An Ultimate Microeconomics Knowledge Test!

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  • 1/142 Questions

    For price discrimination to be effective, a monopolist must be able to separate consumers into different markets

    • True
    • False
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About This Quiz

An Ultimate Microeconomics Knowledge Test! This quiz assesses understanding of market efficiency, externalities, and economic policies. It helps learners evaluate real-world economic scenarios, enhancing their decision-making skills in economics.

An Ultimate Microeconomics Knowledge Test! - Quiz

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  • 2. 

    Critics of advertising argue that much advertising is psychological rather than informational; firms advertise in order to manipulate people's taste 

    • True

    • False

    Correct Answer
    A. True
    Explanation
    The given statement is true because critics argue that advertising is primarily focused on manipulating people's tastes and preferences rather than providing them with objective information. They believe that advertisers use psychological tactics, such as appealing to emotions and creating desire, to influence consumer behavior and persuade them to buy certain products or services. This viewpoint suggests that the main purpose of advertising is not to inform consumers about the features and benefits of a product, but rather to shape their desires and preferences in favor of the advertised brand.

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  • 3. 

    The free-rider program problem arises when a person who recieves the benefit of a good can avoid paying for it

    • True

    • False

    Correct Answer
    A. True
    Explanation
    The statement is true because the free-rider program problem occurs when someone benefits from a good or service without contributing to its cost. This often happens when individuals can enjoy the benefits of a public good, such as clean air or national defense, without directly paying for it. This creates a dilemma as it can lead to underfunding of public goods and services, as people have an incentive to avoid paying for them while still benefiting from them.

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  • 4. 

    How does a profit maximizing competitive firm determine output?

    • Equating marginal revenue and marginal cost

    • Equating marginal cost and average revenue

    • Equating average cost and marginal revenue

    • Option 4

    Correct Answer
    A. Equating marginal revenue and marginal cost
    Explanation
    A profit maximizing competitive firm determines output by equating marginal revenue and marginal cost. This means that the firm will continue producing until the additional revenue generated from selling one more unit is equal to the additional cost of producing that unit. At this point, the firm maximizes its profit because any further increase in output would result in higher costs than revenue. This equilibrium condition ensures that the firm is operating efficiently and maximizing its profits.

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  • 5. 

    An externality is

    • The cost the producer incurs

    • The benefit the consumer recieves

    • The tariff levied against the external producers

    • The uncompensated impact of one persons actions on the well-being of a bystander

    Correct Answer
    A. The uncompensated impact of one persons actions on the well-being of a bystander
    Explanation
    An externality refers to the unintended and uncompensated impact that an individual's actions have on the well-being of a third party or bystander. In other words, it is the effect of someone's actions that affects someone else without any compensation or payment being involved. This can occur in various forms, such as pollution from a factory affecting the air quality for nearby residents or a loud party disturbing the sleep of neighbors. These externalities can have positive or negative impacts on the well-being of bystanders.

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  • 6. 

    Which of the following is supported by the coase theorm? 

    • The market can internalize external costs and benefits, and it can achieve efficiency if private parties can negotiate solutions to the externalities

    • Government can improve upon the operation of the market by using environmental controls

    • Correcting externalities through the market can work, only if the innocent third parties have established and enforced property rights

    Correct Answer
    A. The market can internalize external costs and benefits, and it can achieve efficiency if private parties can negotiate solutions to the externalities
    Explanation
    The Coase theorem supports the idea that the market can internalize external costs and benefits and achieve efficiency through private negotiations between parties involved in externalities. This means that if private individuals or businesses can negotiate and come to agreements on how to address externalities, such as pollution or resource depletion, the market can effectively handle these issues without government intervention. This implies that the market has the potential to self-regulate and find solutions to externalities through voluntary exchanges.

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  • 7. 

    Deadweight loss is the inefficiency that a tax creates as people allocate resources according to the tax incentive, rather than according to the true costs and benefits of the goods and services that they produce and consume. 

    • True

    • False

    Correct Answer
    A. True
    Explanation
    Deadweight loss occurs when a tax causes a distortion in the allocation of resources. This happens because individuals and businesses may change their behavior in response to the tax, choosing to produce or consume goods and services that they would not have otherwise. As a result, resources are misallocated, leading to inefficiency in the economy. This statement correctly describes the concept of deadweight loss, making the answer "True" valid.

