the quantity demanded equals the quantity supplied. The product will then no longer be scarce.
quantity demanded equals quantity supplied. The equilibrium price will then be greater than the market price.
only wealthy consumers will be able to afford the product.
quantity demanded equals quantity supplied. The market price will then equal the equilibrium price.
17. A tax is imposed on employers and workers that are used to fund Social Security and Medicare. This tax is sometimes referred to as (Points : 1)
the Income Security Tax.
the federal income tax.
the payroll tax.
19. Brett buys a new cell phone for $100. He receives consumer surplus of $80 from the purchase. How much does Brett value his cell phone? (Points : 1)
20. The difference between the highest price a consumer is willing to pay for a good and the price the consumer actually pays is called (Points : 1)
the substitution effect.
the income effect.
21. Suppose the demand curve for a product is downward sloping and the supply curve is upward sloping. If a unit tax is imposed in the market for this product, (Points : 1)
sellers bear the entire burden of the tax.
the tax burden will be shared among the government, buyers and sellers.
buyers bear the entire burden of the tax.
the tax burden will be shared by buyers and sellers.
23. Consider the following pairs of items:
Which of the pairs listed will have a positive cross-price elasticity? (Points : 1)
a and b only
c and d only
a, b, and c only
24. The price elasticity of the supply of teenage labor services is approximately 1.36. Suppose the minimum wage rises from $6.60 per hour to $7.00. Using the midpoint formula, calculate the approximately change in the will the quantity supplied of teenage labor. (Points : 1)
There is insufficient information to answer the question.
26. Suppose at the going wage rate of $20 per hour, firms can hire as many hours of janitorial services as it desires. If any firm tries to lower the wage rate to $19, it will not be able to hire any janitor. What does this indicate about the supply of janitorial services curve? (Points : 1)
Supply is unit price elastic.
Supply is perfectly price elastic.
Supply is perfectly price inelastic.
Supply is relatively price inelastic.
27. When demand is unit price elastic, a change in price causes total revenue to stay the same because (Points : 1)
the percentage change in quantity demanded exactly offsets the percentage change in price.
buyers are buying the same quantity.
total revenue never changes with price changes.
the change in profit is offset by the change in production cost.
28. If the marginal cost curve is below the average variable cost curve, then (Points : 1)
average variable cost is increasing.
average variable cost is decreasing.
marginal cost must be decreasing.
average variable cost could either be increasing or decreasing.
29. The difference between technology and technological change is that (Points : 1)
technology refers to the processes used by a firm to transform inputs into output while technological change is a change in a firm's ability to produce a given level of output with a given quantity of inputs.
technology is carried out by firms producing physical goods but technological change is an intellectual exercise into seeking ways to improve production.
technology is product-centered, that is, developing new products with our limited resources while technological change is process-centered in that it focuses on developing new production techniques.
technology involves the use of capital equipment while technological change requires the use of brain power.
31. What is the difference between "diminishing marginal returns" and "diseconomies of scale"? (Points : 1)
Both concepts explain why marginal cost increases after some point but diminishing marginal returns applies only in the short run when there is at least one fixed factor, while diseconomies of scale applies in the long run when all factors are variable.
Both concepts explain why average total cost increases after some point but diminishing marginal returns applies only in the short run when there is at least one fixed factor, while diseconomies of scale applies in the long run when all factors are variable.
Diminishing marginal returns which applies only in the short run, when at least one factor is fixed, explains why marginal cost increases, while diseconomies of scale which applies in the long run, when all factors are variable, explains why average cost increases.
Diminishing marginal returns which applies only in the short run, when at least one factor is fixed, explains why average variable cost increases, while diseconomies of scale which applies in the long run, when all factors are variable, explains why average total cost increases.
32. Which of the following is not a source of technological advancement for a producer? (Points : 1)
better trained workers.
more efficient physical capital.
higher skill level of managers.
outsourcing some aspect of production.
33. The president of Toyota's Georgetown plant was quoted as saying, "Demand for high volumes saps your energy. Over a period of time, it eroded our focus [and] thinned out the expertise and knowledge we painstakingly built up over the years." This quote suggests that (Points : 1)
Toyota was experiencing an excess demand for its automobiles which it had difficulty keeping up with.
as Toyota expanded its capacity, it experienced diseconomies of scale.
