Brief answers.

37) All of the following are examples of product differentiation in monopolistic competition EXCEPT A) new and improved packaging. B) lower price. C) acceptance of more credit cards than the competition. D) location of the retail store. 38) A differentiated product has A) many perfect substitutes. B) close but not perfect substitutes. (no close substitutes. D) no substitutes of any kind. 39) As the degree of product differentiation increases among the products sold in a monopolistically competitive industry, which of the following occurs? A) The cost of production falls. B) The amount of marketing expenditures decreases for each firm. The demand curve for each seller's product becomes more horizontal. D) Each seller's demand becomes more inelastic. 40) Marketing consists of what? A) selling at a lower price than rivals sell for B) producing more output to lower average costs C) advertising and packaging D) None of the above answers are correct. 41) Firms use marketing to A) influence a consumer's buying decision. B) convince customers that their product is worth its price. O persuade buyers that their product is superior to others. D) All of the above answers are correct. 5 42) If a monopolistically competitive seller can convince buyers that its product is of better quality and value than products sold by rival firms, A) demand increases. B) the firm gains more control over its price. C) demand becomes more inelastic. D) all of the above occur. 43) If you have found the percentage of the value of sales accounted for by the four largest firms in an industry, you have found the A) elasticity of supply value. B) Herfindahl-Hirschman Index. Clelasticity of demand value. D) four-firm concentration ratio. 44) Which of the following four-firm concentration ratios would be the best indication of a perfectly competitive industry? A) 100 percent B) 78 percent C)0.25 percent D) 31 percent 45) Which of the following four-firm concentration ratios is consistent with monopolistic competition? A) 0 percent B) 25 percent C) 100 percent D) 75 percent12. Which of the following best describes the precautionary principle? a. Clear cause and effect relationships must be established before taking action. b. We should err on the side of caution when dealing with natural systems or human health. C. The benefits of economic production and growth outweigh the risks of damage to natural systems or human health. d. Business should not have to prove a product to be safe before being released on the market; rather a product must be proven unsafe before it is banned and pulled from the market. e. We should take precautions before engaging in risky business investment. Chapter 1 - Economic Activity in Context 6 13. Which of the following best describes the notion of conscious consumption? a making consumption choices based on advertisements b. making consumption choices based on price of goods c. making consumption choices considering the environmental and social consequences of the choices made d. making consumption choices based on cultural influences e. making consumption choices based on income levels 14. Which of the following is not one of the ideas associated with the school of classical economics? a. Specialization and the division of labor b. Laissez-faire and the functioning of markets free of government intervention c. The pursuit of individual self-interest leads to positive economic outcomes. d. Supply creates its own demand e. Markets sometimes fail, necessitating government intervention. 15. Which of the following is not one of the ideas of Keynesian economics? a. An economy can experience insufficient demand b. Governments can step in to help boost aggregate demand c. Changes in government spending and taxation can help keep employment rates up d. Governments should focus on keeping the money supply steady e. Lowering interest rates alone may be insufficient if investors lack the confidence to engage in spending. 16. Which of the following was one of Keynes's suggested solutions, and was not generally adopted in the U.S. in the post-war era? a. Changes in government spending to stabilize the business cycle. b. The role of government in keeping interest rates low to stimulate investment. c. The involvement of government in controlling of the level and direction of national investment. d. The role of government in purchasing goods and services to stimulate aggregate demand. e. The role of government in manipulating taxation to stimulate aggregate demand.Fill in the Blank 1. While the study of economic activities of individuals, households, and business at the sub-national level is the concern of , the study of economic activities of the national and global level is the concern of 2. Questions about facts or "how things are" are questions, while questions about values and "how things should be" are questions. 3. The three main macroeconomic goals identified in this chapter are , and 4. The process of moving from a situation of poverty and deprivation to a situation of increased production and plenty is referred to as 5. The increase in the level of production in a country or region is called growth while improvements in diet, housing, medical attention, education, working conditions, access to care, transportation, communication, entertainment, etc. is called growth. 6. The fluctuations in the level of production, including recessions on the one hand and booms on the other hand, is called 7. The goal that recognizes a serious responsibility to future generations is the goal of 8. The school of economics that is associated with the idea that individual self-interest is a positive force and that governments should let markets function without interference is called 9. The economist who argued that the market mechanism can fail by leaving insufficient demand and that governments could intervene by increasing aggregate demand was named 10. The school of thought that argued that governments should aim for steadiness in the money supply rather than play an active role is called True or False 11. Economic phenomena such as the rate of unemployment and inflation are studied in microeconomics. Chapter 1 - Economic Activity in Context 12. Living standards growth is defined as increases in the level of production in a country or region. 