Suppose televisions are a normal good and buyers of televisions experience a decrease in income. As a result, consumer surplus in the television market
may increase, decrease, or remain unchanged.
Which of the following is true when the price of a good or service rises?
Some buyers exit the market
Cost is a measure of the
seller’s willingness to sell.
The Surgeon General announces that eating chocolate increases tooth decay. As a result, the equilibrium price of chocolate
decreases, and producer surplus decreases.
The distinction between efficiency and equality can be described as follows:
Efficiency refers to maximizing the size of the pie; equality refers to distributing the pie fairly among members of society.
Tomato sauce and spaghetti noodles are complementary goods. A decrease in the price of tomatoes will
increase consumer surplus in the market for tomato sauce and increase producer surplus in the market for spaghetti noodles.
The distinction between efficiency and equality can be described as follows:
Efficiency refers to maximizing the size of the pie; equality refers to distributing the pie fairly among members of society.
A demand curve reflects each of the following except the
quantity that each buyer will ultimately purchase.
A drought in California destroys many red grapes causing the prices of both red grapes and red wine to rise . As a result, the consumer surplus in the market for red grapes
decreases, and the consumer surplus in the market for red wine decreases.
Dawn’s bridal boutique is having a sale on evening dresses. The increase in consumer surplus comes from the benefit of the lower prices to
both existing customers who now get lower prices on the gowns they were already planning to purchase and new customers who enter the market because of the lower prices.
Suppose the market demand curve for a good passes through the point (quantity demanded = 100, price = $25). If there are five buyers in the market, then
the marginal buyer’s willingness to pay for the 100th unit of the good is $25
When a country that imports a particular good imposes a tariff on that good,
consumer surplus decreases and total surplus decreases in the market for that good.
Import quotas and tariffs produce some common results. Which of the following is not one of those common results?
Equal revenue is always raised for the domestic government
The world price of a ton of steel is $1,000. Before Russia allowed trade in steel, the price of a ton of steel there was $650. Once Russia allowed trade in steel with other countries, Russia began
exporting steel and the price per ton in Russia increased to $1,000
Representative Vazquez cites the “jobs argument” when he argues before Congress in favor of restrictions on trade; he argues that everything can be produced at lower cost in other countries. The likely flaw in Representative Vazquez’s reasoning is that he ignores the fact that
the gains from trade are based on comparative advantage
If the Korean steel industry subsidizes the steel that it sells to the United States, the
harm done to U.S. steel producers is less than the benefit that accrues to U.S. consumers of steel.
The problem with the protection-as-a-bargaining-chip argument for trade restrictions is
if it fails, the country faces a choice between two bad options
Assume, for Vietnam, that the domestic price of textiles without international trade is higher than the world price of textiles. This suggests that, in the production of textiles,
other countries have a comparative advantage over Vietnam and Vietnam will import textiles
In analyzing the gains and losses from international trade, to say that Moldova is a small country is to say that
Moldova is a price taker
When a country allows trade and becomes an importer of bottled water, which of the following is not a consequence?
The losses of domestic producers of bottled water exceed the gains of domestic consumers of bottled water
Suppose the world price of a television is $300. Before Paraguay allowed trade in televisions, the price of a television there was $350. Once Paraguay began allowing trade in televisions with other countries, Paraguay began
importing televisions and the price of a television in Paraguay decreased to $300
Which of the following statistics is usually regarded as the best single measure of a society’s economic well-being?
Gross domestic product
If an economy’s GDP falls, then it must be the case that the economy’s
income and expenditure both fall
In the actual economy, goods and services are purchased by
households, firms, and the government
Which of the following is included in GDP?
Both the market value of rental housing services and the market value of owner-occupied housing services
Over the last few decades, Americans have chosen to cook less at home and eat more at restaurants. This change in behavior, by itself, has
increased measured GDP by the value added by the restaurant’s preparation and serving of the meals
Martin, a U.S. citizen, travels to Mexico and buys a newly manufactured motorcycle made there. His purchase is included in
Mexican GDP, but it is not included in U.S. GDP
The income that households and noncorporate businesses receive is called
personal income
For the purpose of calculating GDP, investment is spending on
capital equipment, inventories, and structures, including household purchases of new housing.
Government purchases include spending on goods and services by
federal, state, and local governments
Net exports equal
Y − (C + I + G)
When economists talk about growth in the economy, they measure that growth as the
percentage change in real GDP from one period to another
The term economists use to describe a situation in which the economy’s overall price level is rising is
inflation
A country reported nominal GDP of $100 billion in 2010 and $75 billion in 2009. It also reported a GDP deflator of 125 in 2010 and 120 in 2009. Between 2009 and 2010,
real output and the price level both rose
Suppose the government passes a law eliminating holidays and, as a result, the production of goods and services increases because people work more days per year (and thus enjoy less leisure per year). Based on this scenario, which of the following statements is correct?
