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essentials of economics

Questions and Answers of Essentials of Economics

???? Explain how income inequality in America has changed over time
???? Define poverty and describe its causes and consequences
???? Discuss the pros and cons of using marginal cost pricing and average cost pricing to regulate prices in natural monopolies
???? Explain how government regulation is used to prevent inefficiency in the case of natural monopoly
???? Identify the three major antitrust laws and describe how they are used to promote competition
???? Discuss why finding the right level of government intervention is often difficult
???? Describe how government intervention in the production and consumption of these types of goods can make society better off
???? Define artificially scarce goods and explain why they are underconsumed
???? Define common resources and explain why they are overused
???? Characterize public goods and explain why markets fail to supply efficient quantities of public goods
???? Explain why some government policies to deal with externalities, such as emissions taxes, tradable emissions permits, and Pigouvian subsidies, are efficient, although others, including
???? Address externality problems with specific public policies
???? Explain how, according to the Coase theorem, private individuals can sometimes remedy externalities
???? Describe the difference between negative and positive externalities
???? Discuss why externalities often require government intervention
???? Explain what externalities are and why they can lead to inefficiency in a market economy
???? Identify and describe sources of wage disparities and the role of discrimination
???? Explain the labor market applications of the marginal productivity theory of income distribution
???? Apply the cost-minimization rule for employing inputs
???? Explain how firms determine the optimal input mix
???? Determine the equilibrium wage and level of employment in the labor market
???? Describe how a worker’s decision about time preference gives rise to labor supply
???? Explain how the demand for factors leads to the marginal productivity theory of income distribution
???? Find equilibrium in the land and capital markets
???? Determine supply and demand in the markets for land and capital
???? Discuss how the demand for a factor of production is determined
???? Explain how factor markets determine the factor distribution of income
???? Describe features that make markets for factors of production—resources like labor, land, and capital—different from goods markets
???? Discuss the economic significance of advertising and brand names
???? Explain why oligopolists and monopolistic competitors differentiate their products
???? Explain how monopolistic competition can lead to inefficiency and excess capacity
????????Describe the importance of oligopoly in the real world Determine prices and profit in monopolistic competition, both in the short run and in the long run
????????Explain the cause and effect of price wars, product differentiation, price leadership, and nonprice competition
????????Explain how repeated interactions among oligopolists can result in collusion in the absence of any formal agreement
????????Discuss the legal constraints of antitrust policy
????????Determine dominant strategies and Nash equilibria in a variety of games
????????Analyze a prisoners’ dilemma using a payoff matrix
????????Use game theory to enhance your understanding of oligopoly
???? Explain why oligopolies can benefit from collusion
???? Explain why oligopolists have an incentive to act in ways that reduce their combined profit
1. A producer chooses output according to the price- taking firm’s optimal output rule: produce the quantity at which price equals marginal cost. However, a firm that produces the optimal quantity
???? Discuss why price discrimination is common when producers have market power
???? Explain the meaning of price discrimination
???? Explain how policy makers address the problems posed by monopoly
???? Compare the effects of monopoly and perfect competition on society’s welfare
???? Determine whether a monopoly is earning a profit or a loss
???? Identify the profit-maximizing price and quantity for a monopolist
???? Discuss what determines the industry supply curve in both the short run and the long run
???? Explain why industry behavior differs between the short run and the long run
???? Explain how a firm decides whether to produce or shut down in the short run
???? Determine a perfectly competitive firm’s profit or loss
???? Evaluate a perfectly competitive firm’s situation using a graph
2. Refer to the table provided. Price is equal to $14.a. Calculate the firm’s marginal cost at each quantity.b. Determine the firm’s profit-maximizing level of output.c. Calculate the firm’s
1. Draw a correctly labeled graph showing a profitmaximizing perfectly competitive firm producing at its minimum average total cost.
5. What is the firm’s profit if the price of its product is $5 and it produces 500 units of output at a total cost of$1,000?a. $5,000b. $2,500c. $1,500d. −$1,500e. −$2,500
4. If a firm has a total cost of $200, its profit-maximizing level of output is 10 units, and it is breaking even (that is, earning a normal profit), what is the market price?a. $200b. $100c. $20d.
3. A firm is profitable ifa. TR < TC.b. AR < ATC.c. MC < ATC.d. ATC < P.e. ATC > MC.
2. Which of the following is correct for a perfectly competitive firm?I. The marginal revenue curve is the demand curve.II. The firm maximizes profit when price equals marginal cost.III. The market
1. A perfectly competitive firm will maximize profit at the quantity at which the firm’s marginal revenue equalsa. price.b. average revenue.c. total cost.d. marginal cost.e. demand.
2. If a firm has a total cost of $500 at a quantity of 50 units, and it is at that quantity that average total cost is minimized for the firm, what is the lowest price that would allow the firm to
1. Refer to the graph provided.a. At what level of output does the firm maximize profit? Explain how you know.b. At the profit-maximizing quantity of output, is the firm profitable, does it just
???? Assess whether or not a competitive firm is profitable
???? Determine the profit-maximizing quantity of output for a pricetaking firm
24. Diseconomies of scale can be caused bya. increasing returns to scale.b. overcrowding of the fixed factors of production.c. increasing average fixed cost.d. decreasing average fixed cost.e.
