Multiple Choice Questions

firms face a downward sloping demand curve.
  • What is a characteristic of monopolistic competition?
  • In perfect competition, an individual firm's short-run supply curve is the same as
  • Negative profit leads
  • A feature shared by monopoly and monopolistic competition is that, in both of these market structures:
Input costs that do not involve spending money.Opportunity Costs.
  • Implicit Costs
  • A fixed cost is one that:
  • Negative profit leads
  • Marginal Product
lower profits
  • If MR = MC, what will a change in production do?
  • Most fixed costs are only fixed in the ________.
  • Opportunity cost to a firm that does not involve monetary outlays
  • If MR < MC, what will raise profits?
economic profits are driven to zero.
  • Market structure with free entry & exit and significant product variety
  • Firm cost involving monetary outlays, considered when calculating both accounting and economic profits
  • In perfect competition, firms will choose an output level at which marginal cost:
  • Free entry and exit means that the number of firms in the market adjusts until
implicit costs are excluded= total revenue - explicit costs
  • Explicit Costs
  • Implicit Costs
  • Accounting Profit
  • A concentration ratio:
=TC/Q
  • Implicit Costs
  • Marginal Cost
  • After fixed costs are spent, they are called ________.
  • Average Cost
Concentration Ratio
  • Measure of the market share controlled by a small number of sellers
  • Profitable operation in the long run is possible only for:
  • Free entry and exit means that the number of firms in the market adjusts until
  • Firm cost that varies directly with the quantity of output produced
short run
  • Most fixed costs are only fixed in the ________.
  • Firms should continue to operate at a loss in the short run if
  • Marginal product of labor _____ at high quality.
  • Opportunity cost to a firm that does not involve monetary outlays
accounting profits consider explicit, but not implicit costs;
  • Economic profits are zero at the level of output at which
  • Accounting Profit
  • The quantity at which min. AVC is found must be lower than.
  • Accounting profits are higher than economic profits because:
d. each of the sellers offers a somewhat different product
  • What is the objective of a firm?
  • In an oligopoly, each firm knows that its profits:
  • What is a characteristic of monopolistic competition?
  • The ATC in the short run must always be
increases.Because each additional unit of input costs the same but produces less output.
  • As quantity _____ the Total Cost Curve gets steeper typically.
  • Accounting profits are higher than economic profits because:
  • If MR > MC, what will raise profits?
  • Opportunity cost to a firm that does not involve monetary outlays
Dead-weight Loss
  • Production function flattens at
  • Reduction in total surplus created by monopoly profit maximization
  • Market structure featuring strategic interaction among competing firms
  • Practice allowing a monopolist to take surplus from high-demand consumers
output increase.
  • Average Cost
  • Price raise causes
  • Total Revenue (TR)
  • Production function flattens at
"true" measure of benefit to business= total revenue - total cost
  • Economic Profit
  • Negative profit leads
  • Economic profits are zero at the level of output at which
  • Marginal Product
All input costs that involve spending money.
  • Positive profit leads
  • Accounting Profit
  • Marginal Product
  • Explicit Costs
d. Markets dominated by two or three large firms.
  • In perfect competition, an individual firm's short-run supply curve is the same as
  • The ATC in the short run must always be
  • In which of the following markets is strategic interaction among firms most likely? a. Markets in which firms own patents and copyrights. b. Markets in which many small firms compete with identical product. c. Markets in which many firms compete with differentiated products. d. Markets dominated by two or three large firms.
  • A feature shared by monopoly and monopolistic competition is that, in both of these market structures:
promote competition, prevent mergers, break up monopolies and cartels;
  • Antitrust laws allow the government to:
  • In an oligopoly, each firm knows that its profits:
  • The ATC in the short run must always be
  • What is a characteristic of monopolistic competition?
Implicit Cost
  • After fixed costs are spent, they are called ________.
  • Firm cost involving monetary outlays, considered when calculating both accounting and economic profits
  • Firm cost that varies directly with the quantity of output produced
  • Opportunity cost to a firm that does not involve monetary outlays
equals the market price.
  • Profitable operation in the long run is possible only for:
  • Market structure with free entry & exit and significant product variety
  • Increase in firm's total revenue from sale of an additional unit of output
  • In perfect competition, firms will choose an output level at which marginal cost:
equal to or higher than in the long run.
