Econ 102 Final Review

1.Marginal revenue for a monopolist isa.Downward sloping and always less than priceb.Downward sloping and always equal to pricec.Downward sloping and always greater than priced.Horizontal, just like for the perfectlycompetitive firm2.In the graph, the monopoly isa.Making economic profitsb.Making either profits or losses. Wecannot tell without more informationc.Breaking evend.Making accounting profits, buteconomic losses3.The marginal revenue curve for a perfectlycompetitive firm is ____________ while themarginal revenue curve of the monopolist is ____________.a.Horizontal, downward slopingb.Horizontal, upward slopingc.Downward sloping, horizontald.Downward sloping, upward sloping4. A monopoly is socially inefficient because ita.Makes consumer buy goods they really don’t needb.Makes profitsc.Makes profits even in the long rund.Charges a price greater than marginal cost5. A firm can be the sole supplier of a good and still not be considered a monopoly ifa.The firm is making normal profitsb.The good produced is not important to the economyc.The firm is not larged.There are very close substitutes for the good6.The demand curve faced by the monopolista.Has greater price elasticity of demand and close substitutes for themonopoly product are developedb.Is perfectly inelasticc.Has smaller price elasticity of demand as close substitutes for themonopoly product are developedd.Is perfectly elastic7.In order to price discriminate, a firm musta.Be sure the price-marginal cost ratio is the same for all its submarketsb.Have permission from the governmentc.Face a downward-sloping demand curved.Set price equal to marginal cost8.As opposed to other types of monopoly, a natural monopoly typically owes itsmonopoly position toa.Economies of scaleb.Tariffsc.Ownership of a resource without close substitutesd.Patents9.In a monopoly market structure, the firm (the monopolist)a.Gouges the consumerb.Gets unconscionably richc.Is the whole industryd.Sells faulty products10.In the graph to the right, the profit-maximizing price for a monopoly isa.P3b.P4c.P2d.P111.The fact that a monopolistically competitive firm does not produce the minimumATC can be viewed as the cost of generatinga.Economies of scaleb.Homogeneous productsc.Product differentiation and varietyd.All of the above12.A firm that produces an information product willa.Earn negative or zero economic profits in the long runb.Earn positive economic profits in the long runc.Earn zero economic profits in the long rund.Earn positive or zero economic profits in the long run13.The downward slop of the demand curve of a monopolistically competitive firmimplies that the firm hasa.No monopoly power over price, and therefore advertising will not increaseprofitsb.Some monopoly power over price, and therefore advertising may increaseprofitsc.Increasing returns to scaled.Constant returns to scale14.The greater the monopolistically competitive firm’s success at productdifferentiation the lower is (are) the firm’sa.Price elasticity of demandb.Opportunities for collusive behaviorc.Options for altering product priced.None of the above are correct15.When the qualities of a good are relatively easy to assess in advance of theirpurchase, the good I known asa.An information productb.An experience goodc. A search goodd.An interactive good16.Which of the following graphs represents the cost curves for an informationalproduct?a. Ab. Bc. C17.The monopolistically competitive firm in the diagram isa.Earning positive economic profitsb.Earning positive accounting profitsbut negative economic profitsc.Earning negative economic profitsd.Earning economic profits equal tozero18.In the long run, monopolisticallycompetitive firms,a.Make zero economic profitsb.Make positive economic profitsc.Can make either positive economicprofits or zero economic profits, and always make positive accountingprofitsd.Make zero accounting profits19.In comparing the long-run equilibrium of perfect competition and monopolisticcompetition, which of the following is true?a.Perfect competition: P = MC – minimum of AVC and zero economicprofits; Monopolistic competition: P > MC = ATC and positive economicprofitsb.Perfect competition: P = MC – minimum of ATC and zero economicprofits; Monopolistic competition: P = MC > minimum of ATC and zeroeconomic profitsc.Perfect competition: P = MC – minimum of ATC and zero economicprofits; Monopolistic competition: P > MC, P > minimum ATC and zeroeconomic profitsd.Perfect competition: P = MC – minimum of ATC and zero economicprofits; Monopolistic competition: P = minimum of ATC > MC and zeroeconomic profits20.When a firm produces an information product the initial or fixed costs are(low/high).21.Consequently the average fixed cost and average total cost (increase/decrease) asthe volume of output increases.22.Since most of the costs are the initial fixed costs of development, once the productis developed, the (total/average/marginal) cost of producing more units of theproduct are typically low and (decreasing/increasing/constant).23.In this case, then, the low and constant marginal cost is (above/below) the averagecost.24.If the firm set the price, or average revenue, of the product equal to