Eco

     1.   A firm characterized as a price taker

c.

has no control over the price it pays, or receives, in the market.

     2.   All of the following are characteristics of perfect competition EXCEPT

d.

product differentiation.

     3.   The perfectly competitive firm cannot influence the market price because

c.

the firm’s production levels are too small to affect the market.

     4.   Each firm in a perfectly competitive industry

a.

is a price taker.

d.

     5.   Which of the following is NOT a characteristic of a perfectly competitive industry?

b.

Sellers have better information about the product than consumers.

     6.   Under perfect competition what would happen to a firm that sets its price slightly above market price?

a.

The firm would lose all of its customers.

     7.   What is the consequence of a firm in a competitive market selling a homogenous product?

e.

The product sold by one firm is a perfect substitute for the products sold by other firms in the same industry.

     8.   Which of the following is the closest example of a perfectly competitive market?

b.

the market for bread

e.

     9.   In competitive markets

c.

market forces are much stronger than individual firms are.

   10.   In competitive markets

c.

firms are at the mercy of market forces.

   11.   In competitive markets

b.

buyers can expect to find consistently low prices and wide availability of the goods that they want.

   12.   Because of market forces, firms have ________ when competition is widespread.

d.

little or no control over the price that they can charge and they make little or no economic profit

   13.   Which of the following lists three main characteristics of a competitive market?

a.

many buyers and sellers, similar products, easy entry into the market

   14.   Real-life examples of competitive markets

b.

are usually far short of perfection.

   15.   Which is an example of an almost perfectly competitive market?

e.

farmers’ markets

   16.   Competitive markets exist when

a.

there are so many buyers and sellers that each has only a small impact on the market price and the market output.

   17.   A farmers’ market is close to being a perfectly competitive market. Which characteristic of a perfectly competitive market do most farmers’ markets violate?

b.

many sellers

   18.   The presence of many buyers and sellers is an important characteristic of competitive markets because it allows

e.

the price and quantity in the market to be determined by market forces.

   19.   The market for hot dogs on the streets of New York City can be considered close to a perfectly competitive market. Because there are so many individuals buying and selling hot dogs

c.

market forces set the price in the market.

   20.   In a competitive market, if one firm raises its price relative to the other firms in the market, consumers are willing to go to another firm because

b.

the products are similar, which makes them substitutes.

   22.   Which characteristic of competitive markets is mainly responsible for ensuring that prices will be kept low?

d.

easy entry into and exit from the market

   23.   Which characteristic of competitive markets is mainly responsible for firms making zero economic profits in the long run?

e.

easy entry into and exit from the market

   25.   Profit per unit is the difference between

a.

revenue per unit and average total cost.

   26.   If a perfectly competitive firm is maximizing profits in the short run, what does this mean?

d.

The profit can be negative, zero, or positive.

   27.   Firms in every market structure

d.

will attempt to maximize profits.

   30.   Total revenue minus total cost equals

d.

profit.

   31.   Marginal revenue is the change in total

d.

revenue when the firm produces additional units.

   32.   Profit maximization occurs when

b.

a firm expands output until marginal revenue is equal to marginal cost.

   33. When marginal revenue equals marginal cost

e.

firms are maximizing profits, so they should continue at that production level.

   43.   At what point does the profit-maximizing perfectly competitive firm produce?

e.

where marginal revenue is equal to marginal cost

   44.   When marginal revenue is greater than marginal cost, the firm should

e.

increase the level of output.

   45.   If the price is greater than both the marginal cost and the average variable cost, what should

the firm do?

a.

increase its production level

   53.   Where is a perfectly competitive firm’s break-even output level?

c.

at the minimum point of the average total cost curve

   55.   In the short run, under what conditions should the firm shut down?

c.

price less than average variable cost

   57.   A firm will shut down in the short run

a.

when price is below average variable costs at all levels of output.

   58.   What should the firm do if there is no possible output where the price would at least be equal to average variable costs?

c.

The firm should shut down in the short run.