  • What is a characteristic of monopolistic competition?
  • The ATC in the short run must always be
  • What is the objective of a firm?
  • Free entry and exit means that the number of firms in the market adjusts until
Oligopoly
  • Market structure with free entry & exit and significant product variety
  • After fixed costs are spent, they are called ________.
  • Market structure featuring strategic interaction among competing firms
  • Firm cost that varies directly with the quantity of output produced
d. A regional electrical power distribution firm.
  • The ATC in the short run must always be
  • In which of the following markets is strategic interaction among firms most likely? a. Markets in which firms own patents and copyrights. b. Markets in which many small firms compete with identical product. c. Markets in which many firms compete with differentiated products. d. Markets dominated by two or three large firms.
  • What is a characteristic of monopolistic competition?
  • Which of the following would be most likely to have monopoly power?a. A national florist. b. An online bookstore. c. A local restaurant. d. A regional electrical power distribution firm.
increase in total cost of the last unit made=Change in TC / Change in Q
  • Marginal Product
  • Total Cost Curve
  • A fixed cost is one that:
  • Marginal Cost
The relationship between the quantity of inputs used and the quantity of output produced.
  • Economic Profit
  • Positive profit leads
  • Accounting Profit
  • Production Function
the point where marginal cost rises through the average total cost curve.
  • Accounting profits are higher than economic profits because:
  • Minimum average total cost (ATC) can be found on a graph by
  • The quantity at which min. AVC is found must be lower than.
  • What is a characteristic of monopolistic competition?
The market value of all inputs used in production, including explicit and implicit costs.= implicit costs + explicit costs= variable cost (VC) + fixed cost (FC
  • Implicit Costs
  • Total Cost Curve
  • Total Cost (TC)
  • Marginal Cost
Variable Cost
  • Increase in firm's total revenue from sale of an additional unit of output
  • This curve passes through the minimum values of AVC and ATC
  • Firm cost that varies directly with the quantity of output produced
  • Opportunity cost to a firm that does not involve monetary outlays
Price Discrimination
  • Opportunity cost to a firm that does not involve monetary outlays
  • Increase in firm's total revenue from sale of an additional unit of output
  • Practice allowing a monopolist to take surplus from high-demand consumers
  • If marginal cost is above average total cost, average total cost must be
firms to expandpossible entrants will enter
  • Examples of Fixed Costs
  • Accounting Profit
  • A concentration ratio:
  • Positive profit leads
The increase in output produced by one additional unit of input.
  • Accounting Profit
  • Explicit Costs
  • Marginal Product
  • Economic Profit
firms that are monopolies;
  • Measure of the market share controlled by a small number of sellers
  • A feature shared by monopoly and monopolistic competition is that, in both of these market structures:
  • Profitable operation in the long run is possible only for:
  • Economic profits are zero at the level of output at which
calculated by squaring the market share of each firm competing in a market, and then summing the resulting numbers. The HHI number can range from close to zero to 10,000.
  • Explicit Costs
  • HHI Index
  • Marginal Cost
  • Production Function
its marginal cost curve above minimum AVC;
  • In perfect competition, firms will choose an output level at which marginal cost:
  • The quantity at which min. AVC is found must be lower than.
  • A feature shared by monopoly and monopolistic competition is that, in both of these market structures:
  • In perfect competition, an individual firm's short-run supply curve is the same as
the quantity at which min. ATC is found
  • Accounting profits are higher than economic profits because:
  • Minimum average total cost (ATC) can be found on a graph by
  • Economic profits are zero at the level of output at which
  • The quantity at which min. AVC is found must be lower than.
high quantity.
  • Production function flattens at
  • Most fixed costs are only fixed in the ________.
  • When does a firm maximize profit?
  • Increase in firm's total revenue from sale of an additional unit of output
The Sherman Act
  • The quantity at which min. AVC is found must be lower than.
  • Firm cost involving monetary outlays, considered when calculating both accounting and economic profits
  • Reduction in total surplus created by monopoly profit maximization
  • The legislation passed by Congress in 1890 that outlawed contracts, combinations, and conspiracies in restraint of trade was the:
P > AVC
  • Firms should exit if
  • If marginal cost is above average total cost, average total cost must be
  • Firm cost that varies directly with the quantity of output produced
  • Firms should continue to operate at a loss in the short run if
Explicit Cost
  • Firm cost involving monetary outlays, considered when calculating both accounting and economic profits
  • This curve passes through the minimum values of AVC and ATC
  • Opportunity cost to a firm that does not involve monetary outlays
  • Increase in firm's total revenue from sale of an additional unit of output
falls
  • Marginal product of labor _____ at high quality.