the marginalcost, the firm would have economic (gains/losses) since the marginal cost is(greater than/les than) the average cost.25.Which of the market structures has unrestricted entry and exit, many sellers of theproduct and some ability to set the price?a.Monopolistic competitionb.Oligopolyc.Monopolyd.Perfect competition26.A situation where a consumer’s willingness to use an item depends on how manyothers use it isa. A positive-sum gameb.Price leadershipc. A vertical mergerd. A network effect27.Oligopolies may emerge in an industry because ofa.Barriers to entryb.Economies of scalec.Mergersd.All of the above28.According to game theory, the strategic interaction between two or moreindividuals can take the form ofa. A zero-sum gameb. A non-cooperative gamec. A cooperative gamed.All of the above are correct29.What is a cartel?a.It is an association of producers in an industry that agree to set commonprices to prevent competitionb.It is an association of producers in an industry that agree to set commonprices and output quotas to promote competitionc.It is an association of producers in an industry that agree to set commonprices to promote competitiond.It is an association of producers in an industry that agree to set commonprices and output quotas to prevent competition30.A game in which the players will not negotiate is aa.Zero-sum gameb.Cooperative gamec.Non-cooperative gamed.Negative-sum game31.How can an oligopoly form when there are network effects and market feedback?a. A few firms may be able to capture most of the growth in demand that iscaused by positive market feedbackb.Firms will successfully drive out their competitors when they pick amarket leader and match any price changes made by the leaderc.Firms will engage in limit pricingd.Firms will invest in excess productive capacity to signal other firms thatthey can outlast their competitors in a price war.32.Under the Capper-Volstead Act of 1992, U.S. farmers are permitted to formcooperative organizations aimed at influencing aggregate production and market prices of their crops. Today, many of the nation’s 10,000 potato farmers areaiming to expand the United Potato Growers of America (UPGA), an organization dedicated to restricting potato production, pushing up potato prices, and boosting profits. The UPGA includes farmers from California, Colorado, Idaho, Oregon, Texas, Washington, and Wisconsin. Members sign an agreement to restrict their production of potatoes. The UPGA uses satellite photography and global-positioning-system technology to enforce the agreement and fines members who are caught cheating. Based on the discussion of the factors favoring theorganization and enforcement of a cartel, what aspects of US potato farming make the ultimate success of the UPGA’s potato car tel more or less likely?a.The number of firms makes it ______ likely the UPGA’s cartel will besuccessful.b.Being that the product is potatoes makes it ______ likely the UPGA’scartel will e successful.c.The fact that potatoes are publically traded in large highly organizedmarkets makes it ______ likely the UPGA’s cartel will be successful.d.If the demand for potatoes suddenly become more volatile, that wouldmake it ______ likely the UPGA’s cartel will be successful.33.An industry battle between incompatible product formats can occur if competingfirms selling sets of ________________________ products fail to take intoaccount ________________________ effects.34.Consider the following payoff matrix. Firm 1 and Firm 2 are seeking to choosebetween Format A and Format B for their products. Which of the followingstatements best describes their profit-maximization?a.Since there are no network effects,Firm 1 would maximize its profit byproducing format B and Firm 2would maximize its profit byproducing format A.b.Since there are network effects, Firm1 would maximize its profit byproducing format B and Firm 2would maximize its profit byproducing format A.c.Since there are no network effects,the firms would maximize profits ifthey both produced format A.d.Since there are network effects, the firms would maximize profits if theyboth produced format A.35.The legal system typically defines monopoly by looking at a firm’sa.Sales revenuesb.Market sharec.Adjusted taxable incomed.Advertising budget36.The first legislation enacted to control the creation and growth of monopoly in theU.S. wasa.The Sherman Antitrust Actb.The Federal Trade Commission Actc.The Robinson-Patman Actd.The Clayton Act37.Which of the following are exempt from antitrust regulation?a.The communications industryb.The steel industryc.The automobile industryd.Professional baseball38.The theory that regulators often end up adopting the views of the regulated isknown asa.The capture hypothesisb.The share-the-gains, share-the-pains hypothesisc.The deregulation hypothesisd.None of the above39.Market solutions to the lemons problem entaila.Industry standardsb.Product certificationc.Product warrantiesd.All of the above40.Average cost pricing by regulated monopoliesa.Forces the firm to operate at a lossb.Permits long-run monopoly profitsc.Al lows the firm to make a “fair” rate of returnd.None of the above41.Which of the following is not an