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If we use a narrow definition of monopoly, then a monopoly is defined as a firm
that has been granted special production rights by the government.
that has the largest market share in an industry.
that can ignore the actions of all other firms because it produces a superior product compared to its rivals' products.
that can ignore the actions of all other firms because it produces a product for which there are no close substitutes.
that can ignore the actions of all other firms because it produces a product for which there are no close substitutes.
More people started building houses in earthquake-prone regions when the government of Polonia launched an insurance program for houses in this region. This is an example of ________.
moral hazard
herd behavior
adverse selection
a positive externality
moral hazard
A Herfindahl-Hirschman Index is calculated by
summing the amount of sales by the four largest firms and dividing by total industry sales.
summing the advertising expenditures of the firms that want to merge by total industry advertising expenditures.
summing the squares of the market shares of each firm in the industry.
dividing the number of firms wanting to merge by the total number in the industry.
summing the squares of the market shares of each firm in the industry.
Compensating differentials are
non-monetary benefits from being employed, such as health-care benefits.
higher wages that compensate the more experienced workers in a field.
higher wages that compensate workers for unpleasant aspects of a job.
wages paid to workers where the supply of labor is great relative to demand.
higher wages that compensate workers for unpleasant aspects of a job.
Which branch of economics considers that economic agents do not always act rationally?
Econometrics
Behavioral economics
Macroeconomics
Microeconomics
Behavioral economics
A new area of economics studies situations in which people appear to be making choices that do not appear to be economically rational. This area is called
social economics.
new wave economics.
irrational economics.
behavioral economics.
behavioral economics.
Scenario: The market for used cell phones is very popular in Barylia. However, several phones available in this market are of inferior quality and it is often impossible to differentiate between a good-quality phone and a poor-quality phone.
Refer to the scenario above. Based on the given information, we can conclude that the market for used cell phones in Barylia:
has only one seller.
has asymmetric information.
is perfectly competitive.
is monopolistically competitive.
has asymmetric information.
Which of the following parties is likely to have the most information about the health of an individual who is trying to purchase a health insurance policy?
the individual who is applying for the health insurance policy
the employer of the individual who is trying to purchase the health insurance policy
the company that issues the health insurance policy
All parties in the health insurance market have access to the same level of information.
the individual who is applying for the health insurance policy
A monopoly is a seller of a product
with many substitutes.
with a perfectly inelastic demand.
without a close substitute.
without a well-defined demand curve.
without a close substitute.
A person's stock of skills to produce economic value is referred to as
personal capital.
human capital.
fixed capital.
personal wealth.
human capital
In a natural monopoly, throughout the range of market demand
there are diseconomies of scale.
average total cost is above
marginal cost and pulls marginal cost upward.
marginal cost is above average total cost and pulls average total cost upward.
marginal cost is below average total cost and pulls average total cost downward.
marginal cost is below average total cost and pulls average total cost downward.
If Molly Bee increases her work hours when her wage increases, then
the substitution effect of the wage increase outweighs the income effect.
leisure is an inferior good to Molly.
Molly is spending beyond her means.
the income effect of the wage increase outweighs the substitution effect.
the substitution effect of the wage increase outweighs the income effect.
If the average variable cost curve is above the marginal cost curve, then
marginal costs must be increasing.
marginal costs can be either increasing or decreasing.
marginal costs must be decreasing.
average variable costs must be increasing.
marginal costs can be either increasing or decreasing.
Which of the following correctly identifies the difference between the demand for labor and the demand for final goods?
The demand for final goods is fixed over time, whereas the demand for labor changes according to the changes in tastes and preferences.
The demand for labor is derived from the demand for final goods, whereas the demand for final goods is independent of the demand for labor.
The demand for labor is fixed over time, whereas the demand for final goods changes according to changes in tastes and preferences.
The demand for final goods is derived from the demand for labor, whereas the demand for labor is independent of the demand for final goods.
The demand for labor is derived from the demand for final goods, whereas the demand for final goods is independent of the demand for labor.
