Whenever external benefits exist:
Social demand will exceed market demand.
If the economy relies entirely on markets to answer the WHAT question, it tends to:
Overproduce private goods and underproduce public goods.
Payments to individuals for which no current goods or services are exchanged are known as:
Income transfers.
Market failure occurs when:
An imperfection in the market mechanism prevents an optimal outcome.
In economics, a public good:
Allows free riders to benefit from the good.
Antitrust laws address:
Market Power
Market failure implies that a policy of laissez-faire:
Leads the economy to an undesirable point on the production-possibilities curve.
The marginal physical product of labor decreases as more labor is hired because of:
The law of diminishing returns.
The best way for consumers to increase both the wages and the number of jobs for strawberry pickers would be to:
Buy more strawberries.
A firm's demand for labor is downward sloping because:
The marginal physical product of labor decreases as more labor is hired.
As a person works more, the number of additional hours that he is willing to work is determined by the trade-off between increasing:
Marginal utility for leisure and decreasing marginal utility for income.
When a worker's MRP is difficult to measure, for example, a college professor or corporate CEO, wages can be determined by:
The wages the worker would receive in his or her best alternative job.
An industry in which one firm can achieve economies of scale over the entire range of output is referred to as:
A natural monopoly.
Which of the following is an example of perfect competition?
Many small firms all produce the same good.
Economic profits disappear when:
Price falls to the level of minimum average total cost.
Ceteris paribus, if the cost of insecticide decreases for tomato farmers, in order to maximize profits tomato farmers should:
Increase output.
The difference between the total cost and total revenue is:
Total profit.
Total profit is equal to:
Total revenue minus total cost.
In making a production decision, a business owner:
Decides the short-run rate of output.
An industry in which a few large firms supply most or all of a product is known as:
An oligopoly.
In which of the following industries is the firm referred to as a price taker?
Perfect competition.
The ability and willingness to sell specific quantities of a good at alternative prices in a given period of time, ceteris paribus, defines:
Supply.
Which of the following is most likely to have social demand greater than market demand?
Health services.
Externalities are:
The difference between social and private costs or benefits.
Government intervention in the economy:
May result in government failure.
An individual is not motivated to pay for a national park because he knows that those who do not pay for it will still benefit from it. This is an example of:
The free-rider dilemma.
A public good is:
The source of the free-rider dilemma.
Which of the following occurs when the economy experiences inflation?
Macroeconomic failure.
An emission charge is a:
Fee imposed on polluters based on the quantity of pollution they impose on society.
The first antitrust act to prohibit "conspiracies in restraint of trade" was:
The Sherman Act
In economics, a public good:
Cannot be denied to consumers who do not pay.
Concerns about the fairness of the distribution of output focus on:
Equity.
A private good is a good that:
Can be consumed by just one person.
Noise generated by an airport best illustrates:
An externality.
Which of the following is a goal of macro intervention?
To foster economic growth.
To get us on the production-possibilities curve (full employment).
To maintain a stable price level (price stability).
To increase our capacity to produce (growth).
The federal government's role in antitrust enforcement is justified by considerations of:
Market Power
If external benefits occur for society when a good is consumed, then the government should:
Subsidize the consumption or production of the good.
Whenever there is a divergence between social costs and market costs, the result is:
Market Failure
One HEADLINE article in the text links secondhand smoke to breast cancer. Which type of market failure does the article illustrate?
Negative externality.
A minimum wage impacts the labor market by causing
An increase in the quantity of labor supplied and a decrease in the quantity of labor demanded
Labor supply is the willingness and ability of
individuals to offer their labor services at various wage rates
The marginal revenue product of labor curve is the firm's
labor demand curve
The demand curve facing a monopoly
is equal to the industry demand curve
For a monopolist
MR < P, MR < average revenue, MR declines as output increases
If your firm is a monopoly
it may earn positive economic profit, zero economic profit, or suffer losses depending on demand conditions
The ________ cost of working is the amount of leisure time that must be given up in the product
opportunity
An individual's labor-supply curve reflects
the increasing opportunity cost of labor and the decreasing marginal utility of income as a person works more hours.
Derived demand means that
-the quantity of resources purchased by a business depend son the firm's sales and output
-the demand for labor depends on the demand for the product that labor is produced
-the demand for as resource is derived from the demand for the final product it is
What is the term for the quantities of labor employers are willing and able to hire at alternative wage rates in a given time period, ceteris paribus?