GDP would definitely increase because GDP excludes leisure.
International studies of the relationship between GDP per person and quality of life measures such as life expectancy and literacy rates show that larger GDP per person is associated with
longer life expectancy and a higher percentage of the population that is literate.
A group of buyers and sellers of a particular good or service is called
A market
Which of the following is not a characteristic of a perfectly competitive market?
There is no free entry or exit
When we move along a given demand curve,
all nonprice determinants of demand are held constant
You lose your job and, as a result, you buy fewer iTunes music downloads. This shows that you consider iTunes music downloads to be
a normal good
Two goods are substitutes when a decrease in the price of one good
decreases the demand for the other good
Two goods are complements when a decrease in the price of one good
increases the demand for the other good
If Miguel expects to earn a higher income next month, he may choose to
save less now and spend more of his current income on goods and services.
Which of the following demonstrates the law of supply?
When ketchup prices rose, ketchup sellers increased their quantity supplied of ketchup.
Which of the following events would cause a movement upward and to the right along the supply curve for mangos?
The price of mangos rises
Ashley bakes bread that she sells at the local farmer’s market. If she purchases a new convection oven that reduces the costs of baking bread, the
supply curve for Ashley’s bread will shift right. OR supply of Ashley’s bread will increase
Equilibrium price must decrease when demand
decreases and supply does not change, when demand does not change and supply increases, and when demand decreases and supply increases simultaneously.
Suppose there is a flood in St. Louis, Missouri, that destroys several beer bottling facilities. Which of the following would not be a direct result of this event?
Buyers would not be willing to buy as much as before at each relevant price.
When small changes in price lead to infinite changes in quantity demanded, demand is perfectly
elastic, and the demand curve will be horizontal
Your younger sister needs $50 to buy a new bike. She has opened a lemonade stand to make the money she needs. Your mother is paying for all of the ingredients. She currently is charging 25 cents per cup, but she wants to adjust her price to earn the $50 faster. If you know that the demand for lemonade is elastic, what is your advice to her?
Lower the price to increase total revenue
For which of the following goods is the income elasticity of demand likely lowest?
water
Assume that a 4 percent increase in income results in a 2 percent increase in the quantity demanded of a good. The income elasticity of demand for the good is
positive, and the good is a normal good.
For which pairs of goods is the cross-price elasticity most likely to be positive?
Pens and pencils
The price elasticity of supply measures how much
the quantity supplied responds to changes in the price of the good
If the price elasticity of supply is 1.5, and a price increase led to a 1.8 percent increase in quantity supplied, then the price increase is about
1.20%
A decrease in supply will cause the largest increase in price when
both supply and demand are inelastic
Which of the following statements is not correct concerning government attempts to reduce the flow of illegal drugs into the country? Drug interdiction
shifts the demand curve for drugs to the left
Demand is said to be inelastic if
the quantity demanded changes only slightly when the price of the good changes.
A good will have a more inelastic demand, the
broader the definition of the market
Which of the following is likely to have the most price elastic demand?
Tommy Hilfiger jeans
Assume that a consumer’s indifference curve is bowed inward and negatively sloped. As the consumer moves from left to right along the horizontal axis, the consumer’s marginal rate of substitution
decreases
A good is an inferior good if the consumer buys less of it when
his income rises
Which of the following costs of publishing a book is a fixed cost?
Composition, typesetting, and jacket design for the book
The average fixed cost curve
always declines with increased levels of output
A firm’s opportunity costs of production are equal to its
explicit costs + implicit costs
Pete owns a shoe-shine business. His accountant most likely includes which of the following costs on his financial statements?
Shoe polish and rent on the shoe stand
Kate is a florist. Kate can arrange 20 bouquets per day. She is considering hiring her husband William to work for her. Together Kate and William can arrange 35 bouquets per day. What is William’s marginal product?
15 bouquets
Eldin is a house painter. He can paint three houses per week. He is considering hiring his friend Murphy. Murphy can paint five houses per week. What is the maximum total output possible if Eldin hires Murphy?
8 houses
Raiman’s Shoe Repair produces custom-made shoes. When Mr. Raiman produces 12 pairs per week, the marginal cost of the 12th pair is $84, and the marginal revenue of the 12th pair is $70. What would you advise Mr. Raiman to do?
Produce fewer custom-made shoes
Scenario 14-1
Assume a certain firm in a competitive market is producing Q = 1,000 units of output. At Q = 1,000, the firm’s marginal cost equals $15 and its average total cost equals $11. The firm sells its output for $12 per unit.
Refer to Scenario 14-1. To maximize its profit, the firm should
decrease its output but continue to produce
Which of the following expressions is correct for a competitive firm?
Profit = (quantity of output) × (price − average total cost)
Which of the following represents the firm’s short-run condition for shutting down?
Shut down if TR < VC
Suppose a firm in a competitive market reduces its output by 20 percent. As a result, the price of its output is likely to
remain unchanged
Which of the following statements is correct regarding competitive firms?
