Final Exam Econ 231-02

A monopolistically competitive market is characterized by

a. a single seller of a unique product that has few or no substitutes.
b. very high barriers to entry.
c. many small sellers selling a differentiated product.
d. a few firms producing either differentiated or identical products

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c. many small sellers selling a differentiated product.

Which of the following is the best example of a monopolistically competitive market?
a. retail clothing stores
b. corn
c. electric utilities
d. wheat

a. retail clothing stores

. The movie You've Got Mail features a successful small bookstore competing with a new book superstore around the block. The big superstore offers deep discounts, while the small independent bookstore has better service and a more knowledgeable staff. The movie best illustrates which of the following?
a. Homogeneous products are produced by both firms because consumers perceive books from either store as the same.
b. Product differentiation occurs because consumers perceive the bookstores as different.
c. Monopoly production occurs because the movie is copyrighted.
d. Perfect competition occurs because many movie theaters are showing identical movies.

b. Product differentiation occurs because consumers perceive the bookstores as different.

A convenience store is generally able to charge and obtain a higher price for its candy bars than Walmart because the convenience store
a. differentiates based on quality.
b. advertises that its candy bars are identical to those sold at Walmart.
c. differentiates based on location.
d. differentiates based on style.

c. differentiates based on location.

Which of the following market structures describes an industry in which all firms produce differentiated output and there are few barriers to entry?
a. a cartel
b. perfect competition
c. oligopoly
d. monopolistic competition

d. monopolistic competition

The descriptor "monopolistic" in the term "monopolistic competition" best describes
a. production of a unique product.
b. high barriers to entry.
c. product differentiation resulting in a downward-sloping demand curve for the firm's product.
d. a few small firms.

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

If monopolistically competitive firms are incurring losses, existing firms would
a. leave the industry
b. reduce their costs.
c. begin to collude illegally.
d. charge higher prices.

a. leave the industry

Monopolistically competitive firms
a. "compete away" economic profit to zero.
b. follow the price leader.
c. eventually become perfectly competitive.
d. necessarily earn short-run economic profits.

a. "compete away" economic profit to zero.

The theory of monopolistic competition predicts that, in long-run equilibrium, a monopolistically competitive firm will
a. produce the output at which short-run average total cost equals marginal cost.
b. produce the output level at which price equals long-run marginal cost.
c. produce the output level at which price equals long-run average cost.
d. operate at minimum long-run average cost.

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

Both competitive and monopolistically competitive firms
a. can enforce price arrangements vigorously in court.
b. sell products that are identical.
c. can maximize profit by raising price.
d. can maximize profit by producing to the point where marginal cost equals marginal revenue.

d. can maximize profit by producing to the point where marginal cost equals marginal revenue.