   59.   If a competitive firm can make enough revenue to cover its variable costs, the firm will

d.

choose to remain open.

   60.   Which of the following conditions will result in the firm making an economic profit?

a.

P > ATC

   61.   Which of the following conditions will result in the firm making zero economic profits?

c.

P = ATC

   62.   Firms will always make a positive economic profit if the price they charge is

d.

greater than their minimum average total cost (ATC).

   63.   Firms will break even if the price they charge is

e.

equal to their minimum average total cost (ATC).

   64.   When talking about economic profits in a perfectly competitive market, the difference between the long run and the short run is that in the short run, firms

e.

can earn positive or negative economic profits, but in the long run, firms have zero economic profits.

   97.   In the long run, if a firm is making a loss, it will

e.

stop producing and exit the market.

MONOPOLY

     1.   A monopoly

c.

is characterized by a single seller who produces a well-defined product for which there are no good substitutes.

     2.   Monopolists

a.

enjoy market power for their specific product.

     3.   Barriers to entry

d.

restrict the entry of new firms into the market.

     4.   Two conditions allow a single seller to become a monopolist. Those two conditions are that the

firm must

b.

have something unique to sell and it must have a way to prevent potential competitors from entering the market.

     5.   Monopoly power is a measure of

a.

a firm’s ability to set prices.

     6.   In the movie Forrest Gump, the title character’s Bubba Gump Shrimp Company is able to gain monopoly power in its market because of

e.

Forrest’s good luck.

     7.   Which of the following is NOT a necessary characteristic of monopolies?

d.

Government plays a role in maintaining barriers to entry.

     8.   The typical result of monopoly is ________ prices and ________ output than we find in a competitive market.

c.

higher; lower

   10.   Control of resources, problems raising capital, and economies of scale are all examples of

e.

natural barriers.

   11.   Three natural barriers to entry are

b.

economies of scale, problems raising capital, and control of resources.

   12.   Control of resources is an example of

d.

a natural barrier.

   13.   The best way to limit competition is to

d.

control a resource that is essential in the production process.

   14.   Ash is the preferred wood to be used in the production of baseball bats. If a company was to buy the rights to harvesting the ash trees out of all the forests in North America, which of the following barriers of entry has this company created?

a.

control of resources

   15.   Problems raising capital is an example of

a.

a natural barrier.

   16.   Raising capital to compete against an entrenched monopolist

d.

is very difficult.

   17.   Reginald has developed a new social media site that he feels can compete heavily with Facebook. Unfortunately, he cannot find someone to lend him enough money to market his product to consumers. Reginald is facing which kind of barrier to entry?

b.

problems raising capital

   18.   Economies of scale exist

c.

when long-run average total costs decrease.

   19.   Economies of scale is an example of

e.

a natural barrier.

   20.   A natural monopoly

e.

exists when a single seller experiences lower average total costs than any potential competitor.

   21.   In the soda industry, production costs per unit continue to fall as the firm expands. In this type of industry, smaller rivals trying to enter the industry

d.

will have much higher average costs.

   22.   Two government-created barriers to entry are

c.

licensing and patent system/copyright law.

   23.   Market-created and government-created barriers

d.

create monopolies.

   24.   Licensing

d.

creates an opportunity for corruption.

   25.   In instances when having a single firm in the market makes sense, governments ________ to minimize negative externalities.

b.

require licenses

   26.   What is the usual rationale for governments to issue monopoly-promoting licenses to firms providing services such as trash collection?

d.

economies of scale

   27.   Apple and Google apply for hundreds of patents every year. These patents

b.

provide incentives for Apple and Google to spend large amounts of money up front on research and development of new products.

   28.   Patents and copyright law

d.

assure inventors that no one else will sell their ideas.

   29.   Patents and copyrights can

a.

create strong incentives to develop new medicines.

   30.   After a patent on a product expires,

c.

rivals can start to mimic the product.

   31.   One argument against patent and copyright laws is that they

e.

limit exposure that can benefit companies and individuals.

