MICRO FINAL study cards

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If monopolistically competitive firms in an industry are making an economic profit, then:

New firms will enter the industry and product demand will decrease for the existing firms

The incentive to cheat is strong in a cartel because:

Each firm can increase its output and thus its profits by cutting price

If oligopolistic firms facing similar cost and demand conditions successfully collude, price and output results in this industry will be most accurately predicted by which of the following models?

The pure monopoly model

Monopolistic competition is characterized by firms:

Producing differentiated products

Suppose some firms exit an industry characterized by monopolistic competition. We would expect the demand curve of a firm already in the industry to:

Shift to the right

Monopolistic competition is characterized by excess capacity because:

Firms produce at an output level less than the least-cost output

In long-run equilibrium, a profit-maximizing firm in a monopolistically competitive industry will produce the quantity of output where:

AC = P, MR = MC < P

In the short run, the monopolistically competitive firm will experience

Economic profits or losses, but in the long run only a normal profit

Mutual interdependence means that each firm in oligopolistic industry:

Considers the reactions of its rivals when it determines its price policy

One difference between monopolistic competition and pure competition is that:

There is some control over price in monopolistic competition

The demand curve faced by a monopolistically competitive firm

Is more elastic than the monopolist's demand curve

Which assumption is part of the model of monopolistic competition?

There is no collusion among firms

Which would be characteristic of monopolistic competition?

Relatively small market share for each firm

The kinked demand model of noncollusive oligopoly assumes that:

Rivals will ignore price increases and match price cuts

In an oligopolistic market there is likely to be:

Neither allocative nor productive efficiency

Which would make an individual firm's demand curve less elastic?

Increased brand loyalty toward the firm's product

In the long run, the representative firm in monopolistic competition tends to have:

Excess capacity

A representative firm in monopolistic competition will tend to make economic profits:

Or losses in the short run, but the firm will break even in the long run

Which is a likely characteristic of a differentiated oligopolistic market?

Price and output decisions of firms are interdependent

The downward-sloping demand curve of a monopolistic competitor:

Reflects product differentiation

The goal of product differentiation and advertising in monopolistic competition is to make:

Price less of a factor and product differences more of a factor in consumer purchases

Collusive control over price may permit oligopolists to:

Reduce uncertainty, increase profits, and possibly limit entry of new firms

When firms in an industry reach an agreement to fix prices, divide up market share, or otherwise restrict competition, they are practicing the strategy of:

Collusion

Demand and marginal revenue curves are downward sloping for monopolistically competitive firms because:

Product differentiation allows each firm some degree of monopoly power

A monopolistically competitive industry is like a purely competitive industry in that:

Neither industry has significant barriers to entry

In the kinked demand model of noncollusive oligopoly, each firm thinks that the demand curve below the going price is:

Less elastic than the demand curve above the going price

The monopolistically competitive seller's demand curve will become more elastic the:

Larger the number of competitors

A unique feature of an oligopolistic industry is:

Mutual interdependence

A major reason that firms form a cartel is to:

Maximize joint profits

In the long run, a representative firm in a monopolistically competitive industry will typically:

Earn a normal profit, but not an economic profit

Which constitutes an obstacle to collusion among oligopolists?

A large number of firms

A characteristic of monopolistically competitive industries is that:

The entry and exit of firms causes the representative firm to break even in the long run

A positive effect of advertising for society is that it:

Provides useful information to reduce search cost for consumers

The Lorenz curve is a graph that shows the:

Degree of income inequality

A Lorenz curve showing perfect equality in the distribution of income:

Is a straight line with a 45-degree angle

A Lorenz curve shows:

The distribution of income

The greater the degree of inequality in the size distribution of income, the more bowed will be the Lorenz curve toward the

Lower right-hand corner

The diagonal line in a Lorenz curve represents perfect:

Equality in the distribution of personal income

The Gini ratio is determined by:

Dividing the area between the Lorenz curve and the diagonal by the total area below the diagonal

As the area between the Lorenz curve and diagonal gets larger, the Gini ratio:

Rises to reflect greater inequality

Which of the following Gini ratios would indicate the least amount of income inequality?

0.2

Taxes and transfer payments

Reduce the degree of income inequality

A cause of the unequal distribution of income in the United States is:

Differences in preferences and risks

The wages and salaries that people earn differ partly because of differences in:

Ability

What would be an example of how pure luck contributes to income inequality?

