Ultimate Informative Quiz On Microeconomics

142 Questions

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Microeconomics Quizzes & Trivia

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Questions and Answers
  • 1. 
    Because Buyers and Sellers neglect the external effects of their actions when deciding how much to demand or supply, the market equilibrium is not efficient. 
    • A. 

      True

    • B. 

      False

  • 2. 
    In the presence of a negative externality, the market equilibrium quantity of a commodity is less than the socially optimal quantity
    • A. 

      True

    • B. 

      False

  • 3. 
    "Do unto others as you would have them do unto you" tells people to internalize externalities 
    • A. 

      True

    • B. 

      False

  • 4. 
    Corrective Tax reduces economic efficiency by distorting taxpayer behaviour
    • A. 

      True

    • B. 

      False

  • 5. 
    By offering special tax breaks for spending on research and development, Canadian tax laws internalize the technology spillover externality 
    • A. 

      True

    • B. 

      False

  • 6. 
    If studded snow tires cause an estimated $10 damage to the highways per vehicle each year, then the most efficient outcome for society would be to ban the use of studded snow tires
    • A. 

      True

    • B. 

      False

  • 7. 
    Coarse Theorm states negative externalities require government action because the market fails to take into account external social costs
    • A. 

      True

    • B. 

      False

  • 8. 
    Patent protect internalize technology spillovers by giving the inventors property rights over their inventions
    • A. 

      True

    • B. 

      False

  • 9. 
    When correcting for a negative externality, command-and-control policies are preferable because they are more efficient
    • A. 

      True

    • B. 

      False

  • 10. 
    An externality is
    • A. 

      The cost the producer incurs

    • B. 

      The benefit the consumer recieves

    • C. 

      The tariff levied against the external producers

    • D. 

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

  • 11. 
    Pulp & Paper mills produce not only paper but also dioxin, a by-product of the manufacturing process. Therefore, which one of the following can be said accurately about this market?
    • A. 

      Equilibrium price and output are too high to be socially desirable

    • B. 

      Equilibrium price and output are too low to be socially desirable

    • C. 

      Equilibrium price is too low, and output it too high to be socially desirable

    • D. 

      Equilibrium price is too high and output is too low to be socially desirable

  • 12. 
    When a positive externality is present, 
    • A. 

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

    • B. 

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

    • C. 

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

    • D. 

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

  • 13. 
    Which of the following is supported by the coase theorm? 
    • A. 

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

    • B. 

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

    • C. 

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

  • 14. 
    The purchase of a new car by a resident of downtown Toronto generates
    • A. 

      A tech spillover

    • B. 

      A negative externality

    • C. 

      A positive externality

    • D. 

      An efficient market outcome

  • 15. 
    What externality is a target for correction by a pigovian tax -- ie. gasoline tax
    • A. 

      Construction

    • B. 

      Accidents

    • C. 

      Pollution

    • D. 

      Pedestrian safety

  • 16. 
    Relative to market based pollution control policies, which statement can be made about direct regulation?
    • A. 

      It requires less detailed info to set pollution limits

    • B. 

      It provides more of an incentive to develop better tech to clean up the beyond minimum

    • C. 

      It allows polluters to pollute at no charge up to the limits set by the government

    • D. 

      It makes it easier to fine-tune regulations for different situations

  • 17. 
    Which of the following would be achieved by the most efficient pollution control system?
    • A. 

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

    • B. 

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

    • C. 

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

    • D. 

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

  • 18. 
    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? 
    • A. 

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

    • B. 

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

    • C. 

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

    • D. 

      Subsidize trucking companies that install noise abatement devices

  • 19. 
    What is an important question to address the following question in defining an antipollution policy?
    • A. 

      How do we reduce pollution to the appropriate level?

    • B. 

      How do we eliminate pollution?

    • C. 

      How do we learn to live with pollution, rather than worry about its growth?

    • D. 

      How do we design a policy, not to be used today but instead when it is needed later in the decade?

  • 20. 
    The whaling industry has hunter some species of whales nearly to extinction. Cattle, however, continue to thrive on farms throughout the world. Which one of the following is the major reason for this difference between cattle and whales? 
    • A. 

      Whales are a common resource and cattle are private property

    • B. 

      Whales are more valuable than cattle, and whalers are simply responding to economic incentives

    • C. 

      The technology for harvesting whales has improves more quickly than the cattle

    • D. 

      Whaling is an international industry, but cattle are raised locally

  • 21. 
    The free-rider program problem arises when a person who recieves the benefit of a good can avoid paying for it
    • A. 

      True

    • B. 

      False

  • 22. 
    Downloading music from the internet is not a free-rider program
    • A. 

      True

    • B. 

      False

  • 23. 
    Club Goods are free to their consumers
    • A. 

      True

    • B. 

      False

  • 24. 
    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
    • A. 

      True

    • B. 

      False

  • 25. 
    The main weakness of a national defence as an example of a public good is that defence is actually provided privately in a market economy, through aerospace companies and other defence contractors. 
    • A. 