issue in enforcing antitrust laws?a.Marginal cost pricingb.International competitionc.Defining the relevant marketd.The laws are vague42.A natural monopoly exists whena. A firm is able to make long-run profits without inducing entry by otherfirmsb.There is pure monopoly and the government grants an exclusive license tothe firmc. A firm’s demand curve is downward slopingd. A firm’s long-run average cost curve is sloping down when it intersectsthe market demand curve43.The federal regulatory agency that has jurisdiction over labor markets isa.The Federal Trade Commissionb.The Occupational Safety and Health Administrationc.The Equal Employment Opportunity Commissiond.The Securities and Exchange Commission44.The primary purpose of economic regulation isa.To control the price that regulated enterprises are allowed to chargeb.To control the quality of serice provided by a monopolistc.To force a firm to produce at the point where marginal cost equalsmarginal revenued.To focus on the impact of production on the environment and society, theworking conditions under which good and services are produced, andsometimes the physical attributes of goods45.The table gives some data from the productionfunction of a firm that is a perfect competitorin both the product and labor markets. Thewage rate in the industry is $300 and the priceof the good produced is $15. The profit-maximizing quantity of labor to hire isa.102 workersb.103 workersc.104 workersd.105 workers46.Which of the following is not a key factor that influences the elasticity of demandfor labor?a.How easy it is to substitute other inputs for labor in the production processb.The proportion of total costs that is accounted for by laborc.The availability of labor in the marketd.The price elasticity of demand for the final producte.The length of time the firm has to adjust to a change in the labor’s price47.In the short run, labor outsourcing by U.S. firms tends toa.Increase U.S. wages but reduce U.S. employmentb.Increase both U.S. wages and employmentc.Reduce both U.S. wages and employmentd.Reduce U.S. wages but increase U.S. employment48.For affirm facing a perfectly elastic supply of labor, the employment of workerswill continue untila.MRP = wage rateb.Marginal factor cost = wage ratec.MPP = MRd.All of the above49.The price elasticity of demand for an inputa.Is larger the longer the time period being consideredb.Is lower the larger the proportion of total costs accounted for by that inputc.Is lower as more substitutes for the input are availabled.Is lower the greater the price elasticity of demand for the final product50.How many workerswill this firm employif the weekly wage is$300?a.0b.27c.28d.2951.The net short-run effects of outsourcing on U.S. wages and employment area.Always negativeb.Mixedc.Always positived.Limited to blue collar workers52.If the MRP of labor is less than the age rate, the perfectly competitive firm willa.Maintain the current level of employmentb.Increase employmentc.Decrease employmentd.Raise the wage rate53.Other things equal, an increase in the productivity of labor will lead toa.Fewer workers being hiredb.Lower wagesc.Higher wagesd.No change in the number of workers being hired54.The monopolist hires fewer workers than the perfect competitor becausea. A product price must rise for the monopolist to sell moreb.The MRP curve for the monopolist is above the MRP curve of the perfectcompetitorc.The monopolist produces less than the perfect competitor and needs lesslabor, other things being equal.d.None of the above55.Money payments made by governments to individuals for which no services orgoods are concurrently rendered are known asa.Black market paymentsb.Demerit paymentsc.Transfer paymentsd.Merit payments56.Subsidizing medical services through Medicarea.Makes medical services available to a large percentage of the population,who otherwise could not afford themb.Drives a wedge between the price received by providers and the priceperceived by consumersc.Is s relatively low percentage of U.S. GDP compared to other nationsd.All of the above are truee.Only A and B are true57.A cost or benefit of an economic activity that has an impact on an individual’swell-being, even though the individual was not directly involved in the activity, is known as a(n)a.Public goodb.Externalityc.Free-riderd.Capital loss58.Based on the accompanying graphwhich depicts the market for CATscans, in the free market, the priceof a CAT scan would be__________. In the free market thequantity of CAT scans consumedwould be _________. Thegovernment subsidizes the CATscans and pays hospitals $450.When the subsidy is paid there willbe _________ CAT scansproduced. Consumers are willingto pay _________ out of the pocketexpenses for a CAT scan. Theamount of the subsidy is_________. Subsidizing CAT scans results in _________ CAT scans being produced.59.A good that has been deemed socially desirable through the political process isknown asa. A merit goodb. A demerit goodc. A positive externalityd. A free-rider60.The study of collective decision making, or the process through which voters,politicians and other interested parties influence nonmarket choices is known asa. A private choice