Toyota was focused on "churning" out cars that it did not invest sufficiently in training its workers.
high demand for Toyota's cars prevented the company from focusing on its strength: auto design.
34. Which of the following describes a situation in which every good or service is produced up to the point where the last unit provides a marginal benefit to consumers equal to the marginal cost of producing it? (Points : 1)
36. Assume that price is greater than average variable cost. If a perfectly competitive seller is producing at an output where price is $11 and the marginal cost is $14.54, then to maximize profits the firm should (Points : 1)
continue producing at the current output.
produce a larger level of output.
produce a smaller level of output.
not enough information given to answer the question.
Market supply is found by (Points : 1)
vertically summing the relevant part of each individual producer's marginal cost curve.
horizontally summing the relevant part of each individual producer's marginal cost curve.
vertically summing each individual producer's average total cost curve.
horizontally summing each individual producer's average total cost curve.
42. In Walnut Creek, California, there are three very popular supermarkets: Safeway, Whole Foods and Lunardi's. While Safeway remains open twenty-four hours a day; Whole Foods and Lunardi's close at 9 pm. which of the following statements is true? (Points : 1)
Safeway is a monopoly all day because it produces a service that has no close substitutes.
Safeway has a monopoly at midnight but not during the day.
Safeway can ignore the pricing decisions of the other two supermarkets.
Safeway probably has a higher markup to compensate for its higher cost of production.
44. Because a monopoly's demand curve is the same as the market demand curve for its product, (Points : 1)
the monopoly's marginal revenue equals its price.
the monopoly is a price taker.
the monopoly must lower its price to sell more of its product.
the monopoly's average total cost always falls as it increases its output.
45. Consumers benefit from monopolistic competition by (Points : 1)
being able to choose from products more closely suited to their tastes.
paying the lowest possible price for the product.
paying the same price as everyone else.
being able to purchase high quality products at low prices.
46. You are planning to open a new Italian restaurant in your hometown where there are three other Italian restaurants. You plan to distinguish your restaurant from your competitors by offering northern Italian cuisine and using locally grown organic produce. What is likely to happen in the restaurant market in your hometown after you open? (Points : 1)
Your competitors are likely to change their menus to make their products more similar to yours.
The demand curve facing each restaurant owner shifts to the right.
The demand curve facing each restaurant owner becomes more elastic.
While the demand curves facing your competitors becomes more elastic, your demand curve will be inelastic
48. Which of the following statements is true about advertising by a monopolistically competitive firm? (Points : 1)
Since the monopolistic competitor, like the perfect competitor, makes zero profit in the long run, it is a waste of resources to advertise its products.
Advertising could make the monopolistic competitor's demand more inelastic but advertising has no effect on a perfect competitor's demand.
Advertising will be more beneficial if a monopolistic competitor colludes with other firms to advertise the products of the industry as a whole rather than an individual firm's product.
Monopolistically competitive firms tend to shun advertising because advertising draws attention to the variety of differentiated products available in the industry.
49. What type of demand curve does a monopolistically competitive firm face? (Points : 1)
50. Until the late 1990s, airlines would post proposed changes in ticket prices on computer reservations systems several days before the new ticket prices went into effect. Then the federal government took action to end the practice. Now airlines can only post prices on their reservations systems for tickets that are immediately available for sale.
Source: Scott McCartney, "Airfare Wars Show Why Deals Arrive and Depart," Wall Street Journal, March 19, 2002.
Why would the federal government object to the old system of posting prices before they went into effect? (Points : 1)
because it is a form of price discrimination in that consumers who need to travel immediately are subject to different fares compared to those who will travel at a later date when the price changes go into effect
because it is essentially a form of price signaling; airlines try to determine the reaction of competitors before committing to a price change
because it creates chaos in the air travel market: if an airline plans to cut fares, then consumers are likely to postpone purchases but if an airline plans to increase fares, then a shortage will result.
because it makes it more difficult for airlines to agree on ticket price changes and likely to spark an airfare war
51. Why does a prisoners' dilemma lead to a noncooperative equilibrium? (Points : 1)
because each player had agreed before the game started to minimize the harm that he can inflict on the other players
because each player is uncertain how other players will play the game
because players must choose from have a limited number of non-dominant strategies
because each rational player has a dominant strategy to play a certain way regardless of what other players do
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