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  • 8. 

    The essence of an oligopolistic market is that the actions of any one seller can have a large impact on the profits of all other sellers

    • True

    • False

    Correct Answer
    A. True
    Explanation
    In an oligopolistic market, there are only a few sellers who dominate the industry. Due to the limited number of competitors, the actions of one seller can significantly affect the profits of all other sellers. This is because any decision made by a single seller, such as changing prices or introducing a new product, can cause a ripple effect throughout the market, leading to changes in demand, market share, and ultimately, profits. Therefore, the statement that the actions of any one seller can have a large impact on the profits of all other sellers is true in an oligopolistic market.

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  • 9. 

    "Do unto others as you would have them do unto you" tells people to internalize externalities 

    • True

    • False

    Correct Answer
    A. True
    Explanation
    The statement "Do unto others as you would have them do unto you" encourages individuals to consider the impact of their actions on others and treat them in the same way they would like to be treated. By internalizing externalities, people are taking responsibility for the consequences of their behavior and actively working towards creating a more harmonious and empathetic society. This principle promotes empathy, fairness, and respect for others.

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  • 10. 

    The degree of efficiency loss from an excise tax varies between markets, depending on the price elasticities of demand and supply.

    • True

    • False

    Correct Answer
    A. True
    Explanation
    The statement is true because the degree of efficiency loss from an excise tax is influenced by the price elasticities of demand and supply. In markets where demand and supply are relatively inelastic, the efficiency loss from the tax will be smaller. However, in markets with more elastic demand and supply, the efficiency loss will be greater. This is because when demand and supply are elastic, the tax burden can be shifted more easily to either consumers or producers, resulting in a larger distortion of market outcomes and a greater efficiency loss.

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  • 11. 

    Average tax rate is 

    • Tax rate paid by the average worker

    • Total taxes paid divided by total income

    • The tax rate paid by the marginal worker

    Correct Answer
    A. Total taxes paid divided by total income
    Explanation
    The average tax rate is calculated by dividing the total taxes paid by the total income. This provides an overall measure of the proportion of income that is paid in taxes. It takes into account the taxes paid by all workers and provides a more comprehensive view of the tax burden.

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  • 12. 

    Which one of the following explains why monopoly occurs? 

    • Barriers to entry into the industry

    • Greed by the seller

    • Lack of interest by potential competitors

    • Option 4

    Correct Answer
    A. Barriers to entry into the industry
    Explanation
    Monopoly occurs due to barriers to entry into the industry. These barriers can include high start-up costs, exclusive access to resources or technology, legal restrictions, or economies of scale that make it difficult for new competitors to enter the market. When these barriers are present, a single firm can dominate the industry and control prices, leading to a lack of competition and the establishment of a monopoly.

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  • 13. 

    A good or service that is excludable and rival in consumption is known as a private good and is most efficiently provided by the market

    • True

    • False

    Correct Answer
    A. True
    Explanation
    A good or service that is excludable means that access to it can be restricted to only those who pay for it. Rival in consumption means that when one person consumes the good or service, it reduces the amount available for others. Private goods, which possess both of these characteristics, are most efficiently provided by the market because individuals are willing to pay for them and the market can allocate resources efficiently based on demand and supply. Therefore, the statement is true.

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  • 14. 

    At a monopolists profit maximizing output, 

    • P > ATC

    • P > MC

    • P > AR

    • Option 4

    Correct Answer
    A. P > MC
    Explanation
    At a monopolist's profit-maximizing output, the price (P) should be greater than the marginal cost (MC). This is because the monopolist will continue to produce and sell additional units as long as the marginal cost of production is less than the price they can charge. By doing so, they can maximize their profits. If the price is less than the marginal cost, it would be more profitable for the monopolist to reduce production and increase prices, resulting in a higher profit margin. Therefore, the condition P > MC is necessary for profit maximization in a monopolistic market.

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  • 15. 

    Excess capacity markup over marginal cost are two noteworthy differences between monopolistic and perfect competition

    • True

    • False

    Correct Answer
    A. True
    Explanation
    In monopolistic competition, firms have excess capacity, meaning they produce less than the efficient level of output. This is because they have some market power and can set prices above marginal cost. On the other hand, in perfect competition, firms operate at the efficient level of output and prices are equal to marginal cost. Therefore, the statement that excess capacity markup over marginal cost are two noteworthy differences between monopolistic and perfect competition is true.