   32.   Why do governments issue patents?

e.

The prospect of large profits is an incentive to innovation.

   33.   Why do copyrights expire after a set period of time?

d.

so that in the long run, creative works are readily and cheaply available

   34.   Both monopolies and competitive firms

e.

try to maximize profits.

   35.   A price maker

c.

has some control over the price it charges.

   36.   The price effect refers to how

d.

lower prices affect revenue.

   37.   The output effect refers to how

a.

lower prices affect the quantity sold.

   38.   The profit-maximizing rule for a monopolist is

a.

marginal revenue = marginal cost.

   39.   Which of the following can fall below the x axis when graphing price and cost against quantity?

e.

marginal revenue curve

   40.   The demand curve for the product of a firm in a competitive market is ________, and the demand curve for the product of a monopolist is ________.

a.

horizontal; downward sloping

   41.   The demand curve for the product of a firm in a competitive market is ________, and the demand curve for the product of a monopolist is ________.

e.

perfectly elastic; downward sloping

   42.   Because the demand curve for a monopolist is downward sloping,

e.

the monopolist is a price maker.

   43.   The marginal revenue lies ________ the demand curve because there is a(n) ________ effect whenever the price is lowered.

b.

below; price

   48.   If a monopolist is producing a quantity where marginal revenue is equal to $32 and the marginal cost is equal to $30, the monopolist should ________ to maximize profits.

a.

increase production and lower the price

   90.   Market failure occurs

b.

when the output level of the firm is inefficient.

   91.   Inefficient output and price, few choices for consumers, and rent seeking are all problems associated with

c.

monopolies.

   93.   When several goods or services are sold together as a single take-it-or-leave-it package, that package is called a(n)

a.

bundle.

   95.   Which statement about rent seeking is INCORRECT?

b.

It is a form of beneficial competition.

   96.   The market price for a New York City taxi medallion is less today than it was in 2013. This is because

c.

ridesharing services like Uber have made the medallions less valuable.

   97.   When a competitive market becomes controlled by a monopoly, the price ________ and the output ________.

d.

increases; decreases

  118.   When resources are used to secure monopoly rights through the political process

a.

firms are rent seeking.

  119.   Rent seeking

d.

is a type of competition that leads to an undesirable outcome.

  124.   Three examples of solutions to the problems of a monopoly are harnessing the benefits of

________, ________ trade barriers, and ________ markets.

a.

competition; reducing; regulating

  125.   Harnessing the benefits of competition, reducing trade barriers, and regulating markets are three

e.

solutions to the problems of monopoly.

  127.   Antitrust laws are designed to

b.

promote competition.

  131.   A tariff is a(n)

a.

tax on an import.

  132.   Reducing trade barriers creates ________ competition, ________ the influence of monopoly, and ________ the efficient use of resources.

b.

more; reduces; promotes

  133.   One benefit from tariffs would be

d.

the protection of domestic businesses.

  135.   The point of the 1890 Sherman Act was to

b.

prevent monopoly practices and promote commercial competition.

  136.   Which provision in the U.S. Constitution blocks the erection of trade barriers between neighboring states?

a.

“No State shall, without the consent of Congress, lay any imposts or duties on imports or exports.”

  137.   Which pricing rule generates the greatest welfare for society?

a.

marginal cost

           Price Discrimination

     1.   Price discrimination exists when a firm sells ________ goods at more than one price to ________ groups of customers.

d.

identical; different

     2.   Price discrimination exists when a firm is able to sell the same good at more than one price to different groups of

c.

consumers.

     3.   A firm can be identified as practicing price discrimination when

e.

producers set different prices for distinct groups of consumers, despite selling identical products to each group.

     4.   Which of the following best describes price discrimination?

b.

a firm selling the same good at more than one price to different groups of customers

     5.   In 1996, Victoria’s Secret shipped different catalogs to customers based on their buying habits. Frequent customers received catalogs with lower prices, whereas new customers received catalogs with higher prices for those same items. Victoria’s Secret was practicing

e.

price discrimination.