  • Economic profits are zero at the level of output at which
  • If marginal cost is above average total cost, average total cost must be
  • After fixed costs are spent, they are called ________.
The amount a firm receives for selling its product= P*Q
  • Implicit Costs
  • Total Revenue (TR)
  • Marginal Product
  • Positive profit leads
increasing production
  • If MR > MC, what will raise profits?
  • If MR < MC, what will raise profits?
  • If MR = MC, what will a change in production do?
  • Measure of the market share controlled by a small number of sellers
P < AVC
  • A fixed cost is one that:
  • Production function flattens at
  • Firms should exit if
  • Firms should continue to operate at a loss in the short run if
If a price ceiling is a binding constraint on a market, then
  • price adjusts until quantity demanded equals quantity supplied.
  • buyers cannot buy all they want to buy at the price ceiling.
  • the quantity sold will be the same
  • buyers of the good bear most of the burden
When a tax is placed on the buyers of a product, a result is that buyers effectively pay
  • more than before the tax, and sellers effectively receive less than before the tax
  • and the effective price received by sellers both decrease.
  • decreases but the price paid by buyer of the tennis racquets increases
  • sellers of the good will bear most of the burden of the tax.
a price ceiling is
  • the legal max on the price at which a good can be sold
  • a legal minimum on the price at which a good can be sold.
  • it causes a 1 to 3 percent reduction in employment.
  • taxes levied on sellers/buyers are not equivalent
Which of the following statements is correct regarding the imposition of a tax on gasoline?
  • the burden of a tax is determined by the relative elasticities of supply and demand.
  • The quantity supplied decreases and the quantity demanded increases, causing a shortage.
  • The incidence of the tax depends upon the price elasticities of demand and supply.
  • The demand curve is shifted downward by the size of the tax because the amount the buyer is willing to offer the seller has been reduced precisely by the size of the tax.
When a tax is placed on the buyers of cell phones, the size of the cell phone market
  • buyers of the good bear most of the burden
  • tax creates a wedge between the price buyers effectively pay and the price sellers receive.
  • sellers of the good will bear most of the burden of the tax.
  • and the effective price received by sellers both decrease.
Kelly is willing to pay $5.20 for a gallon of gasoline. The price of gasoline at her local gas station is $3.If she purchases ten gallons of gasoline, then Kelly's consumer surplus is
  • The quantity supplied decreases and the quantity demanded increases, causing a shortage.
  • sellers cost of production
  • buyers of the good.
  • b. $14.
if a price FLOOR is not binging, then
  • a minimally adequate standard of living.
  • the quantity sold will be the same
  • equilibrium price is above the price floor
  • increases a binding price ceiling in that market.
The benefit to buyers of participating in a market is measured by
  • increase.
  • increases a binding price ceiling in that market.
  • consumer surplus.
  • positively related
In a competitive market free of government regulation,
  • buyers cannot buy all they want to buy at the price ceiling.
  • falls more heavily on the side of the market that is more inelastic.
  • Sellers' costs stay the same and the price of the good increases.
  • price adjusts until quantity demanded equals quantity supplied.
The burden of a tax falls more heavily on the sellers in a market when
  • demand is inelastic and supply is inelastic
  • is more inelastic.
  • demand is elastic and supply is inelastic.
  • increases a binding price ceiling in that market.
taxes cause deadweight losses because taxes
  • price adjusts until quantity demanded equals quantity supplied.
  • price is no longer a server as a rationing device
  • decreases the size of the coffee mug market
  • -prevent buyer and seller from realizing some of the gains from trade-reduce the sum of producers and consumers surpluses by more than the amount of tax revenue-cause marginal buyers and marginal sellers to leave the market, causing the quantity sold to fall
when a tax on a good where the demand is relatively elastic and the supply is relatively inelastic
  • sellers of the good bear most of the burden
  • decreases but the price paid by buyer of the tennis racquets increases
  • and the effective price received by sellers both decrease.
  • larger is the deadweight loss of the tax.