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  • 16. 

    The purchase of a new car by a resident of downtown Toronto generates

    • A tech spillover

    • A negative externality

    • A positive externality

    • An efficient market outcome

    Correct Answer
    A. A negative externality
    Explanation
    The purchase of a new car by a resident of downtown Toronto generates a negative externality. This is because the increased number of cars in the area leads to more traffic congestion, air pollution, and noise pollution, which negatively affect the quality of life for other residents. These external costs are not taken into account by the car buyer when making the purchase decision, resulting in an inefficient allocation of resources and a negative impact on the overall well-being of the community.

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  • 17. 

    For a competitive firm, total revenue is proportional to the amount of output 

    • True

    • False

    Correct Answer
    A. True
    Explanation
    Total revenue for a competitive firm is indeed proportional to the amount of output. In a competitive market, firms are price-takers, meaning they have no control over the price of their product. Therefore, when a firm increases its output, its total revenue will increase proportionally because it is selling more units of the product. This relationship holds true as long as the price remains constant and there are no other factors affecting the demand for the product.

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  • 18. 

    To judge the vertical equity of a tax system, one should consider the average tax rate of taxpayers of different level incomes. 

    • True

    • False

    Correct Answer
    A. True
    Explanation
    To judge the vertical equity of a tax system means to assess whether the system is fair and proportionate for taxpayers with different income levels. Considering the average tax rate of taxpayers with varying income levels is an appropriate measure for determining vertical equity. By comparing the average tax rates, one can evaluate if the tax burden is distributed fairly among individuals based on their income. Therefore, the statement "True" is the correct answer as it accurately represents the importance of considering the average tax rate of taxpayers with different income levels when assessing the vertical equity of a tax system.

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  • 19. 

    Tit for tat strategies are essentially the biblical strategy of "an eye for an eye, a tooth for a tooth"

    • True

    • False

    Correct Answer
    A. True
    Explanation
    The statement is true because tit for tat strategies involve responding to an action with a similar action. It is based on the principle of reciprocity, where one person's actions are mirrored by the other person. This concept is similar to the biblical strategy of "an eye for an eye, a tooth for a tooth," where the punishment matches the offense. Therefore, the given statement is correct.

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  • 20. 

    A key feature of an oligopoly is the tension between cooperation and self-interest

    • True

    • False

    Correct Answer
    A. True
    Explanation
    An oligopoly refers to a market structure where a small number of large firms dominate the industry. In such a market, there is often a tension between cooperation and self-interest among the firms. While they may benefit from cooperating and setting higher prices collectively, each firm also has an incentive to act in its own self-interest and gain a larger market share. This tension arises due to the interdependence of the firms in an oligopoly, where their actions can significantly impact the market and the behavior of other firms. Therefore, it is true that a key feature of an oligopoly is the tension between cooperation and self-interest.

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  • 21. 

    What externality is a target for correction by a pigovian tax -- ie. gasoline tax

    • Construction

    • Accidents

    • Pollution

    • Pedestrian safety

    Correct Answer
    A. Pollution
    Explanation
    A pigovian tax, such as a gasoline tax, is intended to correct negative externalities. Pollution is a prime example of a negative externality that can be targeted for correction through such a tax. By imposing a tax on gasoline, the government aims to internalize the costs associated with pollution caused by vehicle emissions. This tax incentivizes individuals and businesses to reduce their gasoline consumption, leading to a decrease in pollution levels and a more sustainable environment.

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  • 22. 

    Sidewalks are an example of

    • Public Good

    • Private Good

    • Common Resource

    • Club Good

    Correct Answer
    A. Public Good
    Explanation
    Sidewalks are considered a public good because they are non-excludable and non-rivalrous. They are accessible to everyone and their use by one person does not diminish their availability to others. Sidewalks are typically provided and maintained by the government for the benefit of the public as a whole, rather than being owned or controlled by individuals. They serve a broader societal purpose by promoting pedestrian safety, accessibility, and convenience, making them a classic example of a public good.

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  • 23. 