Only for competitive firms does average revenue equal marginal revenue
Whenever a perfectly competitive firm chooses to change its level of output, its marginal revenue
does not change
Suppose most people regard emeralds, rubies, and sapphires as close substitutes for diamonds. Then DeBeers, a large diamond company, has
less market power than it would otherwise have
When an industry is a natural monopoly,
a larger number of firms will lead to a higher average total cost
In order to sell more of its product, a monopolist must
lower its price
Which of the following statements is true?
When a monopoly firm sells an additional unit of output, its revenue increases by an amount less than the price.
For a monopoly, the socially efficient level of output occurs where
price equals marginal cost
For a firm to price discriminate,
it must have some market power
Which of the following is not an example of price discrimination?
An ice cream parlor charges a higher price for ice cream than for sherbet.
Which of the following is not an example of price discrimination by a firm?
A natural gas company charging all customers a higher rate in the winter than in the summer
Which of the following can defeat the profit-maximizing strategy of price discrimination?
Arbitrage
If a monopolist is able to perfectly price discriminate,
consumer surplus and deadweight losses are transformed into monopoly profits.
The collection of statutes aimed at curbing monopoly power is called
antitrust law
Which of the following statements is correct regarding monopolistic competition?
Monopolistic competition is similar to monopoly because both market structures are characterized by firms being price makers rather than price takers.
For a monopolistically competitive firm,
at the profit-maximizing quantity of output, marginal revenue equals marginal cost
Which of the following conditions is characteristic of a monopolistically competitive firm in short-run equilibrium?
P = AR
In the long run, a monopolistically competitive firm produces a quantity that is
less than the efficient scale
Scenario 16-2
Delish, a moderately priced restaurant, has recently announced intentions to open a restaurant in Boston, MA. Assume that the restaurant market in Boston is characterized by monopolistic competition.
Refer to Scenario 16-2. As a result of the new restaurant, consumers in Boston are likely to experience a
product-variety externality, which is a positive externality
A law that restricts the ability of hotels/motels to advertise on billboards outside of a resort community would likely lead to
reduced efficiency of local lodging markets
Roberto consumes Coke exclusively. He claims that there is a clear taste difference and that competing brands of cola leave an unsavory taste in his mouth. In a blind taste test, Roberto is found to prefer Coke to store-brand cola nine out of ten times. The results of Roberto’s taste test would refute claims by critics of brand names that
brand names cause consumers to perceive differences that do not really exist
Which of the following statements is correct regarding duopolists?
If duopolists successfully collude, then their combined output will be equal to the output that would be observed if the market were a monopoly.
The equilibrium quantity in markets characterized by oligopoly is
higher than in monopoly markets and lower than in perfectly competitive markets
If duopoly firms that are not colluding were able to successfully collude, then
price would rise and quantity would fall
Whenever a cartel in a duopoly breaks down,
total output in the market will rise.
In a prisoners’ dilemma game,
if the players play the game repeatedly, the players can achieve a higher payoff, on average, than when they play the game only once.
Which of the following groups or entities has the authority to initiate legal suits to enforce antitrust laws?
Both the U.S. Justice Department and private citizens
Consider a market served by a monopolist, Firm A. A new firm, Firm B, enters the market and, as a result, Firm A lowers its price to try to drive Firm B out of the market. This practice is known as
predatory pricing
The term “emerging economies” has replaced the term _.
Developing countries
The gross domestic product plus the income from non-resident sources abroad gives the __.
gross national product
More than 25% of global GDP comes from _.
BRICS countries
Viewing the global economy as a pyramid, the Triad refers to _.
North America, Western Europe, and Japan
People who earn _ a year comprise the base of the global economic pyramid.
less than $2,000
Which of the following would be an example of a top down innovation?
Lowering prices and features of existing products to meet emerging market needs
Which of the following is true of the Group of 20 (G-20)?
It only has 19 member countries.
Which of the following does the institution-based view of global business lay emphasis on?
Understanding the laws and values of the firm’s host nation.
The resource-based view of global business differs from the institution-based view of global business in that the resource-based view _.
focuses on the internal strengths on the firm
The liability of foreignness is the inherent disadvantage faced by _.
foreign firms in host nations due to their non-native status
Which of the following is true of globalization according to the “new force” perspective?
It is a western ideology focused on exploiting and dominating the world through MNEs
The concept of _ suggests that barriers to market integration at borders are high, but not high enough to completely insulate countries from each other.
Semiglobalization
The strategy of treating each country as a unique market and in total isolation is referred to as _.
Localization
MNEs from the Triad dominate the list of the 500 largest MNEs; their share has been _.
Shrinking
A conversion that determines the equivalent amount of goods and services that different currencies can buy is known as _.
purchasing power parity
Which of the following countries would be characterized as an emerging economy?