Most economists believe that a small amount of the gap between the wages of white males and the wages of other groups is due to discrimination. Which of the following factors is not another factor that explains part of this gap?
differences in experience
geographic location
differences in education
differing preferences for jobs
geographic location
A Nash equilibrium is
reached when each player chooses the best strategy for himself, given the other strategies chosen by the other players in the group.
reached when each player chooses the best strategy for himself and for the group.
reached when an oligopoly's market demand and supply intersect.
an equilibrium comprising non-dominant strategies only.
reached when each player chooses the best strategy for himself, given the other strategies chosen by the other players in the group.
Scenario: You walk onto a used-car lot to buy a car. You are willing to pay up to $15,000 for a car of good quality but you value a lemon at $0.You are now wondering whether you should trust the car dealer regarding the quality of the car. If you choose to trust him, he can choose to cooperate or defect. If you do not trust him, neither will he earn money nor will you be able to buy a car and use it. If you trust him and he cooperates, both of you will gain because the dealer values a good-quality car at $13,000. However, if he defects, he will earn $15,000 while you will not derive any satisfaction.
Refer to the scenario above. You should use ________ to arrive at a decision.
forward induction
mixed strategies
backward induction
prisoners' dilemma
backward induction
One reason college students do not study enough to get high grades is that they are unrealistic about their future behavior.
True
False
True
Which of the following is a characteristic shared by a perfectly competitive firm and a monopoly?
Each sets a price for its product that will maximize its revenue.
Each maximizes profits by producing a quantity for which price equals marginal cost.
Each maximizes profits by producing a quantity for which marginal revenue equals marginal cost.
Each must lower its price to sell more output.
Each maximizes profits by producing a quantity for which marginal revenue equals marginal cost.
The Aluminum Company of America (Alcoa) had a monopoly until the 1940s because
the company had a secret technique for making aluminum from bauxite.
it had a patent on the manufacture of aluminum.
it had control of almost all the available supply of bauxite.
it was a public enterprise.
it had control of almost all the available supply of bauxite.
The most important factor contributing to wage differences in the labor market is differences in the level of education and training among workers.
True
False
True
Consider the market for opticians. What is likely to happen to the equilibrium wage and quantity of opticians if more and more people turn to laser eye surgery instead of wearing glasses or contact lens?
The equilibrium wage and the equilibrium quantity of opticians fall.
The equilibrium wage falls and the equilibrium quantity of opticians rises.
The equilibrium wage rises and the equilibrium quantity of opticians falls.
The equilibrium wage and the equilibrium quantity of opticians rise.
The equilibrium wage and the equilibrium quantity of opticians fall.
The lawsuit the Justice Department brought against Apple regarding the pricing of e-books for its iPad is an example of attempts by the government
to regulate a natural monopoly by establishing government-regulated prices.
to prevent vertical mergers which would significantly reduce competition.
to keep firms from artificially restricting competition to raise prices.
to prevent horizontal mergers which would significantly reduce competition.
to keep firms from artificially restricting competition to raise prices.
A horizontal merger
is a merger between firms in the same industry.
results in a trust (for example, the Standard Oil Company).
was illegal in the United States until the Federal Trade Commission Act was passed by Congress in 1914.
is a merger between firms at different stages of production of a good.
is a merger between firms in the same industry.
Technological advancements that increase labor's productivity shift the labor supply curve to the right.
True
False
False
A sequential game can be used to analyze whether a retail firm should build a large store or a small store in a city, when the correct choice depends on whether a competing firm will build a new store in the same city. Which of the following is used to analyze this type of decision?
a decision tree
a decision matrix
an either-or graph
a sequential matrix
a decision tree
In a market with asymmetric information, ________
buyers and sellers have different information about the good being traded
buyers tend to forget relevant information about the good being traded
buyers set the price of the good being traded
buyers have very low bargaining power
buyers and sellers have different information about the good being traded
An increase in the supply of capital, which is a substitute to labor, will lead to a decrease in the demand for labor.