13. During a recession, the economy often has higher rates of unemployment, whereas during a boom, the economy often has higher rates of inflation. 14. Monetarists believe the government should change money supply to boost aggregate demand during a recession. 15. According to the Keynesians, the government can reduce unemployment through changes in its spending and taxation policies.16. What types of questions would concern microeconomics, versus macroeconomics? 17. How have economists traditionally defined "economic growth," and how is that different from "living standards growth"? 18. What are the "three basic economic questions" that economists often address when examining how much economic output is produced? 19. Once countries already have a high level of production, how might they achieve living standards growth? 20. Why is the goal of stability and security important to many people? What problems typically emerge during periods of instability? 21. The goal of sustainability requires that we address what three questions? 22. Explain how the classical school views the role of markets and government intervention in fighting business cycles. 23. Explain how Keynesian economics views the role of markets and government intervention in fighting business cycles. 24. Explain how Monetarist economics views the role of markets and government intervention in fighting business cycles. 25. Describe some of the key changes that the U.S. economy has undergone since the 1980s. 26. What two developments are demanding new ways of looking at the economic world in the 21" century? What kinds of sustainability questions do they raise? Chapter 1 - Economic Activity in Context 3 Self Test 1. With what kinds of topics does macroeconomics concern itself? a. Economic activities of individual firms, households, and other organizations b. Forces of supply and demand in a particular market c. Consumer behavior and firms output decisions d. The labor market, wages, and hiring decisions e. Aggregate economic phenomena like the rate of unemployment and inflation 2. Which of the following is an example of a normative question? a. What is the nation's rate of economic growth? b. What is the nation's rate of inflation? c. What is the nation's rate of unemployment? d. What is the nation's level of GDP? e. Is the goal of sustainability of greater importance than the goal of economic growth as we move into the 21" century? 3. Which of the following is one of the three macroeconomic goals discussed in the text? a. Growth in the size of corporations b. Living standards growth c. Growth in trade and globalization d. Technological innovation e. None of the above 4. Which of the following is not an example of one of the three macroeconomic goals discussed in the text? a. Preventing the economy from experiencing too much unemployment. b. Preventing the economy from experiencing too much inflation. c. Keeping living standards high enough for people to live decent, meaningful lives. d. Making sure the economy is sustainable into the future. e. Providing the best environment for corporations.5. What explains the fact that the value of global production grew by a factor of 6.7 between 1960 and 2015, while the value of global production per capita has grown by a factor of 2.8? a. Global population also grew, though not as fast as total production. b. The increase in global production has occurred simultaneously with a decline in global population. C. The increase in global production has occurred simultaneously with growth in the global workforce. d. The increase in global production has occurred simultaneously with decline in the global workforce. e. The growth in the global population has been greater than the growth in global production. 6. How is labor productivity defined? a. The level of output produced per capita. b. The level of output produced per worker (or worker-hour). C. The level of output produced as a share of GDP. d. The level of human capital in the workforce. e. The level of output produced per capital input. 7. What problems are we most likely to see at which stage of the business cycle? a. High inflation during recessions. b. High unemployment during booms. c. Low inflation during booms. d. High unemployment during recessions. e. Both high unemployment and high inflation during booms. 8. Why is the instability of the business cycle a problem? a. During recessions there is high unemployment, and resources are underutilized. b. High unemployment is associated with individual and social stress, such as suicide, domestic violence, illness and crime. C. During booms, high inflation can erode purchasing power, savings and pensions. d. Unpredictable fluctuations in rates of inflation, interest rates, and foreign exchange rates make it difficult for individuals and organizations to plan for the future. e. All of the above. Chapter 1 - Economic Activity in Context UI 9. Which of the following does not describe the economic events of the Great Depression? a. Stock markets plummeted in the 1929 stock market crash. b. A lack of confidence in banks led to runs on the banks and bank failures. c. Production dropped by about 30% between 1929 and 1933. d. The unemployment rate peaked to 25% at the height of the depression. e. The economic crises was short lived and markets quickly adjusted back to equilibrium. 