Brazil
Which of the following countries is represented in the Triad of the global economic pyramid?
Japan
People who earn _ a year comprise the base of the global economic pyramid.
less than $2,000
A _ is defined as an innovation that is adopted first in emerging economies and then diffused around the world.
reverse innovation
The _ view suggests that the success and failure of firms are largely determined by their environments.
institution-based
The _ view of global business focuses on internal factors that can help a firm overcome its external environment.
resource-based
Which of the following is true of globalization according to the “pendulum view” perspective?
Globalization is a not a one-directional phenomenon
The concept of _ suggests that barriers to market integration at borders are high, but not high enough to completely insulate countries from each other.
semiglobalization
_ is the strategy of treating the entire world as one market.
Standardization
Protectionism is similar to mercantilism as they both advocated _.
government involvement in international trade
The _ principle advocated that governments should actively protect domestic industries from imports and vigorously promote exports.
Protectionism
Which of the following is a modern trade theory?
National competitive advantage
Which of the following trade theories divides the nations of the world into three categories?
Product life cycle
Which of the following was the first international trade theory to account for changes in the patterns of trade over time?
Product life cycle theory
In the third stage of the product life cycle theory, the _.
product is standardized
Which of the following describes resource mobility as assumed by the classical theories of international trade?
It is the assumption that a resource used in producing a product for one industry can be shifted and put to use in another industry
The theory of comparative advantage _.
explains patterns of trade based on factor endowments
Deadweight costs are net losses that occur when _ are imposed.
import tariffs
_ are government payments to domestic firms.
Subsidies
Which of the following is true of voluntary export restraints?
It is an export quota levied by a country on the quantity of its exports.
_ are tariffs levied on imports sold below costs to drive domestic firms out of business.
Antidumping duties
FPI refers to the _.
investment in a portfolio of foreign securities that do not entail the active management of foreign assets
A vertical FDI refers to a type of FDI in which _.
a firm moves upstream or downstream at different value chain stages in a host country
_ refers to the total accumulation of inbound FDI in a country or outbound FDI from a country.
FDI stock
OLI advantages refer to a firm’s quest for _____via FDI.
ownership advantages, location advantages, and internalization advantages
__ refers to the replacement of cross-border markets with one firm locating in two or more countries.
Internalization
Firms prefer FDI to licensing because FDI_____.
provides the firm with direct ownership to its foreign assets
_ refers to the clustering of economic activities in certain locations.
Agglomeration
The television industry in the United States is controlled by seven giant corporations: The Walt Disney Company, CBS Corporation, Viacom, Comcast, Hearst Corporation, Time Warner, and News Corporation. Thus, the television industry in the U.S. is a typical _ industry.
Oligopolistic
Which of the following economic perspectives on FDI has its principles rooted in Marxism?
The radical view
Which of the following is a benefit of FDI to home countries?
Learning from operations
_ refers to the deal struck by MNEs and host governments, which change their requirements after the initial FDI entry.
Obsolescing bargain
Costs that a firm has to endure even when its investment turns out to be unsatisfactory are referred to as _.
sunk costs
A _ is the price of one currency, such as the dollar, in terms of another, such as the euro.
foreign exchange rate
Which of the following conditions will attract foreign funds into a country?
If the country’s interest rate is relatively high compared to other countries
_ is a country’s international transaction statement, which includes merchandise trade, service trade, and capital movement.
Balance of payments
Which of the following types of exchange rate policies is apt for a pure free market economy?
Clean float
The fixing of East and West Germany’s currencies at a 1:1 ratio to each other during the German unification in 1990 is an example of a _.
fixed exchange rate policy
In foreign exchange, a(n) _ is said to have occurred when investors move in the same direction at the same time, like a herd.
bandwagon effect
Between 1870 and 1914, the value of most major currencies was maintained by fixing their prices in terms of _.
Gold
Which of the following was true of the Bretton Woods system?
All currencies were pegged at a fixed rate to the dollar.
The weight a member country carries within the IMF, which determines the amount of its financial contribution, its capacity to borrow from the IMF, and its voting power is referred to as a(n) _.
Quota
_ allow participants to buy and sell currencies now for future delivery.
Forward transactions
_ is defined as the conversion of one currency into another at Time 1, with an agreement to revert it back to the original currency at a specific Time 2 in the future.
Currency swap
_ refers to non-financial companies spreading out its activities in different currency zones in order to offset the currency losses in certain regions through gains in other regions.
Strategic hedging
A currency board is a monetary authority that issues notes and coins convertible into a key foreign currency at a _ exchange rate.
Fixed
A manager arguing against currency hedging would most likely argue that _.
currency hedging eats into company profits
Liability of foreignness is _.
the inherent disadvantage foreign firms experience in host countries
Which of the following conforms to the notion put forward by the school of thought associated with stage models?
Firms enter culturally distant countries in later stages when they may gain more confidence
Which of the following is a first-mover advantage?