True
False
True
If a fire insurance company requires firms buying fire insurance to install automatic sprinkler systems, the insurance company is trying to reduce
the moral hazard problem.
asymmetric information.
sunk costs.
the problem of adverse selection.
the moral hazard problem.
Consider a used car market in which half the cars are good and half are bad (lemons). A rational buyer in this market should
save up and buy a new car.
offer to pay a price somewhere between the price she would pay for a good car and the price she would pay for a lemon.
offer to pay a price equal to the most she would pay for a good car.
offer to pay a price equal to the most she would pay for a lemon.
offer to pay a price somewhere between the price she would pay for a good car and the price she would pay for a lemon.
A decrease in the wage rate causes
a rightward shift of the firm's labor demand curve.
a decrease in labor's productivity.
a leftward shift of the firm's labor demand curve.
an increase in the quantity of labor demanded.
an increase in the quantity of labor demanded
A firm's demand for labor curve is also called its
marginal factor cost of labor curve.
marginal benefit of labor curve.
marginal valuation curve.
marginal revenue product of labor curve.
marginal revenue product of labor curve.
At low wages, the labor supply curve for most people slopes upward because
the supply of labor is perfectly inelastic at low wages.
as wages increase income also increases unless hours worked decrease.
as wages increase the opportunity cost of leisure increases.
the demand for labor is perfectly elastic at low wages.
as wages increase the opportunity cost of leisure increases.
The term "derived demand" refers to
the demand for financial products called derivatives.
the demand for a factor of production that is derived from the demand for the good the factor produces.
a firm's estimated demand curve derived from sales data.
a demand curve that derives from the availability of resources.
the demand for a factor of production that is derived from the demand for the good the factor produces.
In order to be useful as a signal in a market with information asymmetry, the signal must be ________.
easily available
difficult to obtain
unique
inexpensive
difficult to obtain
Prisoner's dilemma games imply that cooperative behavior between two people or two firms always breaks down. But reality teaches us that people and firms often cooperate successfully to achieve their goals. Why do the results from prisoner's dilemma games fail to predict real-world results?
Prisoner's dilemma games predict the behavior of people and firms that engage in illegal activity; most people and firms do not resort to illegal activity.
The prisoner's dilemma does not apply to most business situations that are repeated over and over.
Prisoner's dilemma games do not permit people or firms from reneging on agreements, which often occurs in real-word situations.
Most real-world situations involve more than two people or firms; the prisoner's dilemma is only applicable to situations that involve two parties.
The prisoner's dilemma does not apply to most business situations that are repeated over and over.
Discrimination that occurs when people's preferences cause them to discriminate against a certain group is referred to as:
taste-based discrimination.
cultural discrimination.
special interest group discrimination.
group discrimination.
taste-based discrimination.
Marginal revenue product of labor for a competitive seller is
the marginal revenue of the product multiplied by the output price.
the change in total product from hiring one more worker.
equal to the marginal product of labor multiplied by the output price.
the output price multiplied by the quantity sold.
equal to the marginal product of labor multiplied by the output price.
The decision rule for a profit-maximizing firm operating in a competitive market to hire an additional worker is the value of the:
marginal product of the worker should be equal to or greater than the wage rate.
average product of the worker being hired should be equal to the wage rate.
average product of the worker being hired should be lower than the wage rate.
marginal product of the worker should be equal to or lower than the wage rate.
marginal product of the worker should be equal to or greater than the wage rate.
Adverse selection occurs in the market for used cars because used car buyers
have more information than used car sellers.
tend to have more accidents than new car buyers.
have less incentive to maintain the value of their cars than new car buyers.
have less information than used car sellers.
have less information than used car sellers.
A local electricity-generating company has a monopoly that is protected by an entry barrier that takes the form of
a perfectly inelastic demand curve.
economies of scale.
control of a key raw material.
network externalities.
economies of scale.
If the marginal cost curve is below the average variable cost curve, then
average variable cost could either be increasing or decreasing.
average variable cost is increasing.
marginal cost must be decreasing.
average variable cost is decreasing.
average variable cost is decreasing.