10. Which of the following are the three dimensions of sustainability as discussed in the text? a. Ecological, financial, and social sustainability b. Ecological, financial, and political sustainability c. Ecological, financial, and cultural sustainability d. Ecological, technological, and human sustainability e. Ecological, technological, and social sustainability 11. Which of the following is not an issue concerning social sustainability? a. The disparities between the "haves" and the "have-nots." b. The ability of the next generation to contribute to a healthy economy and society . The need for steady growth in production d. The creation of social disruption and political strife e. The ability of the next generation to experience social and political participation and inclusion.17. Which of the following contributed to rising unemployment and increased inflation in the 1970s? a Declining profits of U.S. firms due to increased competition from other industrialized nations b. Decline in wages c. High expenditures by the government d. (a) and (c) only e. (a) and (b) only 18. Which of the following is not one of the ideas associated with monetarist economics? a. Free-market economy drives out inefficiencies in the economic system. b. A smaller government is good for the economy as it encourages private initiatives. c. Efforts by the government to push unemployment too low could lead to inflation. d. Governments should keep the money supply stable. e. There are times when the government should take an active role by changing its spending policies. 19. According to the text, which of the following issues, not previously a major concern of macroeconomics, must macroeconomics confront in the 21" century? a. The ecological sustainability of our reliance on fossil-fuel based economic growth b. The social sustainability of the traditional model of economic development with the persistence of global poverty. c. The problem of business cycle fluctuations in unemployment and inflation. d. (a) and (b) only e. None of the above. 20. Which of the following characterizes the environmental challenges of the 21" century? a. The impressive growth of global GDP in the 20" century was accompanied by a dramatic increase in CO, emissions. b. There are limits to the capacity of the environment to absorb the by-products of economic growth. C. It is becoming more difficult for technological advancements to keep problems of resource depletion and pollution at bay. d. If continued at the current rate, the emissions of CO, and other greenhouse gasses may lead to dramatic disturbances to our environment and economy. e. All of the above.MULTIPLE CHOICE. Choose the one alternative that best completes the statement or answers the question. 1) What is the difference between perfect competition and monopolistic competition? A) Perfect competition has a large number of small firms while monopolistic competition does not. B) In perfect competition, firms produce identical goods, while in monopolistic competition, firms produce slightly different goods. C) Perfect competition has no barriers to entry, while monopolistic competition does. D) Perfect competition has barriers to entry while monopolistic competition does not. 2) The market type known as perfect competition is A) almost free from competition and firms earn large profits. B) highly competitive and firms find it impossible to earn an economic profit in the long run. C) dominated by fierce advertising campaigns. D) marked by firms continuously trying to change their products so that consumers prefer their product to their competitors' products. 3) Which of the following market types has all firms selling products so identical that buyers do not care from which firm they buy? A) perfect competition B) oligopoly C) monopolistic competition D) monopoly 4) Perfect competition is characterized by all of the following EXCEPT A) well-informed buyers and sellers with respect to prices, B) a large number of buyers and sellers. () no restrictions on entry into or exit from the industry. D) considerable advertising by individual firms. 5) Which of the following is the best example of a perfectly competitive market? A) diamonds B) athletic shoes C) soft drinks D) farming 6) Which of the following market types has the fewest number of firms? A) perfect competition B) monopoly C) monopolistic competition D) oligopoly 7) Which of the following market types has a large number of firms that sell similar but slightly different products? A) perfect competition B) oligopoly C) monopolistic competition D) monopoly 8) Which of the following market types has only a few competing firms? A) perfect competition B) monopolistic competition C) monopoly D) oligopoly 9) In a perfectly competitive market, the type of decision a firm has to make is different in the short run than in the long run. Which of the following is an example of a perfectly competitive firm's short-run decision? A) what price to charge buyers for the product B) whether or not to enter or exit an industry () the profit-maximizing level of output D) how much to spend on advertising and sales promotion 10) In perfect competition, a firm maximizes profit in the short run by deciding A) how much output to produce. B) whether or not to enter a market. () what price to charge. D) how much capital to use. 11) In a perfectly competitive market, the type of decision a firm has to make is different in the short run than in the long run. Which of the following is an example of a perfectly competitive firm's long-run decision? A) what price to charge buyers for the product B) how much to spend on advertising and sales promotion ( the profit-maximizing level of output D) whether or not to enter or exit an industry 12) A price-taking firm A) cannot influence the price of the product it sells, B) talks to rival firms to determine the best price for all of them to charge. C) sets the product's price to whatever level the owner decides upon. D) asks the government to set the price of its product.13) A large number of sellers all selling an identical product implies which of the following? A) horizontal market supply curves B) large losses by all sellers C) the inability of any seller to change the price of the product D) market chaos 14) Perfectly competitive firms are price takers because A) each firm is very large, B) there are no good substitutes for their goods. C) many other firms produce identical products. D) their demand curves are downward sloping. 