Avoidance of clash with a dominant firm at home
__ refers to the amount of resources committed to entering a foreign market.
Scale of entry
The distinction between _ is what defines an MNE from a firm that merely exports or imports.
equity and non-equity modes of entry
Which of the following is a non-equity mode of entry?
Turnkey projects
Which of the following entry modes is a type of strategic alliance?
Licensing
Which of the following is an advantage of R&D contracts?
Ability to tap into the best, cost-effective locations
Which of the following is true of indirect exports?
They export through domestically based export intermediaries.
A(n) _ is a non-equity mode of entry used to build a longer-term presence by building and then operating a facility for a period of time before transferring operations to a domestic agency or firm.
BOT agreement
Greenfield operations are similar to acquisitions in that they are both examples of _.
wholly owned subsidiaries
The country-of-origin effect refers to _.
the positive or negative perception of firms and products from a certain country
The process of anticipating rivals’ actions in order to both revise a firm’s plan and prepare to deal with rivals’ response is called _.
competitor analysis
_ occurs when firms engage the same rivals in numerous markets.
Multimarket competition
Which of the following industry characteristics contributes to collusion?
Existence of an industry price leader
Which of the following is defined as the degree of overlap between two rivals’ markets?
Market commonality
__ is an attack on a competitor’s other markets if this competitor attacks a firm’s original market.
Cross-market retaliation
The act of setting prices below cost to eliminate rivals while intending to raise them in the long run to make up for the initial losses is known as _.
predatory pricing
A _ antirust policy would protect established firms that have already invested and nurtured an industry from new entrants.
pro-incumben
Which combination of resource similarity and market commonality results in the most intense competition?
High resource similarity, low market commonality
Which of the following sets of words describes the initial set of actions a firm uses to gain competitive advantage and the other firm’s response to it?
Attack, counterattack
_ best suits situations where the pressures to globalize are relatively low, and local firms’ strengths lie in a deep understanding of local markets.
Defender strategy
If a firm is operating in an environment that is customized to home market, which of the following is the most preferred strategy?
Dodger strategy
If a seller in a competitive market chooses to charge more than the going price, then.
buyers will make purchases from other sellers
An increase in the price of a good will.
decrease quantity demanded.
Which of the following demonstrates the law of demand?
Jayden buys more donuts at $0.25 per donut than at $0.50 per donut, other things equal.
The line that relates the price of a good and the quantity demanded of that good is called the demand.
curve, and it usually slopes downward.
If the demand for a good falls when income falls, then the good is called.
a normal good
Currently you purchase ten frozen pizza per month. You will graduate from college in December, and you will start a new job in January. You have no plans to purchase frozen pizzas in January. For you, frozen pizzas are.
an inferior good
Two goods are complements when a decrease in the price of one good.
increases the demand for the other good.
Suppose scientists provide evidence that people who drink energy drinks are more likely to have a heart attack than people who do not drink energy drinks. We would expect to see.
a decrease in the demand for energy drinks
The shift from Da to Db is called.
an increase in demand
The law of supply states that, other things equal, when the price of a good.
rises, the quantity supplied of the good rises
The movement from point A to point B on the graph is called.
an increase in the quantity supplied
Which of the following changes would not shift the supply curve for a good or service?
A change in the price of the good or service
A improvement in production technology will shift the.
supply curve to the right.
Which of the following events could cause an increase in the supply of ceiling fans?
The number of sellers of ceiling fans increases.
Equilibrium quantity must decrease when demand.
decreases and supply does not change, when demand does not change and supply decreases, and when both demand and supply decrease
Which of the following would not increase in response to a decrease in the price of ironing boards?
The quantity of irons supplied at each possible price of irons
For a particular good, a 2 percent increase in price causes a 12 percent decrease in quantity demanded. Which of the following statements is most likely applicable to this good?
The good is a luxury
Using the midpoint method, if the price falls from $200 to $150, the price elasticity of demand is.
elastic
Suppose demand is perfectly elastic, and the supply of the good in question decreases. As a result,
the equilibrium quantity decreases, and the equilibrium price is unchanged.
If the demand for donuts is elastic, then a decrease in the price of donuts will
increase total revenue of donut sellers
Using the midpoint method, between prices of $20 and $30, price elasticity of demand is about.
0.33
For which of the following goods is the income elasticity of demand likely highest?
Diamonds
You and your college roommate eat three packages of Ramen noodles each week. After graduation last month, both of you were hired at several times your college income. You still enjoy Ramen noodles very much and buy even more, but your roommate plans to buy fewer Ramen noodles in favor of foods she prefers more. When looking at income elasticity of demand for Ramen noodles, yours would.
be positive, and your roommate’s would be negative
If the cross-price elasticity of two goods is negative, then the two goods are.