23. Compared to a monopoly, an oligopoly hasa. a higher Herfindahl–Hirschman Index, fewer firms, and more barriers to entry.b. a higher Herfindahl–Hirschman Index, more firms, and more barriers
22. Compared to a monopolistically competitive industry, an oligopoly hasa. a higher Herfindahl–Hirschman Index, fewer firms, and more barriers to entry.b. a higher Herfindahl–Hirschman Index,
21. Monopolistically competitive industries are characterized bya. standardized products, many firms, and easy entry and exit.b. standardized products, few firms, and easy entry and exit.c.
20. When a firm makes production decisions, the sunk cost should bea. set equal to the variable cost.b. set equal to the marginal cost.c. set equal to the total cost.d. subtracted from the fixed cost
19. The long-run average cost curve eventually slopes up due toa. economies of scale.b. economies of scope.c. diseconomies of scale.d. overcrowding of the fixed factors of production.e. diminishing
18. If the average product of labor is rising as more workers are hired, thena. the marginal product of labor must be rising.b. the marginal product of labor must be falling.c. the marginal product
17. If marginal cost is rising and lies above average variable cost, then average total costa. may be rising or falling.b. will definitely be rising.c. will definitely be falling.d. will definitely
16. The spreading effect causes the average total cost curve toa. rise, while the diminishing returns effect causes it to fall.b. rise, as does the diminishing returns effect.c. fall, while the
15. If labor is the only variable input and the wage rate is constant, marginal cost reaches its minimum whena. marginal product reaches its maximum.b. average product reaches its maximum.c. marginal
14. If at the current level of output of 200 units, average variable cost is $10 per unit and average total cost is$15 per unit, thena. total fixed cost is equal to $1,000.b. total fixed cost is
13. In the short-run, as output increases, average fixed costa. remains constant.b. falls and then rises after a certain output level.c. rises initially, and then falls continuously.d. falls
12. The relationship between the marginal cost curve and the average cost curve is that when marginal cost isa. rising, average cost must be rising.b. falling, average cost must be falling.c. above
11. Marginal cost rises due toa. diminishing marginal returns.b. increasing marginal returns.c. constant returns to scale.d. increasing returns to scale.e. increasing average returns.
10. If marginal cost is positive and rising as more output is produced, then total cost isa. decreasing at an increasing rate.b. decreasing at a decreasing rate.c. increasing at an increasing rate.d.
9. Diminishing marginal returns always involvea. too much plant capacity.b. a rapid expansion of plant size.c. a slow expansion of plant size.d. a fixed input.e. inputs that are all variable.
8. If marginal product is positive and declining as more workers are hired, then total product isa. decreasing at an increasing rate.b. decreasing at a decreasing rate.c. increasing at an increasing
7. A fixed inputa. never changes.b. is a long-run phenomenon.c. does not change with the output level in the short run.d. causes marginal cost to fall as it is increased.e. causes marginal cost to
6. When a firm is producing where marginal cost is equal to marginal revenue, the firma. may be making profits or losses.b. will definitely be maximizing profits.c. should produce more to maximize
5. Assume a perfectly competitive firm is producing at a level of output where marginal revenue is greater than marginal cost. To maximize profits, the firm shoulda. continue to produce at that
4. If this business can sell all it can produce at a market price of $16, the firm should produce how many units in order to maximize profits?a. 1b. 3c. 5d. 6e. 7
3. Which kind of profit is just enough to keep a firm operating in the long run?a. normalb. economicc. accountingd. implicite. explicit
2. Comparing accounting profit to economic profit, accounting profit cana. only be greater than economic profit.b. only be less than economic profit.c. be equal to or more than economic profit.d. be
1. Consider the data about the cost of each year of college in the table below:Opportunity Cost of a Year of College Explicit cost Implicit cost Tuition $17,000 Forgone salary $35,000 Books and
2.a. Draw a correctly labeled graph of a perfectly competitive firm’s demand curve if the market price is $10.b. What does the firm’s marginal revenue equal any time it sells one more unit of its
1. For each of the following characteristics, indicate which market structure(s) exhibit that characteristic.a. many sellersb. price-takersc. barriers to entryd. differentiated product
5. Which of the following is an example of differentiated products?a. Coke and Pepsib. automobiles and bicyclesc. trucks and gasolined. stocks and bondse. gold and silver
4. Which of the following is true for a monopolistically competitive industry?I. There are many fi rms, each with a small market share.II. The fi rms in the industry produce a standardized
3. Which of the following is true for an oligopoly?I. There are a few fi rms, each with a large market share.II. The fi rms in the industry are interdependent.III. The industry experiences
2. Which of the following is true for a monopoly?I. There is only one fi rm.II. The fi rm produces a product with many close substitutes.III. The industry has free entry and exit.a. I onlyb. II
1. Which of the following is true for a perfectly competitive industry?a. There are many fi rms, each with a large market share.b. The fi rms in the industry produce a standardized product.c. There
1. In each of the following situations, what type of market structure do you think the industry represents?a. There are three producers of aluminum in the world, a good sold in many places.b. There
???? Describe the four principal types of market structure--perfect competition, monopoly, oligopoly, and monopolistic competition
???? Explain the meaning and dimensions of market structure
2. Draw a correctly labeled graph showing a short-run average total cost curve and the corresponding longrun average total cost curve. On your graph, identify the areas of economies and diseconomies
1. Refer to the graph provided to answer the following questions.a. The same level of fixed cost that puts the firm at point B when the quantity is 3 minimizes short-run average total cost for what
5. Economies of scale will allow which of the following types of cities to lower their average total cost of clearing snow by investing in larger snow plow fl eets?Cities witha. more peopleb. more

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