What is the impact on the price and quantity in a market if a price floor is set above the equilibrium price?
  • The quantity supplied increases, and the quantity demanded decreases, causing a surplus.
  • -quantity of physical demands increases-there is a shortage of physicals-the quantity of physical supplied decreases
  • decreases but the price paid by buyer of the tennis racquets increases
  • The incidence of the tax depends upon the price elasticities of demand and supply.
deadweights is the
  • decreases the size of the coffee mug market
  • demand is inelastic and supply is inelastic
  • measures the value that a buyer places on a good
  • decline in total surplus that results from a tax
A tax burden falls more heavily on the side of the market that
  • is more inelastic.
  • demand is elastic and supply is inelastic.
  • more inelastic
  • positively related
When a tax is levied on buyers, the
  • more than before the tax, and sellers effectively receive less than before the tax
  • falls more heavily on the side of the market that is more inelastic.
  • supply curve shifts upward by the amount of the tax.
  • tax creates a wedge between the price buyers effectively pay and the price sellers receive.
3 friends are bidding in an auction for a movie, each has in mind a max amount they would bid. this max is called
  • willingness to pay
  • increase
  • a tax on a good
  • increase by less than $1,000.
When we use the model of supply and demand to analyze a tax that is collected from the sellers, which way do we shift the supply curve? Why?
  • the burden of a tax is determined by the relative elasticities of supply and demand.
  • The demand curve is shifted downward by the size of the tax because the amount the buyer is willing to offer the seller has been reduced precisely by the size of the tax.
  • The sellers will bear the greater burden because the demand for luxuries tends to be highly elastic. That is, when the price buyers pay rises due to the tax, wealthy buyers can easily shift their purchases toward alternative items while producers cannot quickly reduce production when the price they receive falls. The burden falls on the side of the market that is less elastic.
  • The quantity supplied increases, and the quantity demanded decreases, causing a surplus.
If a tax shifts the demand curve downward (or to the left), we can infer that the tax was levied on
  • increase by less than $1,000.
  • buyers of the good.
  • willingness to pay
  • decreases but the price paid by buyer of the tennis racquets increases
A 10 percent increase in the minimum wage causes a 10 percent reduction in teenage employment.
  • demand is elastic and supply is inelastic.
  • decreases but the price paid by buyer of the tennis racquets increases
  • buyers cannot buy all they want to buy at the price ceiling.
  • it causes a 1 to 3 percent reduction in employment.
when a tax is placed on the buyers of a tennis racquet, the size of the tennis racquet market
  • decreases but the price paid by buyer of the tennis racquets increases
  • sellers of the good will bear most of the burden of the tax.
  • more than before the tax, and sellers effectively receive less than before the tax
  • and the effective price received by sellers both decrease.
what causes the price paid by buyers to be different from the price received by sellers
  • positively related
  • buyers of the good.
  • deadweight loss.
  • a tax on a good
the dead weight loss from a tax of $x per unit will be smallest in a market in which
  • increases a binding price ceiling in that market.
  • sellers of the good bear most of the burden
  • demand is inelastic and supply is inelastic
  • may increase, decrease, or remain unchanged
a tax affects
  • the buyers, sellers, and the government
  • some buyers will not be able to buy any amount of the good
  • measures the value that a buyer places on a good
  • the quantity sold will be the same
a seller is willing to sell a product on if the seller receives a price that is at least as great as the
  • Sellers' costs stay the same and the price of the good increases.
  • sellers cost of production
  • sellers of the good will bear most of the burden of the tax.
  • buyers of the good bear most of the burden
If the government removes a $1 tax on sellers of gasoline and imposes the same $1 tax on buyers of gasoline, then the price paid by buyers will
  • and the effective price received by sellers both decrease.
  • the burden of a tax is determined by the relative elasticities of supply and demand.
  • The quantity supplied increases, and the quantity demanded decreases, causing a surplus.
  • not change, and the price received by sellers will not change.
Which of the following events would increase producer surplus?
  • sellers of the good will bear most of the burden of the tax.
  • buyers cannot buy all they want to buy at the price ceiling.
  • sellers of the good bear most of the burden
  • Sellers' costs stay the same and the price of the good increases.
Why is a tax collected from the buyers equivalent to a tax collected from the sellers?
  • The quantity supplied increases, and the quantity demanded decreases, causing a surplus.