Which of the following is a reason why it is difficult to estimate the extent of economic discrimination in the labor market?
Employers who discriminate are likely to do so in overt ways such as awarding some workers with benefits-in-kind.
Differences in wages can be attributed to many other factors as well, such as differences in productivity and preferences.
Ultimately, employers who discriminate cannot remain profitable.
Employers who discriminate pay an economic penalty.
Differences in wages can be attributed to many other factors as well, such as differences in productivity and preferences.
A possible advantage of a horizontal merger for the economy is that
the merged firm might reap economies of scale which could translate into lower prices.
the merging firms could avoid losses.
the degree of competition in the industry will be intensified.
the government stands to collect more corporate income tax revenue.
the merged firm might reap economies of scale which could translate into lower prices.
Which of the following is likely to be used as a signal in the job market?
The job description
An announcement of vacancy
The letter of appointment
The degree obtained by the applicant
The degree obtained by the applicant
What is the difference between labor's marginal product and marginal revenue product?
The marginal product of labor is the additional labor's contribution to the firm's total output while the marginal revenue product is the additional labor's contribution to the firm's total sales revenue.
Labor's marginal product is a measure of labor's productivity while labor's marginal revenue product is a measure of labor's ability to sell the firm's products.
The marginal revenue product of labor is the dollar value of hiring an additional worker while the marginal product of labor is the increase in the firm's physical output as a result of hiring an additional worker.
The marginal product of labor is the increase in output as a result of hiring an additional worker while the marginal revenue product of labor is the increase in profit as a result of hiring an additional worker.
The marginal product of labor is the additional labor's contribution to the firm's total output while the marginal revenue product is the additional labor's contribution to the firm's total sales revenue.
Health insurance companies impose deductibles on policies and co-payments on claims
to reduce moral hazard problems.
to reduces sunk costs.
to increase prices.
to increase sales.
to reduce moral hazard problems.
A player has a dominant strategy when:
she has only one best response to every possible strategy of the other player.
she has many best responses to any strategy of the other player in the game.
her chosen strategy matches the best response of other players in the game.
her chosen strategy gives her a lower payoff than the other player.
she has only one best response to every possible strategy of the other player
Which of the following is an example of adverse selection?
Passengers travelling in a subway without a ticket
The generation of a harmful chemical during the production of a good
Overgrazing of a common piece of land
A customer buying a defective appliance from a used goods market
A customer buying a defective appliance from a used goods market
In many business situations one firm will act first, and then other firms will respond. To help analyze these types of situations economists use
sequential games.
retaliation games.
follow-the-leader-games.
bargaining games.
sequential games.
The first important law regulating monopolies in the United States was
the Sherman Act, which was passed in 1890.
the Clayton Act, which was passed in 1890.
the Grant Act, which was passed in 1890.
the Federal Trade Commission Act, which was passed in 1914.
the Sherman Act, which was passed in 1890.
Which of the following is likely to cause a decrease in the wage rate and an increase in the employment level of a country?
A right shift in the supply curve for labor, without any change in the demand curve for labor
A right shift in the demand curve for labor, without any change in the supply curve for labor
A left shift in the supply curve for labor, without any change in the demand curve for labor
A left shift in the demand curve for labor, without any change in the supply curve for labor
A right shift in the supply curve for labor, without any change in the demand curve for labor
If a natural monopoly regulatory commission sets a price where marginal cost is equal to demand
the firm would break even.
economic efficiency would not be achieved.
the firm would earn monopoly profits.
the firm would incur a loss.
the firm would incur a loss.
The U.S. Congress has given two government entities the authority to police mergers. These two entities are
the Federal Trade Commission and the Antitrust Division of the U.S. Department of Justice.
the Federal Trade Commission and the Internal Revenue Service.
the antitrust division of the Department of State and the Securities and Exchange Commission.
the Antitrust Division of the U.S. Department of Justice and the Council of Economic Advisors.
the Federal Trade Commission and the Antitrust Division of the U.S. Department of Justice.
