Microeconomy Exam 4

Boom

As a result of the American workers' ability to sell their labor though a union, profit-making

firms must pay wages

exceeding the equilibrium wage those firms would otherwise have selected

A labor union seeks to _____________________ between employers and workers.

change the balance of negotiations

If a for-profit firm that has paid out record bonuses to its executive every year while

underfunding contributions to unionized workers' pensions required under the collective

agreement then attempts to reduce workers' pension entitlements, the union members

will most likely

take defensive strike action

The table below shows the quantity demanded and supplied in the labor market for

economics professors at the I'MaStateUniversity, where all the professors belong to a

union.

$80,000

Negotiations between unions and a firm or firms is called _____________________ .

collective bargaining

In the United States, the number of unionized government jobs has

increased modestly

A drug company is deciding how much to invest in Research and Development into finding

a cure stomach cancer. The table below shows the company’s demand for financial

capital for R&D of this drug, based on its expected rates of return from selling the

drug. Every investment has an additional 4% social return: that is, an investment that pays

at least a 5% return to the drug company will create at least a 9% return for society as a

whole.

*Estimated Rate of Return_____________________ Value of R&D Projects That Provide at

Least This High a Private Rate of Return to the Drug Company (measured in millions of

dollars)

10% $220

9% $228

8% $238

7% $250

6% $264

5% $280

4% $298

3% $308

If the opportunity cost of financial capital for the drug company falls from 7% to 5%, the

drug company will invest more in R&D if it receives only the private benefits of this

investment.

An individual who wants others to pay for public goods, but plans to use those goods for

their own purposes, is often referred to as a _____________________.

free rider

For a positive externality, _____________________ than the social benefits.

private benefits of an action are less

How does the cost of financial capital influence innovative research and development

activities in a competitive market?

at a low cost, firms demand a large quantity, as R&D projects will likely return a higher rate.

Market competition may sometimes encourage a firm to innovate out of fear because of

the perception that

they will inevitably fall behind other competitors seeking out innovations.

Ideally, a patent should cover a long enough period of time for the inventor to

_____________________, but that period should not be so long that it allows the inventor to

_____________________.

earn a hearty return; charge a high monopoly price permanently

A country is currently creating 40 million tons of toxic waste per year. The table below

shows the marginal costs and benefits of reducing the amount of toxic waste to various

amounts, What level of toxic waste should the country reduce to?

10 million tons

A pollution charge is a form of tax imposed on

the quantity of pollution that a firm emits.

Carl and Don run separate chemical fertilizer manufacturing companies in the same

industrial park. Both pollute the river flowing through the industrial park with waste from

their manufacturing processes. In the table below, the first row shows the current level of

waste that makes its way into the river from their respective operations. The table also sets

out information that indicates how much it would cost each manufacturer to reduce its

pollution by additional increments of 10 pounds. If each company is required to reduce debris by exactly 20 pounds, the total cost will be

$21

Low and middle-income societies correctly point out that high-income countries have historically

legitimately lacked moral standing in addition to all the above.

Ireland and England both fish in the Irish Sea. If this sea is over-fished, the fish stocks will fall and fish will eventually become extinct. Both countries have to decide whether to fish a lot or a little. The payoffs are given in the table below.
 The outcome of this game is__________, which illustrates the__________.

both countries choosing to fish a lot, prisoner’s dilemma

The property rights approach to environmental issues often becomes highly relevant in cases involving__________________.

endangered species

The objective of imposing a higher pollution tax is to

provide adequate incentive for firms to reduce their emissions by more.