Demand for labor
Marginal revenue product is:
the change in total revenue associated with one additional unit of input and the change in total revenue divided by the change in the quantity of labor
The ____ curve is the labor-demand curve
marginal revenue product
A minimum wage causes a market:
surplus
A legal minimum wage _______ the quantity of supplied labor and _____ the quantity demanded of labor
increases; decreases
If the market price of a product increases, the marginal revenue product will
shift to the right
The ___ wage is the highest wage an individual would earn in his or her alternative job
opportunity wage
As the opportunity cost of job time increases, we require ____ rates of pay
higher
Labor ____ is the willingness and ability to work specific amounts of time at alternative wage rates in a given time period, ceteris paribus
supply
The labor ___ curve slopes ____
demand; downward
The demand for labor is ___ the demand for the final goods and services produced by this labor
derived from
The equilibrium wage
-occurs at the intersection of the market supply and demand curves
-is the only wage at which the quantity of labor supplied equals the quantity of labor demanded
-is the only one that clears the market
In most situations, the marginal physical product ______ as more workers are added
decreases
A minimum wage
makes some workers better off and some workers worse off
Unions are successful at ___ wage rates
increasing
Which of the following can alter wages and employment levels?
All are true.
-labor unions
-legal minimum wages
-changes in labor productivity
A monopolist maximizes profit by producing at the output for which
marginal cost= marginal revenue
If a firm converts a previously competitive industry into a monopoly without any changes the cost curves
it will reduce output and raise price to generate more profit
Monopolies have some undesirable characteristics; however
-they may have an offsetting benefit due to their greater financial resources for conducting valuable research and development
-they may have an offsetting benefit if they can achieve economies of scale resulting in reduced cost and,hence, reduced resourc
When a monopoly operates in a contestable market
it is unable to charge a price above cost without inducing entry by a rival firm
If firms are earning positive economic profits
-entry would tend to erode those profits in competitive industries but not monopolistic industries
-barriers to entry would permit those profits to persist
-both competitive firms and monopolists would still be producing where MR=MC
In a monopoly, marginal revenue is always _____ price
less than
Marginal revenue is the
-additional revenue from selling one more of a good
-change in total revenue from a one-unit increase in the quantity sold
-extra money received when another good is sold
Assuming equal costs, a monopolist produces ____ and charges ___ than a competitive industry
less;more
Which of the following are example of barriers to entry?
-patents
-Exclusive licensing
-Government
-All of the above are examples
-All of the above are examples
Which of the following is an example of a natural monopoly?
-local telephone service
-cable tv
-public utilities
-All of the above are examples
-All of the above are examples
A monopoly consists of ___ firm(s) in an industry
one
An industry structure with many firms each of of which has some distance brand image is called
monopolistic competition
If P>AVC, a monopolist is experiencing a
profit
A ______ gives a firm the exclusive right to produce or license a product
patent
In an industry that is a monopoly, industry price _____ marginal cost at all times
is greater than
The profit maximizing rules are applicable
to any firm
A natural monopoly achieves ____ over the entire range of market supply
economies of scale
To calculate profit, take total revenue ____ total cost
minus
Two firms produce entire market supply. Ex. Coke and Pepsi
Duopoly
In a competitive market
no buyer and seller has market power
If price exceeds marginal costs, a perfectly competitive firm can increase profits by
increasing output
For a competitive firm, the marginal cost curve
is the short-run supply curve
When the competitive firm maximizes profit, the marginal cost of an additional unit of output is always equal to the
price
Barrier to entry include
-price taking
-standardized products
-brand loyalty
Which of the following market structures has the fewest barriers to entry?
perfect competition
Which of the following is an example of perfect competition?
many small firms all produce the same good
Marginal cost is
the increase in total costs because of a one-unit increase in output
Market power is
the ability to alter the market price of a good or service
When a new firm enters the market, it
reduces profits of existing firms
Total revenue is equal to the
price of the product multiplied by the quantity sold
The market supply curve is calculated by
summing the marginal cost curves of all firms
Which of the following conditions always characterizes a competitive firm that is maximizing profits in the short run?
price equals marginal cost
Which of the following is not considered a barrier to entry?
equilibrium pricing
The goal of most business firms is to
maximize total profit
If marginal cost exceeds price, a competitive firm can increase profit by
decreasing output
A perfectly competitive firm is a price taker because
it has no control over the selling price of its product
Market structure is determined by
the number and relative size of firms in an industry
The difference between the total cost and total revenue is
total profit
When firms exit an industry, price ____ and industry output _____
increases;decreases
Economic profits disappear when
price falls to the level of minimum average total cost
A market made up of a few firms that work together to set a high price is called
an oligopoly
A minimum wage tends to create a market
surplus
The law of diminishing returns says that marginal physical product will ____ as more workers are added
decrease