The marginal revenue of a monopolistically competitive firm will always be a. more than the price. b. the same as the price. c. less than the price. d. identical to the average total cost curve.c. less than the price.As new firms enter a monopolistically competitive industry, it can be expected that a. the output of existing firms will rise. b. the profits of existing firms will rise. c. profits of existing firms will fall. d. market price will rise.c. profits of existing firms will fall.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? a. Other firms will enter your industry and your demand curve will shift left. b. Other firms in your industry will raise their prices. c. Government regulators will investigate your firm for "excessive economic profit." d. Your firm will be forced to exit the industry.a. Other firms will enter your industry and your demand curve will shift leftThe difference between price and marginal cost is a. average total revenue. b. markup. c. nothing in the long run; they must be the same. d. per-unit profit.b. markup.. A monopolistically competitive firm is inefficient because the firm a. earns positive economic profit in the long run. b. produces an output where average total cost is not minimum. c. produces where price is equal to minimum average total cost. d. is producing at an output amount that corresponds to marginal cost equal to price.b. produces an output where average total cost is not minimum.Markup would not exist in a. a competitive market. b. a monopoly. c. a cartel. d. monopolistic competition.a. a competitive market.Advertising is designed to a. increase the price elasticity of demand for the industry and shift the firm's demand curve rightward. b. increase the price elasticity of demand for the firm and shift the firm's demand curve rightward. c. cause the income elasticity of consumers to become zero. d. decrease the price elasticity of demand for the firm and shift the firm's demand curve rightward.d. decrease the price elasticity of demand for the firm and shift the firm's demand curve rightward.Because of successful advertising a. the decisions of one seller often influence the prices of products, the output, and the profits of rival firms. b. there is only one firm that produces a product for which there are no good substitutes. c. the demand curve facing each firm shifts right, while the cost curves shift upward. d. the demand curve facing each firm shifts right, while the cost curves shift downwardc. the demand curve facing each firm shifts right, while the cost curves shift upward.Successful advertising under monopolistic competition might a. help consumers understand why products in the industry are homogeneous. b. make the demand for a firm's product more elastic. c. promote lower-quality products. d. reduce the price elasticity of demand for that firm's output.d. reduce the price elasticity of demand for that firm's output.False advertising is generally regulated by a. state and local governments. b. the Federal Trade Commission (FTC). c. the Securities and Exchange Commission (SEC). d. the Nuclear Regulatory Commission (NRC).b. the Federal Trade Commission (FTC).. Monopolistic competitors do not face the ________ demand of perfect competition. As a result, firms will never produce at ________ average total cost. a. perfectly inelastic; minimum c. relatively elastic; maximum b. relatively elastic; minimum d. perfectly elastic; minimumd. perfectly elastic; minimumAs product differentiation decreases, ________ increases. a. demand inelasticity c. demand elasticity b. markup d. supplyc. demand elasticityDerived demand is a. consumer demand for goods and services. b. the demand for factors of production dependent on consumer demand for output. c. calculated for firms. d. based on the prices of factors of productionb. the demand for factors of production dependent on consumer demand for output.Which of the following is NOT a factor of production? a. entrepreneurship b. output c. capital d. inputsb. outputThe fact that workers must share a limited amount of space and equipment results in ________ marginal productivity. a. unpredictable b. diminishing c. fluctuating d. constantb. diminishingThe diminishing marginal product of labor exists when the last worker hired produces ________ the previous worker. a. the same amount of value as b. the same amount of output as c. less output than d. more output thanc. less output thanTalia just applied for a position with Rory's firm. Rory knows that Talia will earn $20 an hour and can produce a value of the marginal product of labor (VMPL) of $40. Rory will ________ Talia because her VMPL is ________. a. hire; greater than her wage rate b. not hire; positive c. possibly hire; positive d. not hire; negativea. hire; greater than her wage rateIf the price of pencils falls, the marginal product of labor will ________ and the value of the marginal product of labor will ________. a. remain unchanged; increase b. remain unchanged; decrease c. remain unchanged; remain unchanged d. fall; fallb. remain unchanged; decreaseThe substitution effect describes the a. incentive to work less when the wage rises. b. incentive to work more when the wage rises. c. decision whether to join the labor force. d. decision whether to work more or less.b. incentive to work more when the wage rises.The income effect describes the a. decision whether to join the labor force. b. incentive to work less when the wage rises. c. incentive to change jobs. d. incentive to work more when the wage rises.b. incentive to work less when the wage rises.When Noah's wage rises and he decides to work more hours, we know that the ________ effect has dominated the ________ effect. a. leisure; labor b. substitution; income c. income; substitution d. substitution; leisureb. substitution; incomeThe minimum wage is increased to $15. This higher wage might ________ labor force participation, shifting the labor supply curve to the ________. a. increase; right c. decrease; right b. increase; left d. not change; righta. increase; right. After World War II, social norms relating to women's participation in the labor force relaxed and women were more likely to be employed outside the home. We would expect to see the labor supply curve a. stay the same. b. shift right. c. shift left. d. stay the same but move downward.b. shift right.There will be a ________ of workers when the wage is ________ the equilibrium wage. a. surplus; at b. shortage; at c. surplus; above d. shortage; abovec. surplus; aboveThere will be a ________ of workers when the wage is ________ the equilibrium wage. a. shortage; below b. shortage; at c. surplus; at d. surplus; belowa. shortage; belowCompanies outsource their operations because a. the weather is nicer in other countries. b. no one wants to do the work domestically . c. governments in other countries allow them to operate. d. labor costs are lower.d. labor costs are lower.A situation with only one buyer of labor is called a(n) a. labor market equilibrium. b. monopoly. c. labor market disequilibrium. d. monopsony.d. monopsonyUsing a compensating differential wage theory, some individuals earn more than others because workers a. need to earn more to be willing to accept dangerous working conditions. b. need to earn more to be willing to accept a safe indoor job. c. who are more