    By offering special tax breaks for spending on research and development, Canadian tax laws internalize the technology spillover externality 

    • True

    • False

    Correct Answer
    A. True
    Explanation
    The explanation for the given correct answer is that by offering special tax breaks for spending on research and development, Canadian tax laws incentivize companies to invest in innovation and technology development. This helps to internalize the positive effects of technology spillover, where the benefits of research and development activities extend beyond the individual firm and contribute to overall economic growth and development. By providing tax incentives, the government encourages companies to engage in research and development, leading to increased innovation, productivity, and competitiveness in the economy. Therefore, the statement is true.

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  • 24. 

    ________ are goods that are not excludable or rival (tornado siren)

    Correct Answer
    Public Goods
    Explanation
    Public goods are goods that are not excludable, meaning that it is not possible to prevent someone from using or benefiting from the good. Additionally, public goods are not rival, meaning that one person's use or consumption of the good does not diminish its availability or usefulness to others. The example of a tornado siren illustrates these characteristics, as it is not possible to exclude anyone from hearing the siren when it goes off, and one person's hearing of the siren does not prevent others from hearing it as well. Therefore, the correct answer is Public Goods.

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  • 25. 

    A competitive firm's marginal cost curve determines the quantity of the good the firm is willing to supply at any price, it is also the competitive firms supply curve.

    • True

    • False

    Correct Answer
    A. True
    Explanation
    The statement is true because a competitive firm's marginal cost curve shows the additional cost of producing one more unit of a good. This cost is influenced by factors such as the firm's technology, input prices, and production efficiency. The firm will only be willing to supply a certain quantity of the good at any given price, and this quantity is determined by the marginal cost curve. Therefore, the marginal cost curve also serves as the firm's supply curve in a competitive market, indicating the quantity of the good the firm is willing to supply at various prices.

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  • 26. 

    A profit maximizing competitive firm will produce until P = MC 

    • True

    • False

    Correct Answer
    A. True
    Explanation
    A profit maximizing competitive firm will produce until P = MC because at this point, the marginal cost (MC) of producing one more unit is equal to the price (P) the firm can sell that unit for. Producing beyond this point would result in higher costs than the revenue generated, leading to a decrease in profit. Similarly, producing less than this point would mean that the firm is not fully utilizing its resources and missing out on potential profit. Therefore, to maximize profit, a competitive firm will produce until P = MC.

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  • 27. 

    Profit maximizing competitive firm will produce to the point where 

    • Total revenue is maximized

    • Marginal revenue is maximized

    • Total cost is minimized

    • Marginal revenue = marginal cost

    Correct Answer
    A. Marginal revenue = marginal cost
    Explanation
    A profit maximizing competitive firm will produce to the point where marginal revenue is equal to marginal cost. This is because at this point, the firm is maximizing its profit by producing an additional unit of output as long as the additional revenue generated from that unit is equal to the additional cost incurred to produce it. If marginal revenue is greater than marginal cost, the firm can increase its profit by producing more. If marginal revenue is less than marginal cost, the firm can increase its profit by producing less. Therefore, the firm will continue adjusting its production level until marginal revenue equals marginal cost.

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  • 28. 

    Patent protect internalize technology spillovers by giving the inventors property rights over their inventions

    • True

    • False

    Correct Answer
    A. True
    Explanation
    Patents provide inventors with property rights over their inventions, which means that they have exclusive control and ownership over their creations. This protection allows inventors to profit from their inventions and prevents others from using or copying their technology without permission. By granting inventors property rights, patents incentivize innovation and encourage inventors to disclose their inventions, which in turn facilitates the diffusion of knowledge and technology spillovers. Therefore, it can be concluded that patents do protect and internalize technology spillovers by giving inventors property rights over their inventions.

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  • 29. 

    Replacing income tax with consumption tax encourages saving

    • True

    • False

    Correct Answer
    A. True
    Explanation
    Replacing income tax with consumption tax encourages saving because consumption tax is typically levied on goods and services purchased, rather than on income earned. By taxing consumption instead of income, individuals are incentivized to save more of their income since they are not being taxed on it. This can lead to increased savings rates, which in turn can contribute to economic growth and stability. Additionally, consumption tax can also be designed to be progressive, meaning that higher-income individuals would pay a higher rate, further promoting savings among those who can afford it.

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  • 30. 