Selection as winner of a state lottery

The debate over income distribution focuses on the tradeoff between:

Economic efficiency and equality

The basic economic argument for greater income equality is that:

a more equal distribution of a given amount of income will increase the total utility of consumers.

A trade deficit refers to an excess of:

Goods imports over goods exports

Trade between individuals and between nations leads to:

Increased specialization

If there is no comparative advantage between two countries:

There are no gains from specialization and trade

Consider two countries which trade with each other. The degree of specialization according to their respective comparative advantages will be greater if the countries face:

Constant costs

The principle of comparative advantage indicates that mutually beneficial international trade can take place only when:

Relative costs of production differ between nations

According to the principle of comparative advantage, worldwide output and consumption levels will be highest when goods are produced in nations where:

Domestic opportunity costs are lowest

If country A has a comparative advantage in the production of good X over country B, then:

The domestic opportunity cost of producing X in country A is lower than in country B

The domestic opportunity cost of producing a television in the United States is 20 bushels of wheat. In Korea, the domestic opportunity cost of producing a television is 10 bushels of wheat. In this case:

Mutual gains from trade can be obtained if the United States imports televisions from Korea and Korea imports wheat from the United States

The domestic opportunity cost of producing 100 barrels of chemicals in Germany is one ton of steel. In France, the domestic opportunity cost of producing 100 barrels of chemicals is two tons of steel. In this case:

Germany has a comparative advantage in the production of chemicals

If the U.S. dollar appreciates relative to the British pound, then:

The pound will depreciate relative to the U.S. dollar

There is a fall in the relative prices of Japanese goods to Americans when the:

Dollar appreciates

If an American can purchase 40,000 British pounds for $90,000, the dollar rate of exchange for the pound is:

$2.25

A market in which the money of one nation is exchanged for the money of another nation is a:

foreign exchange market.

Depreciation of the dollar will:

increase the prices of U.S. imports, but decrease the prices to foreigners of U.S. exports.

Appreciation of the Canadian dollar will:

make Canada's exports more expensive and its imports less expensive.

An increase in the demand for computers leads to an increase in demand for computer programmers. This situation arises because:

The demand for programmers is a derived demand

An example of derived demand is the demand for:

Labor used to produce automobiles

Derived demand is the demand:

For a resource to produce a product

The marginal revenue product of labor in a competitive market decreases as a firm increases the quantity of labor used because of the:

Law of diminishing returns

Marginal revenue product is the increase in:

Total revenue from the use of an additional unit of a resource

Which is an example of a change in product demand that increases labor demand?

Tourism increases in popularity, increasing the demand for workers at tourist resorts

If the price of a good increases, then in the market for labor which is used to produce this product:

The marginal revenue product (MRP) of labor will increase

The demand for a resource will increase if the:

Price of the product the firm is producing increases

Suppose capital is readily substitutable for labor and that the price of capital falls. We can conclude that the:

Substitution effect will tend to reduce the demand for labor

The more inelastic the demand for a resource the:

Less elastic its marginal revenue product curve

The elasticity of demand for labor varies:

Directly with labor's share of the total cost of the product

The demand for labor would most likely become more elastic as a result of:

An increase in the proportion of labor cost to total costs

A characteristic of a purely competitive labor market would be:

Many firms competing in hiring workers

In pure competition, a profit-maximizing firm will equate the marginal revenue product of labor with the:

Wage rate

If the supply of labor in a purely competitive labor market decreases, the labor:

Supply curve for a single employer will shift upward

If the wage rate in a purely competitive labor market decreases, it will cause the:

Marginal resource cost for a single competitive firm in the industry to decrease

The individual firm which hires labor under competitive conditions faces a labor supply curve which:

Is perfectly elastic

The marginal cost of a productive resource is equal to the price of the resource if a firm is:

A price taker in the resource market

A single buyer is called a(n):

Monopsonist

When the supply curve of labor is upward sloping, the marginal cost curve of labor facing the monopsonist:

Lies above the supply curve of labor

The labor market for teachers in a small, isolated community that has one school district would be best described as a(n):

Monopsony

The best example of a monopsonist is:

A large army post located in a small community

A craft union:

Organizes workers who have similar skills or jobs in an industry

An industrial union:

Organizes skilled and unskilled workers in an industry

Craft unions have typically been most effective in raising wage rates by:

Decreasing the supply of labor

Exclusive unionism has the economic effect of:

Decreasing the supply of labor

Critics of the minimum wage argue that an increase in the minimum wage rate above the equilibrium rate of a purely competitive labor market would:

Increase unemployment in the labor market

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