  • A tax places a wedge between what the buyer pays and the seller receives. Whether the buyer or the seller actually hands the tax to the government makes no difference whatsoever.
  • and the effective price received by sellers both decrease.
  • decreases but the price paid by buyer of the tennis racquets increases
When a binding price ceiling is imposed on a market,
  • some buyers will not be able to buy any amount of the good
  • price no longer serves as a rationing device.
  • sellers of the good bear most of the burden
  • falls more heavily on the side of the market that is more inelastic.
a tax on the sellers in the coffee mug market
  • Sellers' costs stay the same and the price of the good increases.
  • decreases the size of the coffee mug market
  • buyers of the good bear most of the burden
  • sellers of the good bear most of the burden
if a non binding price ceiling is imposed on a market the the
  • The quantity supplied increases, and the quantity demanded decreases, causing a surplus.
  • The quantity supplied decreases and the quantity demanded increases, causing a shortage.
  • the quantity sold will be the same
  • decreases the size of the coffee mug market
in a free competitive market, what is the rationing mechanism
  • price floor
  • True
  • price
  • increase
When there is a technological advance in the pork industry, consumer surplus in that market will
  • increases a binding price ceiling in that market.
  • may increase, decrease, or remain unchanged
  • sellers of the good bear most of the burden
  • increase.
Which side of the market is more likely to lobby government for a price floor?
  • positively related
  • sellers of the good bear most of the burden
  • seller
  • price
when a binding price ceiling is imposed on a market to benefit buyers
  • some buyers will not be able to buy any amount of the good
  • more than before the tax, and sellers effectively receive less than before the tax
  • price no longer serves as a rationing device.
  • supply curve shifts upward by the amount of the tax.
When the demand for a good increases and the supply of the good remains unchanged, consumer surplus
  • increase
  • may increase, decrease, or remain unchanged
  • buyers of the good bear most of the burden
  • increase.
In a market, the marginal buyer is the buyer
  • decreases but the price paid by buyer of the tennis racquets increases
  • more than before the tax, and sellers effectively receive less than before the tax
  • who would be the first to leave the market if the price were any higher.
  • price adjusts until quantity demanded equals quantity supplied.
suppose fountain drinks are required to send .50 to the government every time they purchase a fountain drink. Then suppose the tax causes the an effective price received by sellers of the fountain drinks to fall by .20 which is true
  • larger is the deadweight loss of the tax.
  • -tax causes the demand curve for fountain drinks to shift downward by .50 at each quantity -the price paid by buyers is .30 per drink more than before tax- 40% of the burden fall on the sellers
  • The sellers will bear the greater burden because the demand for luxuries tends to be highly elastic. That is, when the price buyers pay rises due to the tax, wealthy buyers can easily shift their purchases toward alternative items while producers cannot quickly reduce production when the price they receive falls. The burden falls on the side of the market that is less elastic.
  • it causes a 1 to 3 percent reduction in employment.
the size of the tax and the dead weight loss that result from the tax are
  • is more inelastic.
  • consumer surplus.
  • positively related
  • deadweight loss.
The government can choose to place the burden of a tax on the buyers in a market by collecting the tax from the buyers rather than the sellers.
  • The demand curve is shifted downward by the size of the tax because the amount the buyer is willing to offer the seller has been reduced precisely by the size of the tax.
  • the burden of a tax is determined by the relative elasticities of supply and demand.
  • not change, and the price received by sellers will not change.
  • -quantity of physical demands increases-there is a shortage of physicals-the quantity of physical supplied decreases
*What is the impact on the price and quantity in a market if a price ceiling is set below the equilibrium price?
  • the burden of a tax is determined by the relative elasticities of supply and demand.
  • The quantity supplied decreases and the quantity demanded increases, causing a shortage.
  • sellers of the good will bear most of the burden of the tax.
  • -quantity of physical demands increases-there is a shortage of physicals-the quantity of physical supplied decreases
Suppose that the demand for picture frames is highly inelastic, and the supply of picture frames is highly elastic. A tax of $1 per frame levied on picture frames will increase the price paid by buyers of picture frames by
  • buyers of the good.
  • larger is the deadweight loss of the tax.
  • -quantity of physical demands increases-there is a shortage of physicals-the quantity of physical supplied decreases
  • between $0.50 and $1.
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Multiple Choice Questions
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