Complements
Using the midpoint method, if the price of good X is constant at $10 and the price of good Y decreases from $10 to $8, the cross-price elasticity of demand is about
−2.57, and X and Y are complements
Suppose that two supply curves pass through the same point. One is steep, and the other is flat. Which of the following statements is correct?
The steeper supply curve represents a supply that is inelastic relative to the supply represented by the flatter supply curve.
Suppose the price elasticity of supply for cheese is 0.6 in the short run and 1.4 in the long run. If an increase in the demand for cheese causes the price of cheese to increase by 15 percent, then the quantity supplied of cheese will increase by
9 percent in the short run and 21 percent in the long run
Which of the following statements is valid when the market supply curve is vertical?
Market quantity supplied does not change when the price changes.
The supply of aged cheddar cheese is inelastic, and the supply of bread is elastic. Both goods are considered to be normal goods by a majority of consumers. Suppose that a large income tax increase decreases the demand for both goods by 10 percent.
decrease in both the aged cheddar cheese and bread markets
Which of the following was not a reason OPEC failed to keep the price of oil high?
The agreement OPEC members signed allowed each country to produce as much oil as each wanted
Which of the following statements is not correct?
The quantity of illegal drugs demanded is very responsive to changes in price
Demand is said to be price elastic if.
buyers respond substantially to changes in the price of the good
For a good that is a luxury, demand.
tends to be elastic
The demand for grape-flavored Hubba Bubba bubble gum is likely.
elastic because there are many close substitutes for grape-flavored Hubba Bubba.
Suppose the price of a bag of frozen chicken nuggets decreases from $6.50 to $5.75 and, as a result, the quantity of bags demanded increases from 600 to 800. Using the midpoint method, the price elasticity of demand for frozen chicken nuggets in the given price range is.
2.33
Cindy’s Car Wash has average variable costs of $2 and average fixed costs of $3 when it produces 100 units of output (car washes). The firm’s total cost is.
$500.
Suppose that for a particular firm the only variable input into the production process is labor and that output equals zero when no workers are hired. In addition, suppose that when four units of output are produced, the total cost is $175, and the average variable cost is $33.75. What would the average fixed cost be if ten units were produced?
4
For the firm whose production function and costs are specified in the table, its total-cost curve is.
increasing at an increasing rate.
For the firm whose production function and costs are specified in the table, its average-total-cost curve is.
U-shaped.
Which of the following statements is correct?
Average variable cost is declining for quantities less than B because marginal cost is lower than average variable cost.
Average total cost is increasing whenever.
marginal cost is greater than average total cost.
In the short run, a firm that produces and sells house paint can adjust.
how many workers to hire
The most likely explanation for economies of scale is.
specialization of labor
In the long run a company that produces and sells popcorn incurs total costs of $1,050 when output is 90 canisters and $1,200 when output is 120 canisters. The popcorn company exhibits.
economies of scale because average total cost is falling as output rises.
When a firm experiences diseconomies of scale,
Long-run average total cost increases as output increases.
Billy’s Bean Bag Emporium produced 300 bean bag chairs but sold only 275 of the units it produced. The average cost of production for each unit of output produced was $100. The price for each of the 275 units sold was $95. Total profit for Billy’s Bean Bag Emporium would be.
−$3,875.
Jacqui decides to open her own business and earns $50,000 in accounting profit the first year. When deciding to open her own business, she withdrew $20,000 from her savings, which earned 5 percent interest. She also turned down three separate job offers with annual salaries of $30,000, $40,000, and $45,000. What is Jacqui’s economic profit from running her own business?
$4,000
Suppose Korie purchases the factory using $200,000 of her own money and $200,000 borrowed from a bank at an interest rate of 6 percent. What is Korie’s annual opportunity cost of purchasing the factory?
$18,000
If a firm uses labor to produce output, the firm’s production function depicts the relationship between.
the number of workers and the quantity of output.
Each worker at the Wooden Chair Factory costs $12 per hour. The cost of each machine is $20 per day regardless of the number of chairs produced. What is the total daily cost of producing at a rate of 55 chairs per hour if the factory operates 8 hours per day?
$520
Ms. Joplin sells colored pencils. The colored-pencil industry is competitive. Ms. Joplin hires a business consultant to analyze her company’s financial records. The consultant recommends that Ms. Joplin increase her production. The consultant must have concluded that , at her current level of production, Ms. Joplin’s.
marginal revenue exceeds her marginal cost.
The firm will produce a quantity greater than three because at 3 units of output, marginal cost.
is less than marginal revenue.
If the market price is $16, this firm will.
produce 5 units of output in the short run and face competition from new market entrants in the long run.
Cold Duck Airlines flies between Tacoma and Portland. The company leases planes on a year-long contract at a cost that averages $600 per flight. Other costs (fuel, flight attendants, etc.) amount to $550 per flight. Currently, Cold Duck’s revenues are $1,000 per flight. All prices and costs are expected to continue at their present levels. If it wants to maximize profit, Cold Duck Airlines should.
continue flying until the lease expires and then drop the run
Assume a certain firm in a competitive market is producing Q = 1,000 units of output. At Q = 1,000, the firm’s marginal cost equals $15 and its average total cost equals $11. The firm sells its output for $12 per unit. At Q = 1,000, the firm’s profits equal.