theoryb.Antitrust legislationc.Public choice theoryd.The exclusion principle61.Market failure occurs becausea.The market system does not make individuals responsible for the socialcosts/benefits of their actionsb.The market system forces individuals to consider the social consequencesof their actionsc.The market system forces individuals to consider the social and privateconsequences of their actionsd.The market system does not make individuals responsible for the privatecosts/benefits of their actions62.A true public good must be provided by the government. Which of the followinggoods is a true public good?a.Highways where tolls are collectedb.Postal servicec.Tax collectiond.Flood control63.Other than correcting externalities, other economic functions of governmentincludea.Deciding which states may or may not impose income taxes, charge feesand enforce contractsb.Providing a legal system, allocating public goods, promoting competition,and stabilizing the economyc.Deciding what to produce, how to produce it and for whom to produce forall the sectors of the economyd.Income redistribution and the regulation and provision of merit anddemerit goods64.Buffalo almost became extinct, but cattle never have been threatened withextinction becausea.Buffalo were wild and cattle were tameb.Cattle provide economically valuable products and buffalo did notc.Buffalo are bigger than cattle and thus provide more meat and hided.Buffalo were common property and cattle were private property65.Economically speaking, the optimal quantity of pollution isa.The output where the marginal benefit from cleaning up pollution equalsthe marginal cost of cleaning up pollutionb.Zeroc.The output where the total benefit from cleaning up pollution equals thetotal cost of cleaning up pollutiond.The output where the marginal cost of pollution is positive66.Which of the following is true?a.Private costs are the same thing as external costsb.Social costs are the same thing as the sum of private and external costsc.Internal costs are the same thing as social costsd.All of the above statements are trueFor questions 67-68, consider the following. In several African countries where the rhinoceros was once a thriving species, the animal is now nearly extinct. In most of these nations, rhinoceros horns are used as traditional ingredients in certain medicines. Rhinoceros farming has been proposed as an alternative to the imposition of stiff penalties on people who are caught engaging in rhinoceros hunting.67.The imposition of stiff penaltiesa.Reduces the supply of rhino hornsb.Increases the price of rhino hornsc.Makes poaching more lucratived.All of the above are correcte. B & C only are correct68.If rhinoceros farming was legala.The market price of rhino horns would fallb.The incentive to poach would be reducedc.More rhino horns would be producedd.All of the above are correcte. B & C only are correct69.If the marginal cost of making the air in Los Angeles 10 percent cleaner is $20million, then the marginal cost of making the air in Los Angeles 20 percentcleaner isa.Between $20 and $40 millionb.Uncertain. We need more informationc.$40 milliond.More than $40 million70.Assume the figure to the right represents amarket with a negative externality. One of thesupply curves only includes the private costsof producing the good, while the otherincludes both the private cost and the externalcost of production. Referring to the figure, thesocially optimal price is:a.Between P2 and P3b.P1c.P3d.P271.A common property resourcea.Has property rights that are indefinite or nonexistentb.Is one that everyone ownsc.Is a nonexclusive resource in that no one can be prevented from using itd.All of the above are correct72.For private contracting to solve the externality problem, all of the followingconditions must be met excepta.The government enforces contractsb.The government knows the extent to which social costs exceed privatecostsc.Transaction costs are lowd.The resources are privately owned73.Under a program called the Emissions Trading Scheme, the governments ofEuropean Union member nations establish overall targets for greenhouse gasemissions and issue ________, or permits, authorizing companies to emit certain amounts. In theory, an increase in the market clearing price of ______ should induce firms to develop methods of _______ their emissions of greenhouse gases.a.Vouchers; pollution; reducingb.Allowances; allowances; eliminatingc.Allowances; allowances; reducingd.Vouchers; pollution; eliminating74.Externalities can be corrected and the market system will produce the sociallyefficient amount of goods ifa.The externality is “internalized” so that people are forced to face theprivate and social costs of their actionsb.Individuals are faced with the private and external costs of their actionswhen making decisionsc.Signals in the economy make decision-makers confront all the costs oftheir actionsd.Any of the above take place75.Which of the following is not a regional trading bloc?b.WTOc.ASEANd.The EU76.The North American Free Trade Agreement and the European Union areexamples ofbor agreements designed only for industrialized contriesb.Trade blocsc.Agriculturally based economiesd.Defense