    A monopolist has to accept a lower price if it wants to sell more output

    • True

    • False

    Correct Answer
    A. True
    Explanation
    A monopolist has to accept a lower price if it wants to sell more output because as the sole provider of a good or service, the monopolist has complete control over the market. In order to increase its sales and attract more customers, the monopolist may need to lower its price to make the product more affordable and competitive. By accepting a lower price, the monopolist can increase its market share and potentially generate higher overall profits.

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  • 31. 

    A monopolist sets price

    • MC = MR

    • From the demand curve at the quantity for which MC = MR

    • Where supply = demand

    • Where marginal revenue = demand

    Correct Answer
    A. From the demand curve at the quantity for which MC = MR
    Explanation
    The correct answer is "from the demand curve at the quantity for which MC = MR." This is because a monopolist maximizes its profits by producing the quantity at which its marginal cost (MC) is equal to its marginal revenue (MR). This occurs at the intersection of the demand curve and the marginal cost curve, where the quantity supplied by the monopolist equals the quantity demanded by consumers.

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  • 32. 

    What happens when a monopolistically competitive market raises price? 

    • It will increase its profits

    • It will increase its revenue

    • It will lose all of its customers due to the nature of the demand it faces

    • It will lose some, but not all, of its customers due to product differentiation

    Correct Answer
    A. It will lose some, but not all, of its customers due to product differentiation
    Explanation
    In a monopolistically competitive market, firms have some degree of control over the price they charge for their products. When a firm in this market raises its price, it will likely lose some customers due to the fact that there are substitute products available. However, it will not lose all of its customers because of product differentiation. This means that even though there are similar products in the market, each firm offers some unique features or qualities that differentiate it from its competitors. As a result, some customers may still be willing to pay the higher price for the specific attributes offered by the firm.

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  • 33. 

    Which of the following would be achieved by the most efficient pollution control system?

    • Each polluter will clean up to the point where total social benefits are maximized

    • Polluters will clean up just to point where that polluters last unit of cleanup has a social value exactly equal to its social costs

    • Each polluter will meet exactly the same pollution standards as all other polluters

    • Each polluter will clean up to the maximum level that is technically feasible.

    Correct Answer
    A. Each polluter will clean up to the point where total social benefits are maximized
    Explanation
    The most efficient pollution control system would ensure that each polluter cleans up to the point where total social benefits are maximized. This means that the level of cleanup would be determined by weighing the social benefits against the costs. It is important to find a balance where the benefits of reducing pollution outweigh the costs associated with cleanup efforts. By achieving this balance, the pollution control system can effectively minimize the negative impacts of pollution on society while also considering the economic feasibility of cleanup measures.

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  • 34. 

    A firm producing an output where MC > MR is producing more than the profit maximizing quantity

    • True

    • False

    Correct Answer
    A. True
    Explanation
    If a firm is producing an output where MC (Marginal Cost) is greater than MR (Marginal Revenue), it means that the cost of producing an additional unit is higher than the revenue generated from selling that unit. This indicates that the firm is not maximizing its profits because it is incurring additional costs that are not being offset by the revenue earned. Therefore, the firm is producing more than the profit maximizing quantity.

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  • 35. 

    In the long run equilibrium, competitive firms must operate at their minimum efficient scale

    • True

    • False

    Correct Answer
    A. True
    Explanation
    In the long run equilibrium, competitive firms must operate at their minimum efficient scale. This is because in a competitive market, firms strive to minimize their costs and maximize their profits. Operating at the minimum efficient scale allows firms to produce at the lowest possible average cost per unit, which gives them a competitive advantage over other firms. If a firm operates below its minimum efficient scale, it will have higher costs and may not be able to compete effectively in the market. Therefore, it is true that competitive firms must operate at their minimum efficient scale in the long run equilibrium.

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  • 36. 

    What describes a perfectly competitive firms marginal revenue curve? 

    • Vertical

    • Horizontal

    • Upward sloping

    • Downward sloping

    Correct Answer
    A. Horizontal
    Explanation
    A perfectly competitive firm's marginal revenue curve is horizontal because in perfect competition, each firm is a price taker and can sell as much output as it wants at the prevailing market price. Therefore, the firm's marginal revenue is equal to the market price, resulting in a horizontal MR curve.

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  • 37. 

