60 pounds of hamburger. Holding everything else constant, Joan's income elasticity of demand for hamburger is
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negative, so Joan considers hamburger to be an inferior good
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If a minimum wage of $7.50 is mandated there will be a (Refer to Test 2 table 4-3)
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surplus of 20,000 units of labor
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Total revenue is equal to
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the price of a product multiplied by the number of units of the product sold.
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What area represents the increase in producer surplus when the market price rises from p1 to p2? (Refer to Test 2 Figure 4-2)
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A + B
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Assume that the market for barley is in equilibrium and the demand for barley is inelastic. Predict what happens to the revenue of barley farmers if a prolonged drought reduces the supply of barley. The drought will cause farm revenue to
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rise because the percentage decrease in quantity sold is less than the percentage increase in price.
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Paul goes to Sportsmart to buy a new tennis racquet. He is willing to pay $200 for a new racquet, but buys one on sale for $125. Paul's consumer surplus from the purchase is
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$75
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Suppose that when the price per case of Bullmoose beer rises from $14-$16, the quantity demanded falls from 300-200 cases per week. Using the midpoint formula, what is the price elasticity of demand (in absolute value) over this range?
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3 |
Jill Borts believes that the price elasticity of demand for her economics textbook is relatively inelastic. She argues "I was told I had to purchase a book written by Hubbard and O'Brien that is required by my instructor. If I wanted to buy a mystery novel I would have many authors to choose from. Therefore, the demand for mystery novels is more elastic than the demand for mystery novels is more elastic than the demand for my textbook." Is Jill correct?
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She is correct
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What is the area that represents consumer surplus after the imposition of the ceiling? (Refer to Test 2 Figure 4-6)
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A + B + D
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A good that is rival but not excludable is a
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common resource
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Steven Cheung examined the relationship between beekeepers and apple growers. Cheung noted that: "Pollination contracts usually include stipulations regarding the number and strength of ...[bee] colonies, the rental fee per hive, the time of delivery.... the protection of bees from pesticides, and the strategic placing of hives." Cheung's suggests that the relationship between beekeepers and apple growers is an example of
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The Coase Theorem
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In England during the Middle Ages each village had an area of pasture on which any family in the village was allowed to graze its cows and sheep without charge. Eventually, the grass in the pasture would be depleted and no family's cow or sheep would get enough to eat. The reason the grass was depleted was
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the area of pasture was non-excludable and the consumption of the grass was rival
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Peet's coffee and Teas produces some flavorful varieties of Peet's brand coffee. Is Peet's a monopoly?
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No, although Peet's coffee is a unique product, there are many different brands of coffee that are very close substitures
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The tariff collected by the government equals (Refer to Test 3 Figure 9-2)
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15 million
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An oligopoly is similar to a monopolistically competitive firm in that
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both operate in a market in which there are entry barriers
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Is there a dominant strategy for Star Connections and if so, what is it? (Refer to Test 4 Table 14-1)
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No, its outcome depends on what Godrickporter does
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No, its outcome depends on what Godrickporter does
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Godrickporter increases its advertising budget, but Star Connections does not
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Is there a dominant strategy for Godrickporter and if so, what is it? (Refer to Test 4 Table 14-1)
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Yes, Godrickporter should increase its advertising spending.
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What is a network externality?
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It refers to a situation in which a product's usefulness increases with the number of people using it.
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Research has shown that most economic profits from selling a prescription drug are eliminated 20 years after the drug is first offered for sale. The main reason for the elimination of profit is
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after 20 years patent protection is ended and other firms can produce less expensive generic versions of the drug
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If we use a narrow definition of monopoly, then a monopoly is defined as a firm
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that can ignore the actions of all other firms because it produces a product which there are no close substitutes
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Compared to a monopolistic competitor a monopolist faces
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a more inelastic demand curve
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if a firm faces a downward-sloping demand curve
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it must reduce its price to sell more units
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if price exceeds average variable cost but is less than average total cost a firm
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should stay in business for a while longer until its fixed costs expire
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Is the current strategy in which each firm charges the low price and earns a profit of $7,000 a Nash equilibrium? If not, why and what is the Nash equilibrium? (Refer to Test 4 table 14-2)
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Yes, the current situation is a Nash equilibrium
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Suppose Wal-Mart and Target both advertise that they will match the lowest price offered by any competitor. What is the purpose of such a strategy? (Refer to Test 4 Table 14-2)
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to signal to each other that they intend to charge the high price
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The De Beers Company, one of the longest-lived monopolies, is facing increasing competition. One source of competition comes from people who might resell their previously owned diamonds. Why is De Beers worried that people might resell their previously owned diamonds?
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Because previously owned diamonds would be close substitute to newly mined diamonds and therefore reduce the De Beers' market power
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If the firm's average total cost curve is ATC2, the firm will (Refer to Test 4 Figure 15-1)
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break even
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The firm's profit-maximizing is (Refer to Test 4 Figure 15-1)
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P3
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The diagram depicts a firm (Refer to Test 4 Figure 13-6)
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in long run equilibrium
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The firm represented in the diagram (Refer to Test 4 Figure 13-6)
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makes zero economic profit
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Patents, tariffs, and quotas are all examples of
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government imposed barriers
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A monopolistically competitive firm that is earning profits will, in the long run, experience all of the following except
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a decrease in the number of rival products
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What is the output (Q) that maximizes profit and what is the price charged? (Refer to Test 4 Table 13-2)
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P= 50 Q=6 cases
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What is likely to happen to the product's price in the long run? (Refer to Test 4 table 13-2)
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it will fall
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What is Eco Energy's profit? (Refer to Test 4 Table 13-2
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145 |
Which of the following is true for a firm with a downward-sloping demand curve for its product?
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Price equals average revenue but is greater than marginal revenue
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Which of the following characteristics is common to monopolistic competition and perfect competition
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Entry barriers into the industry are low
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If an industry is made up of five identical firms, the four firm concentration ratio is
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80%
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Which of the following characteristics is not common to monopolistic competition and perfect competition?
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Firms take market prices as given
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Long-run economic profits would most likely exist in which market structure?
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monopoly and oligopoly
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For a natural monopoly to exist
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For a natural monopoly to exist
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What is the amount of the firms profit? (Refer to Test 4 Table 15-1)
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350 |
Producing a differentiated product occurs in which of the following industries?
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monopolistic competition and oligopoly
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Economies of scale can lead to an oligopolistic market structure because
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if larger firms have lower costs, new small entrants will not be able to produce at the low costs achieved by the big established firms
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The reason that the coffeehouse market is monopolistically competitive rather than perfectly competitive is because
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products are differentiated
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