A business_____________occurs when, for practical purposes, one firm purchases another.

acquisition

A manufacturer that only allows a consumer to purchase one product if they also buy another product is using _____________ to increase its profits.

tie-in sales

City Gas is a natural monopoly that supplies natural gas to a particular city. Its cost and demand information are given below.
If the government decides to regulate this natural monopoly by forcing them to produce at the point where the demand curve intersects marginal cost, then the firm will make a ________________ and ____________ continue in the long run.

loss of $33 million, will not

Norway's government nationalized the country's oil resources, and it has been accumulating a massive sovereign wealth fund worth billions of dollars ever since. This sovereign fund is used as a monetary source for government funded national education and healthcare. This is because the wealth generated by nationalized industries

is used to serve the citizens of the country.

The term "tie-in sales" is synonymous with

bundling

The result of regulatory capture is that government price regulation can often become a way for existing competitors to work together to

reduce output.

limit competition.

keep prices high.

all of the above.

A _______________ refers to a group of firms colluding with one another to produce at the monopoly output and sell at the monopoly price.

cartel

If a monopolistic competitor raises its price, it ___________ customers than a perfectly
competitive firm, but ____________ customers compared to the number that a monopoly
that raised its prices would.

will lose fewer; it will lose more

Oligopoly firms acting individually may seek to gain profits _______________.

by expanding levels of output and cutting prices

In the competitive market for figure skate blades, manufacturers offer an array of products that are

distinctly different in a particular way.

A ___________ exists when the quantity demanded in the market is less than the quantity at the bottom of the long-run average cost curve.

natural monopoly

A natural monopoly occurs when the quantity demanded is ____________ the minimum quantity it takes to be at the bottom of the long-run average cost curve.

less than

In the United States, a pharmaceutical company's exclusive patent rights last for

20 years.

The form of legal protection intended to prevent reproduction of original works is referred to as _________ law.

copyright

A manufacturer would likely make an ___________________ in a market following the long-run process of beginning and expanding production in response to.

entry; a sustained pattern of profits

An _________________ is calculated by subtracting the firm's costs from its total revenues, _______________________.

accounting profit; excluding opportunity cost

Firms operating in a market situation that creates ______________________, sell their product in a market with other firms who produce identical or extremely similar products.

perfect competition

If a competitive firm experiences a shift in costs of production that decreases marginal costs at all levels of output

expanding output levels at any given price will be profitable

A situation known as _____________________ occurs when all production inputs are allowed to expand, but that expansion does not result in much of a change in the average cost of production.

constant returns to scale

Approximately what percentage of the US labor force is employed by firms that have fewer than 100 employees?

35%

I'MaPizzaCo. produces and sells specialty pizzas. Last year, it produced 8,000 mushroom, sausage and spinach pizzas and sold each one for $8. To produce these 8,000 specialty pizzas, the company incurred variable costs of $24,000 and a total cost of $40,000.  I'MaPizzaCo's average fixed cost to produce 8,000 specialty pizzas was

$2.00

If a solar panel manufacturer wants to look at its total costs of production in the short run, which of the following would provide a useful starting point?

divide total costs into two categories: fixed costs that can’t be changed in the short run and variable costs that can be

Any given demand or supply curve is based on the ceteris paribus assumption that
 _________________________.

all else is held equal

If the price is below the equilibrium level, then the quantity demanded will exceed the quantity supplied. This is known as ________________.

excess demand

___________________ are enacted when discontented sellers, feeling that prices are too low, appeal to legislators to keep prices from falling.

Price floors

The term "ceteris paribus" means that:

all variables except those specified are constant.

A 10 percent decrease in the price of potato chips leads to a 30 percent increase in the quantity of soda demanded. It appears that:

cross-price elasticity of demand for soda is -3.

Demand is said to be __________ when the quantity demanded changes at the same proportion as the price.

unit elastic

If the supply curve for housing is perfectly inelastic, then a reduction in demand will cause the equilibrium price to:

fall and the equilibrium quantity to stay the same.

Economists refer to this pattern, the ___________________________________, which means that as a person receives more of a good, the additional or marginal utility from each additional unit of the good declines.

law of diminishing marginal utility

The law of ____________________________ explains why people and societies rarely make all-or-nothing choices.

diminishing marginal utility