$1,000
The information below applies to a competitive firm that sells its output for $40 per unit. When the firm produces and sells 150 units of output, its average total cost is $24.50. When the firm produces 150 units of output, its profit is.
$2,325
We have an expert-written solution to this problem!
Suppose the firm is currently producing and selling 150 units of output. Should the firm increase its output to 151 units?
Yes, because the marginal revenue exceeds the marginal cost.
The short-run supply curve for a firm in a perfectly competitive market is.
the portion of its marginal cost curve that lies above its average variable cost.
The firm will earn a negative economic profit but remain in business in the short run if the market price is.
less than $13 but more than $6
- If the market price is $10, the firm will earn.
negative economic profits in the short run but remain in business.
If the market price is $10, what is the firm’s total cost?
$35
In the short run, if the market price is higher than P4 but less than P6, individual firms in a competitive industry will earn.
positive profits.
A firm that shuts down temporarily has to pay.
its fixed costs but not its variable costs.
The competitive firm’s long-run supply curve is that portion of the marginal cost curve that lies above average.
total cost.
If at a market price of $1.75, 52,500 units of output are supplied to this market, how many identical firms are participating in this market?
300
If there is an increase in market demand in a perfectly competitive market, then in the short run.
profits will rise
Suppose a firm in each of the two markets listed below were to increase its price by 25 percent. In which pair would the firm in the first market listed experience a dramatic decline in sales, but the firm in the second market listed might not?
Corn and satellite radio
When firms are said to be price takers, it implies that if a firm raises its price,
buyers will go elsewhere.
If a firm in a perfectly competitive market triples the quantity of output sold, then total revenue will.
exactly triple
If the firm doubles its output from 3 to 6 units, total revenue will.
increase by exactly $15.
If the firm is currently producing 14 units, what would you advise the owners?
Continue to operate at 14 units
The fundamental source of monopoly power is.
barriers to entry
A natural monopoly occurs when.
there are economies of scale over the relevant range of output.
When a firm has a natural monopoly, the firm’s
average total cost curve is downward sloping
When a monopolist increases the amount of output that it produces and sells, average revenue
decreases, and marginal revenue decreases
What is the monopoly price and quantity?
Price = A; quantity = X
A monopolist’s profits with price discrimination will be
higher than if the firm charged just one price because the firm will capture more consumer surplus
When deciding what price to charge consumers, the monopolist may choose to charge them different prices based on the customers’
geographical location.
A perfectly price-discriminating monopolist is able to
maximize profit and produce a socially optimal level of output
Antitrust laws have economic benefits that outweigh the costs if they
prevent mergers that would decrease competition and raise the costs of production
If government regulation sets the maximum price for a natural monopoly equal to its marginal cost, then the natural monopolist will.
earn economic losses.
Which of the following is true about a monopolistically competitive firm?
It can earn an economic profit in the short run, but not the long run.
When a monopolistically competitive firm raises its price,
quantity demanded declines but not to zero.
When a profit-maximizing firm in a monopolistically competitive market charges a price higher than marginal cost,
the firm may be incurring economic losses
When a market is monopolistically competitive, the typical firm in the market is likely to experience a
positive or negative profit in the short run and a zero profit in the long run.
In monopolistically competitive markets, free entry and exit suggests that
all firms earn zero economic profits in the long run.
The product-variety externality is associated with the
consumer surplus that is generated from the introduction of a new product
If a firm in a monopolistically competitive market successfully uses advertising to decrease the elasticity of demand for its product, the firm will.
be able to increase its markup over marginal cost.
According to one theory, advertising sends a signal to consumers about the quality of the product being offered. An implication of this theory is that
the existence of an expensive advertisement is more important than the content of the advertisement.
Which of the following statements about oligopolies is not correct?
Unlike monopolies and monopolistically competitive markets, oligopolies prices do not exceed their marginal costs.
As the number of sellers in an oligopoly becomes very large,
the quantity of output approaches the socially efficient quantity
Suppose the market for this product is served by two firms that have formed a cartel. If the marginal cost of production is $4 and each firm incurs a fixed cost of $6, the combined profit of the cartel will be
$6
When an oligopoly market reaches a Nash equilibrium,
a firm will have chosen its best strategy, given the strategies chosen by other firms in the market
As the number of firms in an oligopoly increases,
the total quantity of output produced by firms in the market gets closer to the socially efficient quantity
Suppose that Thierry and Abdul are duopolists. Thierry is producing 700 units of output, and Abdul is producing 500 units of output. When Abdul produces 500 units, Thierry maximizes profit by producing 700 units. When Thierry produces 700 units of output, Abdul maximizes profit by producing 500 units. Thierry and Abdul are
at a Nash equilibrium.