     6.   A price maker is a firm that

e.

has some market power.

     7.   For a firm to be able to practice price discrimination, it must be a

a.

price maker.

     8.   One reason that firms may be unable to utilize price discrimination as a viable strategy is because

d.

firms are unable to prevent resale of the product they offer for sale.

     9.   Which of the following conditions is a requirement for price discrimination?

a.

There is no reselling allowed in the market.

   11.   Which of the following statements is true?

d.

Firms that can prevent reselling may be able to engage in price discrimination.

   12.   A firm cannot price discriminate if it

d.

has perfect information about market demand.

   13.   Airlines require every passenger with a ticket to have a matching, government-issued photo identification. Price discrimination is made easier because

a.

this practice prevents a passenger who purchased a discounted fare from reselling that ticket to another customer who is willing to pay more.

   17.   The hotel attempts to distinguish between groups of buyers in order to

b.

assign prices based on the differing price elasticities of demand.

   18.   Why would the hotel require a guest to provide appropriate identification to receive the American Association of Retired Persons (AARP) member rate, the military rate, or the government rate?

a.

to prevent resale of discounted rooms to other buyers who are not eligible for the discounted price

   22.   Firms are most likely to engage in price discrimination if

c.

the goods cannot be resold in the market.

   23.   Despite the gain from higher profits, firms are not always able to price discriminate because

a.

they are unable to partition their customers into distinct groups.

   24.   Price discrimination can help improve efficiency in the market because goods are sold to more people, thus increasing profits. If all consumers have the same tastes, will a firm be able to price discriminate?

c.

no, because the firm will not be able to distinguish among groups of consumers

Monopolistic Competition and Advertising

     1.   Monopolistic competition means that

c.

firms differentiate their output, which makes them price makers, but barriers to entry are low or nonexistent.

     2.   If one were to discuss why the term “monopolistic competition” is used, the best description would be that the industry is “monopolistic” because it

c.

has product differentiation, but is “competitive” because it has many firms.

     3.   Which of the following industry structures is best associated with low barriers to entry?

d.

monopolistic competition

     4.   One critical characteristic of monopolistic competition is that

d.

there are many small firms in the industry.

     5.   A monopolistically competitive market is characterized by

a.

many small sellers selling a differentiated product.

     7.   Which of the following most closely approximates the conditions of monopolistic competition?

b.

the restaurant industry, which is characterized by many firms producing differentiated products in an industry with free entry and exit

     8.   Which of the following is the best example of a monopolistically competitive market?

d.

retail clothing stores

     9.   Which of the following is the best example of a firm operating in a monopolistically competitive market?

b.

Applebee’s, a casual dining restaurant

   10.   Firms in a monopolistically competitive industry produce

b.

differentiated products.

   15.   Which of the following statements bestdescribes firms under monopolistic competition?

b.

The firms compete using quality, location, and style.

   16.   Product differentiation

b.

refers to firms’ attempts to make real or apparent differences in essentially substitutable products look different in the minds of consumers.

   17.   Which of the following is always associated with monopolistic competition?

e.

product differentiation

   28.   Which of the following market structures describes an industry in which all firms produce differentiated output and there are few barriers to entry?

e.

monopolistic competition

   29.   Which of the following is the most accurate description of industries?

c.

Monopolistically competitive firms are located between monopoly and perfect competition.

   34.   The shape and/or slope of the marginal revenue curve under monopolistic competition is

e.

downward-sloping and steeper than the demand curve.

   35.   Which of the following statements best describes the price, output, and profit conditions of monopolistic competition?

c.

Marginal revenue will equal marginal cost in the short run at a profit-maximizing level of output; in the long run, economic profit will be zero.

   36.   The descriptor “monopolistic” in the term “monopolistic competition” best describes

b.

product differentiation resulting in a downward-sloping demand curve for the firm’s product.