15) If demand for a seller's product is perfectly elastic, which of the following is correct? A) There is no incentive to sell at a price below the market price. B) It will not sell any output at all if it tries to price its product above the market price, Q) There are a very large number of perfect substitutes for the seller's product. D) All of the above answers are correct. 2 16) One of the requirements for a monopoly is that A) the product cannot be produced by small firms, B) there are several close substitutes for the product. ( there is a unique product with no close substitutes. D) products are high priced. 17) A monopoly is a market with A) no barriers to entry. B) many substitutes. C) many suppliers. D) one supplier. 18) Firms face competition when the good they produce A) is in a market with natural barriers to entry. B) is unique. Qis in a market with legal barriers to entry. D) has a close substitute. 19) Which of the following statements is correct ? A) The market demand and the firm's demand are the same for a monopoly. B) Monopolies have perfectly inelastic demand for the product sold. C) Monopolies are guaranteed to earn an economic profit. D) All of the above are correct. 20) Which describes a barrier to entry? A) anything that protects a firm from the arrival of new competitors D) a government regulation that bars a monopoly from earning an economic profit C) something that establishes a barrier to expanding output D) firms already in the market incurring economic losses so that no new firm wants to enter the market 21) A barrier to entry is A) an open door. B) the economic term for diseconomies of scale. C) illegal in most markets. D) anything that protects a firm from the arrival of new competitors, 22) Which of the following would create a natural monopoly? A) requirement of a government license before the firm can sell the good or service B) technology enabling a single firm to produce at a lower average cost than two or more firms Q an exclusive right granted to supply a good or service D) ownership of all the available units of a necessary input 23) If the technology for producing a good enables one firm to meet the entire market demand at a lower price than two or more firms could, then that firm has A) a legal barrier to entry. B) a natural monopoly. ()increasing average total costs. D) patented the market. 24) Which of the following goods is the best example of a natural monopoly? A) natural gas B) diamonds C) a patented good D) first-class mail25) Which of the following is the best example of a natural monopoly? A) owning the only licensed taxicab in town B) the United States Postal Service Gownership of the only ferry across Puget Sound for twenty miles D) the cable television company in your hometown 26) Which barrier to entry is an exclusive right granted to the author or composer of a literary, musical, dramatic or artistic work? A) government license B) patent C) public franchise D) copyright 27) Patents A) stimulate innovation. B) encourage the invention of new products and production methods. (are exclusive rights granted to the inventor of a product or service. D) All of the above answers are correct. 28) Which of the following is NOT correct about patents? A) Patents stimulate innovation. B) A patent is a barrier to entry. Q Patents enable a firm to be a permanent monopoly. D) Patents encourage invention of new products. 29) Recently in a small city, building contractors lobbied the city council to pass a law requiring all people working on residential dwellings be licensed by the city. Why would the contractors lobby for this requirement? A) to reduce the cost of building dwellings B) There is no good explanation for this type of lobbying. C) to guarantee that work on dwellings is of high quality D) to create a legal barrier to entry 30) Ownership of a necessary input creates what type of barrier to entry? A) natural barrier to entry B) a public franchise Q a government license D) legal barrier to entry 31) An industry with a large number of firms, differentiated products, and free entry and exit is called A) oligopoly. B) monopoly. C) monopolistic competition. D) perfect competition. 32) In monopolistic competition, each firm supplies a small part of the market. This occurs because A) there are barriers to entry. B) firms produce differentiated products. ( there are no barriers to entry. D) there are a large number of firms. 33) In monopolistic competition, the products of different sellers are assumed to be A) similar but slightly different. Byidentical perfect substitutes. C)either identical or differentiated. D) unique without any close or perfect substitutes. 34) Which of the following is different about perfect competition and monopolistic competition? A) Firms in monopolistic competition compete on their product's price as well as its quality and marketing. B) In monopolistic competition, entry into the industry is unblocked. C) Perfect competition has a large number of independently acting sellers. D) Only firms in monopolistic competition can earn an economic profit in the short run. 35) In an industry with a large number of firms, A) collusion is impossible. B) one firm will dominate the market. Ceach firm will produce a large quantity, relative to market demand. D) competition is eliminated. 36) Which of the following is an example of a monopolistically competitive industry? A) wheat farming B) colleges and universities C) the local electricity producer D) the domestic automobile producing industry