treaties77.One main difference between tariffs and quotas is thata.Tariffs benefit domestic producers but quotas do notb.Consumers can import any amount of the imports that have tariffs placedon them, but they are restricted to a set maximum amount they can importfor goods subject to quotasc.Tariffs raise the price of imported products but quotas do notd.All of the above78.Which of the following is consistent with international trade theory?a. A country should strive for comparative advantage in manufacturingb.The United States has been falling behind Europe and Japan because itseconomy is too openc.The standard of living within a country is a function of the strength of theeconomy and not of its relative positiond.The United States needs trade restrictions to stay competitive79.If a firm in China sells its product in the U.S. at a price below its cost ofproduction, the firm is said to bea.Acting in the interest of consumers and producers in the U.S. marketb.Experiencing diseconomies of scalec.Dumping its goods in the U.S. marketd.None of the above80.In the long run, imports are paid for by exports becausea.The regulations of the World Bank stipulate that this is how internationalaccounts must be settledb.All U.S. dollars ultimately must be held in the United Satesc.For the most part, foreigners want U.S. produced goods in exchange forthe goods that are shipped to the United Statesd.All of the above81.The United States economy is considered by the Institute for ManagementDevelopment to be the most competitive economy becausea.Of a high saving rateb.Of selected restrictions on imports from Japan and Europe.c.Of Widespread entrepreneurshipd.Americans are willing to work harder than anyone else is82.When a firm’s production is subsidized by its government and then the firm sellsits products in a foreign country at a price below the cost of production, this is calledb. A tariffc.Involuntary export expansiond.Dumping83.If a country has a comparative advantage in the production of some good thena.That country should let other nations produce that good so that they mayfocus on new products that will expand job opportunities for their citizensb.That country can produce the good at a lower opportunity cost comparedto other producersc.That country should specialize in the production of that good and not tradewith other nations so that they can keep all the gains for themselvesd.All of the above84.In the graph shown, both world trade andworld real GDP are measured as indexnumbers and are arbitrarily set equal to100 for 1950. By 2005, the index forworld trade has increased to a little over2,400. Since 1950 world trade hasincreased by a multiple ofa.16b.24c.8d.1285.What is the difference between a deficit item and a surplus item in the balance ofpayments?a. A deficit item is when a country imports more than it exports while asurplus is when a country exports more than it importsb. A surplus item is when a transaction leads to a payment by a country and adeficit item is when a transaction leads to a receipt by a countryc. A deficit item is when a country exports more than it imports while asurplus item is when a country imports more than it exportsd. A deficit item is when a transaction leads to a payment by a country and asurplus item is when a transaction leads to a receipt by a country86.Under the gold standard, if a country had a balance of payments deficita.Gold would flow out of that country and the domestic money supplywould contractb.National output and prices would fall discouraging imports andencouraging exports leading to an improvement in the balance ofpaymentsc.Interest rates would rise which would attract foreign capital and lead to animprovement in the balance of paymentsd.All of the above87.In the following graph, whatis the equilibrium exchangerate between the SouthAfrican rand the U.S. dollars?a.0.05b.0.15c.0.20d.0.2588.In the graph, what is the situation when the dollar price of the South African randis at 0.10?a.There is a shortage of 8 trillion rand demandedb.There is a surplus of 4 trillion randc.There is a shortage of 0.4 trillion randd.There is a surplus of 0.4 trillion U.S. dollars89.The larger the current account surplus, therger the total account surplusrger the capital account deficitrger the balance of merchandise trade deficitd.Greater the depreciation of the dollar90.If the current account is in a deficit, the capital accounta.Will be in a surplusb.Will be in a deficitc.Will be in balanced.Can either be a deficit or surplus91.A problem associated with flexible exchange rates isa.Hedgingb.The inability for an economy to compete against foreign substitutesc.Foreign exchange riskernment control over the exchange rate92.The following table lists the dollarfigures of international transactionsof the US. Figures are in billions ofdollars. The current accountbalance isa.$-50b.$-150c.$-100d.$15093.The capital account balance in thegraph isa.$150b.$-150c.$-100d.$-5094.How are flexible exchange rates determined?a.The exchange rate is determined where the current account is equal to thecapital accountb.The exchange rate is determined where the quantity of exports demandedis equal to the quantity supplied of exports。