   55.   The theory of monopolistic competition predicts that, in long-run equilibrium, a monopolistically competitive firm will

a.

produce the output level at which price equals long-run average cost.

   56.   A monopolistically competitive firm

a.

faces a downward-sloping demand curve and a steeper downward-sloping marginal revenue curve.

   57.   Profit-maximizing, monopolistically competitive firms

e.

cannot be guaranteed an economic profit in any period and might incur losses.

   58.   The fast-food, bottled water, and cereal markets are all examples of

c.

monopolistically competitive markets.

   60.   Fast-food restaurants are a good illustration of

d.

monopolistic competition.

   62.   The greeting card industry is

c.

most likely monopolistically competitive and has substantial markups.

   71.   Which of the following best describes the relationship between price and marginal revenue for monopolistic competitors?

d.

Price is above marginal revenue, as a general rule, regardless of the number of firms in the monopolistically competitive industry.

   77.   If positive economic profit exists in monopolistic competition, there is

a.

incentive for new firms to enter.

   78.   If monopolistically competitive firms are making positive economic profits, then new firms would

e.

begin to enter the industry.

   79.   As new firms enter a monopolistically competitive industry, it can be expected that

c.

profits of existing firms will fall.

   82.   The entry of new firms into a monopolistically competitive industry causes the

d.

existing firms’ demand curve to shift left.

   83.   You operate a monopolistically competitive firm and you notice that your company is making an economic profit. Which of the following is most likely to happen?

b.

Other firms will enter your industry and your demand curve will shift left.

   84.   The demand curve for a monopolistically competitive firm is downward-sloping because of

b.

product differentiation.

   87.   The difference between price and marginal cost is

d.

markup.

   97.   Excess capacity best describes the fact that

a.

monopolistically competitive firms produce less than the cost-minimizing level of output.

   99.   A monopolistically competitive firm is inefficient because the firm

d.

produces an output where average total cost is not minimum.

  100.   One source of economic inefficiency from monopolistic competition is

a.

markup.

  101.   The concept of markup under monopolistic competition would best be described as the

e.

difference between the marginal cost and the price of the monopolistic competitor.

  102.   Markup would not exist in

e.

a competitive market.

  103.   Markup would generally be lowest under

d.

monopolistic competition.

  104.   Markup would generally be highest under

a.

a monopoly.

  105.   Which of the following is evidence of market power?

a.

markup

  106.   When a perfectly competitive firm or a monopolistically competitive firm is making zero economic profit

a.

the industry is in equilibrium; no firms will want to enter or exit.

  107.   If a monopolistically competitive firm wants to maximize profits, it will increase production until marginal

e.

revenue equals marginal cost.

  108.   Product differentiation makes the demand for a monopolistically competitive firm’s product

b.

less elastic than in a competitive market.

  109.   Advertising is designed to

b.

decrease the price elasticity of demand for the firm and shift the firm’s demand curve rightward.

  113.   Because of successful advertising

e.

the demand curve facing each firm shifts right, while the cost curves shift upward.

  118.   Why would perfectly competitive industries advertise even though individual firms do not?

a.

Even though the output of an individual firm would be considered homogeneous to other firms, the industry output would be differentiated (for example, Florida orange juice versus imports).

  119.   False advertising is generally regulated by

b.

the Federal Trade Commission (FTC).

  120.   According to the discussion in the textbook, Kevin Trudeau

b.

was sued by the Federal Trade Commission (FTC) for false advertising in 1998.

  124.   All of the following are examples of product differentiation, EXCEPT

d.

perfect substitution for another brand

  125.   A unique feature of monopolistic competition is

c.

differentiated products

  129.   Low barriers to entry and exit mean that in the ________ run for monopolistically competitive firms, it is ________ to generate economic profit.

d.

long; impossible

  130.   Monopolistic competitors do not enjoy the ________ demand of perfect competition. As a result, firms will never produce at ________ average total cost.

b.

perfectly elastic; minimum

  132.   With monopolistic competition, firms have demand curves that are ________ the lowest possible cost.

d.

above

  135.   The gap between the actual quantity produced by a monopolistically competitive firm and the optimal quantity in a competitive market is known as

a.

excess capacity.