Sunk costs
are costs that have already been paid and cannot be recaptured in any significant way.
are costs that firms sink into marketing.
are important for optimal decision making.
are costs associated with repairing something you already own.
are costs that have already been paid and cannot be recaptured in any significant way.
When expectations cause people to discriminate against a certain group, it is referred to as:
implicit discrimination.
statistical discrimination.
taste-based discrimination.
preferential bias.
statistical discrimination
Which of the following is true of an extensive-form game?
The sum of the payoffs to the players in the game is always constant.
The players in the game earn equal payoffs in equilibrium.
It involves sequential decision making by the players.
It involves simultaneous decision making by the players.
It involves sequential decision making by the players.
In the United States, the bulk of health care spending is paid by health insurance companies. Such a system is also called a third-party payer system where consumers of health care pay a nominal fee and the rest are paid by the health insurance provider. Why might such a system lead to an inefficient outcome?
Health insurance companies have an incentive to control cost and therefore tend to deny consumers many cutting edge medical treatments.
Consumers fearing that excessive use of health care services may lead to a rise in insurance premiums tend to under-consume health care services.
Physicians concerned that insurance companies may not approve payments tend not to order expensive tests for their patients.
Consumers have an incentive to over-consume health care services because they pay prices well below the cost of providing these services.
Consumers have an incentive to over-consume health care services because they pay prices well below the cost of providing these services.
Which of the following is a characteristic shared by a perfectly competitive firm and a monopoly?
Each maximizes profits by producing a quantity for which price equals marginal cost.
Each must lower its price to sell more output.
Each maximizes profits by producing a quantity for which marginal revenue equals marginal cost.
Each sets a price for its product that will maximize its revenue.
Each maximizes profits by producing a quantity for which marginal revenue equals marginal cost.
The labor supply for an industry would decrease if
the wage rate falls.
the percentage of the population from age 16 to 65 decreases.
a greater percentage of women want to work outside the home.
the government welcomes foreign workers into the country.
the percentage of the population from age 16 to 65 decreases.
A warranty is an example of ________.
a price ceiling
signaling
sniping
a price floor
signaling
Other things remaining the same, which of the following is likely to happen if all homemakers in an economy start working as paid labor?
There will be an increase in both the wage rate and the employment level.
There will be a fall in both the wage rate and the employment level.
There will be a fall in the wage rate in the country and an increase in the employment level.
There will be an increase in the wage rate in the country and a fall in the employment level.
There will be a fall in the wage rate in the country and an increase in the employment level.
The income effect of a wage increase is observed when
the higher wage income causes workers to take more leisure and work less.
the higher wage income causes workers to take less leisure and work more.
leisure's higher opportunity cost causes workers to take less leisure and work more.
leisure's higher opportunity cost causes workers to take more leisure and work less.
the higher wage income causes workers to take more leisure and work less.
The study of how people make decisions in situations where attaining their goals depends on their interactions with others is called
dominant strategy equilibrium.
game theory.
Nash equilibrium.
the prisoner's dilemma.
game theory.
Decision trees are commonly used to illustrate how firms make business decisions that depend on the actions of rival firms. A decision tree has boxes that contain points that represent when firms must make the decisions contained in the boxes. What are these points called?
decision options
decision nodes
option points
either-or terminals
decision nodes
Economically rational means that consumers and firms
are realistic about the present but not necessarily the future.
obtain full information prior to taking actions to reach goals.
take into account monetary costs and sunk costs.
take actions that are appropriate to reach goals given available information.
take into account monetary costs but ignore nonmonetary opportunity costs.
take actions that are appropriate to reach goals given available information.
A dominant strategy is
a strategy chosen by two firms that decide to charge the same price or otherwise not to compete.
a strategy that is the best for a firm no matter what strategies other firms use.
an equilibrium where each firm chooses the best strategy, given the strategies of other firms.
a strategy that is obviously the best for each firm that is a party to a business decision.
a strategy that is the best for a firm no matter what strategies other firms use.