    Downloading music from the internet is not a free-rider program

    • True

    • False

    Correct Answer
    A. False
    Explanation
    Downloading music from the internet is not excludable therefore downloaders are apart of the free-rider program

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  • 38. 

    Which one explains why some economists consider monopolistic competitors to be inefficient? 

    • They rely heavily on advertising

    • They produce a limited range of output

    • They produce output levels for which their average total cost is no at it's minimum

    • They always realize economic profit

    Correct Answer
    A. They produce output levels for which their average total cost is no at it's minimum
    Explanation
    Some economists consider monopolistic competitors to be inefficient because they produce output levels for which their average total cost is not at its minimum. This means that they are not producing at the most cost-efficient level, leading to higher production costs and potentially higher prices for consumers. This inefficiency is seen as a drawback compared to perfectly competitive markets where firms produce at the minimum average total cost.

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  • 39. 

    Heavy trucks on the trans Canada highway cause noise pollution in nearby towns. Which one of the following is an efficient policy to deal with? 

    • Rely on the "invisible hand" to take care of the problem

    • Provide subsidy to each trucking company, depending on the total amount of noise its trucks can create in the affected neighbourhoods

    • Impose a tax on each trucking company, depending on the total amount of noise its trucks create in the affected neighbourhoods

    • Subsidize trucking companies that install noise abatement devices

    Correct Answer
    A. Impose a tax on each trucking company, depending on the total amount of noise its trucks create in the affected neighbourhoods
    Explanation
    An efficient policy to deal with the noise pollution caused by heavy trucks on the trans Canada highway would be to impose a tax on each trucking company, depending on the total amount of noise its trucks create in the affected neighborhoods. This approach creates a financial incentive for trucking companies to reduce the noise generated by their vehicles. By imposing a tax, the burden of the noise pollution is shifted to the companies responsible for it, encouraging them to invest in quieter technologies or alternative routes to minimize the impact on nearby towns. This policy promotes accountability and encourages companies to take proactive measures to mitigate noise pollution.

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  • 40. 

    What best describes why the cost benefit analysis is difficult?

    • Analysts cannot estimate the explicit cost of a project that has not been completed

    • Analysts do not have access to info about typical cost overruns

    • Analysts do not typically observe prices when evaluating the benefits of a public good

    • Analysts are not able to consider the opportunity cost of resources

    Correct Answer
    A. Analysts do not typically observe prices when evaluating the benefits of a public good
    Explanation
    The cost benefit analysis involves comparing the costs of a project or action with its benefits. In the case of evaluating the benefits of a public good, analysts do not typically observe prices because public goods are non-excludable and non-rivalrous, meaning that once they are provided, everyone can benefit from them without reducing their availability to others. Therefore, it becomes difficult to assign a specific price to the benefits of a public good, making the cost benefit analysis challenging in this context.

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  • 41. 

    Firms in monopolistic competitive markets can enter and exit the market without restriction, and therefore profits are driven to zero in the long run.

    • True

    • False

    Correct Answer
    A. True
    Explanation
    In monopolistic competitive markets, firms have the freedom to enter and exit the market without any restrictions. This means that if there are profits to be made in the short run, new firms will enter the market, increasing competition and driving down prices. As prices decrease, profits decrease as well, eventually reaching zero in the long run. Therefore, the statement that profits are driven to zero in the long run in monopolistic competitive markets is true.

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  • 42. 

    Regressive tax takes a smaller fraction of income from a rich person than a poor person

    • True

    • False

    Correct Answer
    A. True
    Explanation
    A regressive tax is a tax system where the tax rate decreases as the income increases. This means that a rich person will pay a smaller proportion of their income in taxes compared to a poor person. In other words, the tax burden falls more heavily on lower-income individuals, making it regressive. Therefore, the statement "Regressive tax takes a smaller fraction of income from a rich person than a poor person" is true.

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  • 43. 

    Which one of the following describes what a monopolistic competitor that is losing money will do in the short run?

    • It will continue to produce as long as variable cost is being covered

    • It will raise power to reduce it's losses

    • It will lower price in order to increase sales enough to end the loses

    • Option 4

    Correct Answer
    A. It will continue to produce as long as variable cost is being covered
    Explanation
    In the short run, a monopolistic competitor that is losing money will continue to produce as long as variable cost is being covered. This means that even though the firm is experiencing losses, it will still produce as long as it can cover its variable costs. By doing so, the firm can minimize its losses and avoid shutting down completely. This strategy allows the firm to maintain some level of production and continue operating in the short run, even if it is not profitable.