  136.   A markup is only possible when a firm enjoys some degree of

b.

market power.

  137.   Which term best defines the pricing difference between monopolistic competition and competitive markets?

c.

markup

  138.   Productive ________ is/are considered an indicator of social benefit.

b.

efficiency

  140.   Monopolistically competitive firms are troublesome to regulate for all of the following reasons, EXCEPT

b.

their market and political power renders them virtually untouchable.

  145.   Successful advertising can increase demand across a wide spectrum of consumers, but it happens unevenly. Some consumers respond more dramatically than others to advertising. This explains the change in ________ of the demand curve that occurs after an advertising campaign.

a.

elasticity

  146.   The primary purpose of advertising for a monopolist is to increase

a.

demand.

  147.   Brand labels and packaging can convey status or quality, even if there is little to no physical difference in two competing products. If we are to assume that consumers are rational decision makers, this indicates that brand labels and packaging create additional ________ for a buyer.

d.

value

  149.   Because monopolistic competitors each advertise, potential realized gains often

a.

cancel each other out.

Oligopoly and Strategic Behavior

     1.   Like a pure monopoly, an oligopoly is characterized by

c.

significant barriers to entry.

     2.   Which of the following is NOT a characteristic of an oligopoly?

e.

low barriers to entry

     3.   Which of the following have greater incentives to collude and to form cartels in an effort to achieve monopoly-like profits?

e.

oligopolists

     4.   A monopolistically competitive market consists of many sellers, an oligopoly consists of ________ seller(s), and a monopoly consists of ________ seller(s).

d.

a few; one

     5.   A monopolistically competitive market consists of ________ seller(s), an oligopoly consists of ________ seller(s), and a monopoly consists of one seller.

e.

many; a few

     6.   A firm operating in an oligopolistic market has ________ market power compared to a ________.

c.

less; monopolist

     7.   Economists measure oligopoly power present in an industry by using

b.

concentration ratios.

   17.   Being part of a cartel is generally good for a firm because it can reduce output while increasing prices and profits. Yet most cartels have failed. Why is this the case?

d.

Each member of the cartel faces an incentive to cheat and produce more, while all of the other members honor the agreement.

   18.   The Organization of Petroleum Exporting Countries (OPEC) is considered a cartel by economists because the

a.

firms agree to restrict output in order to increase prices and profits.

   19.   The levels of profits in a cartel are

d.

near the monopoly level of profits.

   20.   When two or more firms set prices or quantities in unison, economists refer to them as a

a.

cartel.

   23.   In the United States, ________ laws prohibit collusion between rivals.

e.

antitrust

   38.   When a third firm enters a market that was previously categorized as a duopoly, the equilibrium price will ________ and the equilibrium quantity will ________.

c.

be lower; be higher

   39.   When more firms enter into a market that was previously characterized as a duopoly, it will

b.

be more difficult for firms in the market to form a successful cartel.

   40.   The ________ effect occurs when the market price either decreases or increases by the respective entrance or exit of a rival firm in the market.

b.

price

   55.   A game where firms that pursue a dominant strategy that results in noncooperation where all players are worse off is a

b.

prisoner’s dilemma.

   56.   When decision makers face incentives that make it difficult to achieve mutually beneficial outcomes, we say they are in a(n) ________ dilemma.

b.

prisoner’s

   86.   ________ have dominant strategies that make player decisions easy to predict.

e.

Not all games

  104.   According to Section 2 of the Sherman Antitrust Act, a person who attempts to monopolize commerce among the several states is guilty of a(n)

e.

felony.

  105.   The ________ Act was passed in 1890, and the ________ Act was passed in 1914.

d.

Sherman Antitrust; Clayton

  106.   The two major pieces of antitrust legislation in the United States are the

b.

Sherman Antitrust Act and the Clayton Act.