In a simultaneous move game, ________.
each player has to make his choice without knowing his rival's choice
there is always more than one dominant strategy equilibrium
there is always more than one Nash equilibrium
each player has to make his choice after knowing his rival's choice
each player has to make his choice without knowing his rival's choice
In an extensive-form game, payoff to a player is usually higher if ________.
he is smarter than the other player
he is the second mover
he is the first mover
he picks a strategy at random
he is the first mover
If a theatre company expects $250,000 in ticket revenue from five performances and $288,000 in ticket revenue if it adds a sixth performance, the
marginal revenue of the sixth performance is $288,000.
cost of staging the sixth performance is probably higher than the cost of staging the previous five.
company will be making a loss on the sixth performance because its ticket sales will be less than the average revenue received from the previous five.
marginal revenue of the sixth performance is $38,000.
marginal revenue of the sixth performance is $38,000
The law of diminishing marginal returns states
average total costs of production initially fall and after some point starts to rise at a decreasing rate as output increases.
that at some point, adding more of a fixed input to a given amount of variable inputs will cause the marginal product of the variable input to decline.
that in the presence of a fixed factor, at some point average product of labor starts to fall as more and more variable inputs are added.
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.
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.
Anchoring is relating a value to some other known value
that the customer has previously experienced.
except when the second value is irrelevant.
even if the second value is irrelevant.
only when the second value is irrelevant.
even if the second value is irrelevant.
Signaling takes place in markets with ________.
positive externalities
perfect competition
asymmetric information
negative externalities
asymmetric information
When the average total cost is $16 and the total cost is $800, then the number of units the firm is producing is
impossible to determine with the information given.
12,800.
784.
50.
50
If a firm's average total cost is less than price where MR = MC,
the firm should cut back on its output to lower its cost.
the firm should shut down.
the firm should raise its price.
the firm should continue to produce the output it is producing.
the firm should continue to produce the output it is producing.
What is the principal-agent problem?
It is a problem of the power system of boss and subordinate where the boss (principal) exerts influence over his subordinates (agents) using punishment or threat.
It is a problem that exists when a person (principal) has more information about the task than the agent he hires to perform the task.
It is a problem caused by a person (principal) who hires an agent to act on his behalf but is unwilling to delegate authority to the agent to carry out the task in the best possible way.
It is a problem caused by agents pursuing their own interests rather than the interests of the principals who hired them.
It is a problem caused by agents pursuing their own interests rather than the interests of the principals who hired them.
Which of the following is true of a payoff matrix?
It does not represent all the costs and benefits associated with the choices of the players.
It is the representation of only the best response of each player.
It takes into account all relevant costs and benefits associated with each action of the players.
It shows the payment made to each factor of production for the production of a good.
It takes into account all relevant costs and benefits associated with each action of the players.
The basic idea behind moral hazard is that ________.
some economic transactions give rise to an additional benefit to society
people tend to take more risks if they do not have to bear the costs of their behavior
people do not reveal their true preference for goods that are non-excludable in consumption
some economic transactions impose an additional cost on society
people tend to take more risks if they do not have to bear the costs of their behavior
A public franchise
is an unregulated monopoly necessary for the public good.
results from ownership of a key raw material.
is a corporation that is owned by stockholders.
is a government designation that a private firm is the only legal producer of a good or service.
is a government designation that a private firm is the only legal producer of a good or service
To maintain a monopoly, a firm must have
marginal revenue equal to demand.
few competitors.
an insurmountable barrier to entry.
a perfectly inelastic demand.
an insurmountable barrier to entry.
Sarah is a high school graduate and James is a college graduate. Which of the following statements is true?
James is likely to have more human capital than Sara.
Sara is likely to have more human capital than James.
Both Sara and James are likely to earn the same wage in the labor market.
Both Sara and James are likely to have the same amount of human capital.
James is likely to have more human capital than Sara.
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Flashcard (29)