Suppose the owners of Lopes and HomeMax meet for a friendly game of golf one afternoon and happen to discuss a strategy to optimize growth related profit. They should both agree to
refrain from increasing their store and parking lot sizes
Juan Pablo and Zak are competitors in a local market. Each is trying to decide if it is better to advertise on TV, on radio, or not at all. If they both advertise on TV, each will earn a profit of $8,000. If they both advertise on radio, each will earn a profit of $14,000. If neither advertises at all, each will earn a profit of $20,000. If one advertises on TV and other advertises on radio, then the one advertising on TV will earn $12,000 and the other will earn $10,000. If one advertises on TV and the other does not advertise, then the one advertising on TV will earn $22,000 and the other will earn $4,000. If one advertises on radio and the other does not advertise, then the one advertising on radio will earn $24,000 and the other will earn $8,000. If both follow their dominant strategy, then Juan Pablo will
advertise on radio and earn $14,000.
Assume that Samorola has entered into an enforceable resale price maintenance agreement with Trint and U-Mobile. Which of the following will always be true?
U-Mobile and Trint will always sell Samorolas for exactly the same price
A consumer consumes two normal goods, popcorn and Pepsi. The price of Pepsi rises. The substitution effect, by itself, suggests that the consumer will consume
more popcorn and less Pepsi
Ryan experiences an increase in her wages. The hours of labor that she supplies to the market would increase if.
the substitution effect is larger than the income effect
The existence of money leads to
greater specialization and to a higher standard of living
Which of the following is not a function of money?
Protection against inflation
You saved $500 in currency in your piggy bank to purchase a new laptop. The $500 you kept in your piggy bank illustrates money’s function as a . The laptop’s price is posted as $500. The $500 price illustrates money’s function as a . You use the $500 to purchase the laptop. This transaction illustrates money’s function as a .
store of value, unit of account, medium of exchange
The measure of the money stock called M1 includes
wealth held by people in their checking accounts
If traveler’s checks were $1000 higher and saving deposits were $500 higher, M1 would be
$1,000 higher and M2 would be $1,500 higher.
When conducting an open-market purchase, the Fed
buys government bonds, and in so doing increases the money supply.
A bank which must hold 100 percent reserves opens in an economy that had no banks and a currency of $150. If customers deposit $50 into the bank, what is the value of the money supply?
$150
A bank has an 8 percent reserve requirement, $10,000 in deposits, and has loaned out all it can, given the reserve requirement.
it has $800 in reserves and $9,200 in loans
If the reserve requirement is 10 percent, a bank desires to hold no excess reserves, and it receives a new deposit of $500, it
must increase required reserves by $50.
If the reserve ratio is 5 percent, then $500 of additional reserves would ultimately generate
$10,000 of money
Which of the following increase when the Fed makes open market purchases?
Currency and reserves
The banking system currently has $10 billion of reserves, none of which are excess. People hold only deposits and no currency, and the reserve requirement is 10 percent. If the Fed raises the reserve requirement to 12.5 percent and at the same time buys $1 billion worth of bonds, then by how much does the money supply change?
It falls by $12 billion
Metropolis National Bank is holding 2% of its deposits as excess reserves. Assume that no banks in the economy want to maintain holdings of excess reserves and that people only hold deposits and no currency. The Fed makes open market purchases of $10,000. The person who sold bonds to the Fed deposits all the funds in Metropolis National Bank. If the bank now loans out all its excess reserves, by how much will the money supply increase?
$200,000
Which of the following will help to prevent bank runs?
100% reserve banking
A goal of monetary policy and fiscal policy is to
offset shifts in aggregate demand and thereby stabilize the economy
For the U.S. economy, which of the following is the most important reason for the downward slope of the aggregate-demand curve?
The interest-rate effect
While a television news reporter might state that “Today the Fed raised the federal funds rate from 1 percent to 1.25 percent, ” a more precise account of the Fed’s action would be as follows:
Today the Fed told its bond traders to conduct open-market operations in such a way that the equilibrium federal funds rate would increase to 1.25 percent. “
When the Fed buys government bonds, the reserves of the banking system
increase, so the money supply increases
An increase in the money supply will
reduce interest rates, increasing investment and aggregate demand.
In the short run, open-market purchases
increase investment and real GDP, and decrease interest rates
The government builds a new water-treatment plant. The owner of the company that builds the plant pays her workers. The workers increase their spending. Firms from which the workers buy goods increase their output. This type of effect on spending illustrates
the multiplier effect.
When taxes decrease, interest rates
increase, making the change in aggregate demand smaller.
Suppose there is a tax increase. To stabilize output, the Federal Reserve could
increase the money supply.
Critics of stabilization policy argue that
policy affects aggregate demand with a lag, and the effects on aggregate demand are long-lived.