  107.   In general, antitrust laws are ________ to enforce.

a.

complex and difficult

  108.   In 1974, the U.S. attorney general filed suit against which telecom company for violating antitrust laws?

e.

AT&T

  109.   According to the Clayton Act, price discrimination is considered socially detrimental if it

c.

lessens competition or creates monopoly.

  110.   ________ restrict(s) the ability of the buyer to deal with competitors, and ________ require(s) the buyer to purchase an additional product in order to buy the first.

d.

Exclusive dealings; tying arrangements

  111.   According to the Clayton Act, persons are not allowed to serve as the director on more than ________ board(s) in the same industry.

a.

one

  112.   Which federal agency is responsible for enforcing antitrust laws?

d.

Department of Justice

  115.   An example of a tying arrangement is

b.

a car manufacturer installing expensive onboard GPS/navigation systems in all the cars it sells.

  117.   Motorola and Apple are two large competitors in the cellular phone market. It is a violation of the ________ Act if Sanjay Jha serves on the board of directors for both Motorola and Apple.

b.

Clayton

  118.   If attorneys can prove beyond a reasonable doubt that a merger between two major airlines lessens competition, then the merger likely violates the ________ Act.

b.

Clayton

  120.   The practice of setting prices deliberately below average variable costs in order to put a rival out of business is known as ________ pricing.

d.

predatory

  121.   The practice of setting prices deliberately below ________ costs in an effort to drive a competitor out of the market is known as predatory pricing.

c.

average variable

  122.   It might be rational for a firm to price its products below ________ costs in order to drive potential entrants from entering a market.

b.

average variable

  129.   A ________ externality exists when the number of customers who purchase a good or use it influences the quantity demanded.

a.

network

  130.   A firm that produces a product that is characterized by ________ externalities finds it easier to keep its customers from switching to rivals.

c.

network

  133.   When customers face significant ________ costs, the demand for the existing product becomes more inelastic.

c.

switching

  134.   The presence of significant positive ________ externalities can drive small firms out of business or force them to merge with larger competitors.

a.

network

  135.   When customers face significant switching costs, the

a.

demand for the existing product becomes more inelastic.

The Demand and Supply of Resources

     1.   Derived demand is

d.

the demand for factors of production dependent on consumer demand for output.

     2.   Factors of production are

b.

used to make goods and services.

     3.   Which of the following is NOT a factor of production?

b.

output

     4.   Derived demand best describes the demand for which of the following options?

c.

computer chips

     5.   Derived demand is NOT represented by the demand for

b.

home ovens.

     6.   The marginal product of labor is the

c.

additional amount of output that can be produced from hiring one more worker.

     9.   The diminishing marginal product of labor exists when the last worker hired produces ________ the previous worker.

c.

less value than

   29.   If the price of pencils falls, the marginal product of labor will ________ and the value of the marginal product of labor will ________.

d.

remain unchanged; decrease

   30.   Bobby knows that she is producing a value just equal to her wage. If the price of what she makes falls, Bobby knows that she

d.

is likely to be fired.

   94.   A situation with only one buyer of labor is called a(n)

c.

monopsony.

95. Kaitlin has recently been trained as a highly specialized medical physician. There is only one hospital that needs her services. Kaitlin can expect her wages to be ________ compared to what her wages would be in a situation of perfect competition.

e.

lower

   96.   Which of the following situations describes a monopsony?

d.

Leslie is a college instructor and there is only one university within 300 miles of her permanent residence.

   98.   Tamar’s sister complains that Tamar gets paid considerably more as a caterer than she is paid as a chef, even though the careers are similar. What might explain this situation?

b.

There are many chefs in town, but few caterers.

  113.   Most of the total income made in the U.S. economy is paid as

d.

wages and benefits to laborers.

  114.   Of the total income earned in the U.S. economy, about

d.

67 percent is earned by laborers, and 33 percent is earned by other factors.

  117.   Income in the U.S. economy consists of

c.

profits to businesses, interest to capital lenders, and rent to landowners.