educated and better trained are able to earn more than the equilibrium wage. d. who earn more tend to be concentrated in a single occupation.a. need to earn more to be willing to accept dangerous working conditions.Coal mining is a dangerous occupation. For such a job, the passage of workplace safety laws would a. increase the severity of the negative compensating differentials . b. at first increase but then decrease the severity of the negative compensating differential. c. at first decrease but then increase the severity of the negative compensating differentials. d. decrease the severity of the negative compensating differentialsd. decrease the severity of the negative compensating differentialsIn recent decades, more women than men have received undergraduate degrees. Consequently, women's wages will ________ according to ________ theory. a. increase; compensating differential b. decrease; compensating differential c. increase; human capital d. decrease; efficiency wagec. increase; human capitalAs an employer, Giselle wants productive employees who will stay with the firm for an extended period of time, so she should pay a. more because efficiency wage theory suggests that the employer will be able to secure more productive employees. b. less because human capital theory suggests better-paid employees work harder and stay longer. c. more because of the existence of compensating differentials. d. less because of the existence of compensating differentials.a. more because efficiency wage theory suggests that the employer will be able to secure more productive employees.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 a. occupational crowding. b. wage discrimination. c. efficiency wage theory. d. winner-take-all theory.b. wage discriminationWhich statement best represents the phenomenon of occupational crowding? a. Women find themselves earning more than equally capable men. b. Women tend to be overrepresented in certain jobs. c. Women and men are equally represented in all occupations. d. A woman might earn less than a man because she has less education.b. Women tend to be overrepresented in certain jobs.What theory would suggest that a Nobel Prize-winning economist should earn significantly more than other economists? a. samaritan's dilemma b. life-cycle wage pattern c. efficiency wage d. winner-take-alld. winner-take-allThe pay for journalists is quite varied. A top-tier journalist often receives a steady flow of assignments, such as two weekly columns, and so earns generous pay. A lower-tier journalist, however, often experiences sporadic work assignments with little to no pay. What economic theory explains this situation? a. compensating differentials b. winner-take-all c. occupational crowding d. in-kind transfersb. winner-take-allWhat is the approximate inequality ratio (richest 20 percent ÷ poorest 20 percent) in the United States? a. 15.5 b. 98.2 c. 24.3 d. 4.1a. 15.5Traubia Ginsland 20 residents total 20 residents total 10 residents earn $100,000 each 10 residents earn $75,000 each 10 residents earn $10,000 each 10 residents earn $25,000 each What is the degree of income inequality in Traubia? a. 1,000 b. 10 c. 1 d. 100b. 10Traubia Ginsland 20 residents total 20 residents total 10 residents earn $100,000 each 10 residents earn $75,000 each 10 residents earn $10,000 each 10 residents earn $25,000 each What is the degree of income inequality in Ginsland? a. 25,000 b. 3 c. 0.3 d. 300b. 3How does the level of income inequality in the United States compare to that in other countries? a. There is greater income inequality in the United States when compared to other developed countries, and less in the United States when compared to less developed countries. b. There is less income inequality in the United States when compared to other, more developed countries, and less in the United States when compared to less developed countries. c. There is greater income inequality in the United States when compared to other, more developed countries, and greater income inequality in the United States when compared to less developed countries. d. There is less income inequality in the United States when compared to other, more developed countries, and greater income inequality in the United States when compared to less developed countries.a. There is greater income inequality in the United States when compared to other developed countries, and less in the United States when compared to less developed countries.Income mobility represents the ________ of a worker to ________. a. ability; move to a job where he or she can earn the most. b. inability; be trained and earn more. c. inability; be trained and earn less. d. ability; move up or down the economic ladder.d. ability; move up or down the economic ladder.Economists say that official poverty statistics do not accurately measure the true rate of poverty because the data fails to include a. income earned by teenagers. b. income earned from investments. c. in-kind transfers. d. single-parent households.c. in-kind transfersIn 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? a. a cash transfer b. income mobility c. a winner-take-all situation d. in-kind transferd. in-kind transferThe country of Econoville has created a negative income tax for its residents. Tax liability in the country is determined by the following equation: Taxes owed (20% of income) $7,500 If Youssef's income is $10,000, what is his total tax owed (a positive number) or tax credit (a negative number)? a. $2,000 b. $5,500 c. $2,000 d. $5,000b. $5,500The country of Econoville has created a negative income tax for its residents. Tax liability in the country is determined by the following equation: Taxes owed (20% of income) $7,500 If Olivia's income is $60,000, what is her total tax owed (a positive number) or tax credit (a negative number)? a. $4,500 b. $12,000 c. $16,500 d. $16,500a. $4,500Earnings gaps can be explained by all of the follow factors, EXCEPT a. location and lifestyle. b. personal savings. c. wage discrimination. d. human capital.b. personal savings.Based on research into wage discrimination, economists believe a. it was a common problem of the past that has since disappeared. b. it is only caused by racial and gender bias. c. broader factors beyond bias play the major roles. d. it has intensified since the passage of the Equal Pay Act of 1963.c. broader factors beyond bias play the major roles.Of the five factors that lead to income inequality, over which one does an individual actually have direct control? a. ability b. training and education c. privileged background d. widespread corruptionb. training and educationThe ________ program is the largest poverty-fighting tool in the United States, affecting more than 25 million families. a. Subsidized Nutritional Assistance Program (SNAP) b. Temporary Assistance for Needy Families (TANF) c. Earned Income Tax Credit (EITC) d. Supplemental Security Income (SSI)c. Earned Income Tax Credit (EITC)A Gini index of ________ represents perfect income equality, while an index of ________ indicates income consolidated among a single individual. a. 1; 99 b. 0; 100 c. 100; 0 d. 25; 75b. 0; 100The Gini index can be calculated by determining the areas above (A) and below (B) the Lorenz curve and using the expression ________. a. B/A-B b. A-B/B c. A/A+B d .A+B/Ac. A/A+B