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  • 44. 

    What one is a characteristic of resale price maintenance?

    • Used by government to maintain price floors

    • Illegal restraint of trade by retailers acting in collusion

    • Establishes a maximum price for resale of items in short supply

    • Involves minimum retail prices established by manufacturers in order to prevent discounting

    Correct Answer
    A. Involves minimum retail prices established by manufacturers in order to prevent discounting
    Explanation
    Resale price maintenance is a practice where manufacturers set minimum prices for retailers to sell their products, in order to prevent discounting. This helps to maintain the perceived value and profitability of the product. It is not used by the government to maintain price floors, nor is it an illegal restraint of trade by retailers acting in collusion. Additionally, it does not establish a maximum price for resale of items in short supply.

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  • 45. 

    In a perfectly competitive market, the market price of a product is $10. a firm in this market is producing the output level at which average total cost equals marginal cost, both of which are $8. what strategies should the firm pursue in order to maximize profit?

    • Expand output

    • Reduce output

    • Leave output unchanged

    • Change the price of the product

    Correct Answer
    A. Expand output
    Explanation
    In a perfectly competitive market, the market price of a product is determined by the intersection of supply and demand, and firms are price takers. In this scenario, the firm's average total cost and marginal cost are both $8, which means that the firm is producing at the minimum efficient scale. Since the market price is $10, the firm should expand its output to maximize profit. By increasing production, the firm can take advantage of the market price being higher than its cost of production, resulting in higher profits.

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  • 46. 

    When a positive externality is present, 

    • The private value curve (demand) is below social value curve for a product

    • The social cost curve is above the private cost curve (supply) of a product

    • The private value curve (demand) is above the social value curve of a product

    • The social cost curve is below the supply curve of a product

    Correct Answer
    A. The private value curve (demand) is below social value curve for a product
    Explanation
    When a positive externality is present, the private value curve (demand) is below the social value curve for a product. This means that individuals in the market value the product less than its overall social value. The private value curve represents the willingness to pay of consumers, while the social value curve takes into account the additional benefits generated for society as a whole. The presence of a positive externality suggests that the market is not capturing all the benefits of the product, leading to an underallocation of resources.

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  • 47. 

    Which one do you like?

    • Option 1

    • Option 2

    • Option 3

    • Option 4

    Correct Answer
    A. Option 1
    Explanation
    The given question asks for a personal preference among the four options provided. Since there is no additional information or context given, the answer cannot be objectively determined. It solely depends on the individual's personal liking or preference. Therefore, any of the options could be chosen as the correct answer based on the individual's personal choice.

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  • 48. 

    Which defines an efficient tax

    • One that raises large amounts of money quickly

    • One that generates revenues at the least cost to the taxpayers

    • One that satisfies both vertical and horizontal equity

    • One that is easy to administer

    Correct Answer
    A. One that generates revenues at the least cost to the taxpayers
    Explanation
    An efficient tax is defined as one that generates revenues at the least cost to the taxpayers. This means that the tax system should be designed in a way that minimizes the burden on taxpayers while still generating sufficient revenue for the government. By implementing a tax system that is fair and equitable, it ensures that taxpayers are not unfairly burdened and that the government can efficiently collect the necessary funds to meet its financial obligations.

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  • 49. 

    What is true for a firm operating in a perfectly competitive market?

    • The firm can control neither it's price nor its output

    • The firm can control its price but not it's output

    • The firm can control its output but not its price

    • The firm can control both its price and its output

    Correct Answer
    A. The firm can control its output but not its price
    Explanation
    In a perfectly competitive market, there are many firms selling identical products, which means they have no control over the market price. The price is determined by the forces of supply and demand. However, firms have the ability to control their output by adjusting their production levels. They can choose how much to produce based on their own cost structures and profit maximization goals. So, the firm can control its output but not its price in a perfectly competitive market.

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  • Current Version
  • Mar 21, 2023
    Quiz Edited by
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  • Jan 19, 2018
    Quiz Created by
    Lil.angel01

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