  118.   Factors of production are another term for the

e.

inputs (factors) to the production process.

  120.   Which of the following are the three factors of production?

b.

land, labor, capital

Income, Inequality, and Poverty

     1.   What theory might partially explain why a person perceived as unattractive might earn less than a person seen as attractive?

b.

compensating differential

     2.   Late-night employees working in a 24-hour store often earn more than similar employees who work the day shift. What explains this difference in pay?

e.

positive compensating differential

   15.   An employee gains work experience by staying in a job for a long period of time. An economist would expect this employee’s wages to

a.

increase as experience is gained.

   16.   What theory would suggest that learning material on your own generates the same benefits as those achieved by formally attending classes and receiving a degree?

a.

human capital

   17.   When comparing individuals’ wages, differences in their levels of education and training

d.

can partially explain why some individuals earn higher wages than others.

   24.   What theory suggests that learning material on your own would not generate the same benefits as those achieved by formally attending classes and receiving a degree?

b.

signal

   29.   When comparing a union job to a nonunion job, we would expect to see

e.

higher wages being paid for the employee holding a union job.

   30.   What is a significant difference between a union job and a nonunion job in terms of pay?

d.

Union jobs pay more than nonunion jobs because of the threat of a strike.

   31.   Between two unionized firms, one would expect workers to receive higher wages in a firm

b.

where the threat of a strike is high.

   32.   What theory would suggest that an employee should receive a wage higher than the equilibrium wage rate?

a.

efficiency wage

   38.   When workers of the same ability are not paid the same amount because of a group characteristic such as ethnic origin or age, we call this

b.

wage discrimination.

   40.   Besides sex discrimination, women might earn less than men in the workplace because women

b.

have fewer years of work experience.

   41.   The wages of those near retirement decrease slightly because these workers are

e.

gaining additional experience but are not keeping up with new technologies.

   53.   Why is it unlikely that income inequality could ever be eliminated?

d.

Workers will always have different skills, abilities, and productivities.

   54.   How can a stronger legal system reduce income inequality?

a.

It encourages investment by removing corruption.

   78.   One of the causes of poverty in the United States is

b.

low levels of education.

   86.   In the United States, households that have very little income are provided funds that can be used only for the purchase of food (more popularly known as food stamps). What do food stamps represent?

d.

in-kind transfer

   88.   The antipoverty program in the United States that helps the greatest number of households is the

d.

earned income tax credit.

   95.   Earnings gaps can be explained by all of the follow factors, EXCEPT

c.

personal savings.

   96.   ________ wages are higher than equilibrium wages, offered to increase worker productivity.

c.

Efficiency

   97.   A ________ is a work stoppage designed to aid a union’s bargaining position.

d.

strike

   99.   Rachelle graduated from a university with a degree in chemical engineering. During her years of employment, she became proficient in a particular type of process automation software. In addition, she spent countless hours outside of work amassing training certifications that augmented her work experience. Her collection of education, skills, and experience is defined as her

a.

human capital.

  133.   ________ are transfers (mostly to the poor) in the form of goods and services instead of cash.

d.

In-kind transfers

  135.   ________ are composed of markets in which goods or services are traded illegally.

b.

Underground economies

  136.   Why is income inequality data unreliable in developing countries?

b.

Less developed countries have larger underground economies than developed ones.

  137.   Comparing U.S. income inequality in 1980 and 2010 produces a distorted picture for all EXCEPT which of the following reasons?

c.

A wider gap between years measured produces a more easily perceived trend in income inequality.

  138.   The terms “marginal poor” and “long-term poor” categorize differing potentials for

c.

income mobility

  139.   Economic mobility reduces ________ over long periods of time.

a.

income inequality

  140.   In the late nineteenth-century United States, sharecropping was a common occupation among newly freed slaves and poor whites. The structure of the system left sharecroppers barely subsisting from their production, and deeply indebted to the landowners. This economic arrangement prevented the concept of

a.

income mobility.