      True

    • B. 

      False

  • 26. 
     [Blank] is the property of a good whereby a person can be prevented from using it
  • 27. 
     [Blank] is a good where one persons use diminishes other peoples use
  • 28. 
    [Blank] are goods that are both excludable and rival (1 ice-cream cone)
  • 29. 
    [Blank] are goods that are not excludable or rival (tornado siren)
  • 30. 
    [Blank] are goods that are rival but not excludable (a fisherman fishing)
  • 31. 
    [Blank] are goods that are excludable but not rival (fire department)
  • 32. 
     [Blank] a person who receives the benefit of a good/goods but avoids paying for it
  • 33. 
    [Blank] process used to measure the estimated net social rate or return from an investment
  • 34. 
    Sidewalks are an example of
    • A. 

      Public Good

    • B. 

      Private Good

    • C. 

      Common Resource

    • D. 

      Club Good

  • 35. 
    There is more litter along the highways than there is along private driveways because
    • A. 

      There is more traffic on highways

    • B. 

      Nobody cares about litter along highways

    • C. 

      Highways are a common resource

    • D. 

      There are not enough tax dollars to clean along highways

  • 36. 
    Which one do you like?
    • A. 

      Option 1

    • B. 

      Option 2

    • C. 

      Option 3

    • D. 

      Option 4

  • 37. 
    Which best describes the example of the tragedy of the commons? 
    • A. 

      The free-rider program

    • B. 

      The Canada day fireworks display

    • C. 

      Environmental degradation

    • D. 

      Municipal police service

  • 38. 
    What is correct about public goods?
    • A. 

      Cost nothing to produce

    • B. 

      They can be consumed by additional people without additional cost once they are produced

    • C. 

      They tend to be overconsumed from the standpoint of society

    • D. 

      They are overproduced by the market

  • 39. 
    Mid-level estimate of a statistical life (VSL) in Canada is $5.8 million. What is the benefit derived from the installation of a traffic light if it reduces the risk of a fatal accident by 0.5 percentage point?
    • A. 

      $29,000

    • B. 

      $17,500

    • C. 

      $58,500

    • D. 

      $15,000

  • 40. 
    Which one of the following features does a common good share with a private good
    • A. 

      Rival in consumption

    • B. 

      Excludability

    • C. 

      Efficient provision by the market

    • D. 

      Nonrival in consumption

  • 41. 
    What best describes why the cost benefit analysis is difficult?
    • A. 

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

    • B. 

      Analysts do not have access to info about typical cost overruns

    • C. 

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

    • D. 

      Analysts are not able to consider the opportunity cost of resources

  • 42. 
    Many species of animals with commercial value are threatened with extinction. Which one of the following explains why the cow, a valuable source of food, does not face this threat? 
    • A. 

      Cows are a common resource

    • B. 

      Cows are privately owned

    • C. 

      Vet practices have protected cows from diseases

    • D. 

      Their hides fetch less money than those of other species

  • 43. 
    What is the simplest way to solve the problem of congested roads?
    • A. 

      Build more roads

    • B. 

      Offer more public transportation

    • C. 

      Levy a gas tax

    • D. 

      Institute tolls

  • 44. 
    An excess of government receipts over government spending is called a budget deficit
    • A. 

      True

    • B. 

      False

  • 45. 
    To judge the vertical equity of a tax system, one should consider the average tax rate of taxpayers of different level incomes. 
    • A. 

      True

    • B. 

      False

  • 46. 
    Progressive Tax is something that collects more tax from a rich person rather than a poor person
    • A. 

      True

    • B. 

      False

  • 47. 
    Marginal tax rate is equal to the actual taxes paid divided by income
    • A. 

      True

    • B. 

      False

  • 48. 
    One tax system is more efficient than another if it raises the same amount of revenue at a higher cost to taxpayers and it imposes small deadweight losses and small administrative burdens
    • A. 

      True

    • B. 

      False

  • 49. 
    Replacing income tax with consumption tax encourages saving
    • A. 

      True

    • B. 

      False

  • 50. 
    Regressive tax takes a smaller fraction of income from a rich person than a poor person
    • A. 

      True

    • B. 

      False

  • 51. 
    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. 
    • A. 

      True

    • B. 

      False

  • 52. 
    The degree of efficiency loss from an excise tax varies between markets, depending on the price elasticities of demand and supply.
    • A. 

      True

    • B. 

      False

  • 53. 
    Average tax rate is 
    • A. 

      Tax rate paid by the average worker

    • B. 

      Total taxes paid divided by total income

    • C. 

      The tax rate paid by the marginal worker

  • 54. 
    Which is the best example of a tax justified under the benefits principle
    • A. 

      An inheritance task

    • B. 

      A hockey ticket tax to help pay for the building of a new hockey arena

    • C. 

      Income tax to a finance space exploration

    • D. 

      Payroll tax to help find fund education

  • 55. 
    What explains why deadweight loss occurs?
    • A. 

      Taxes disort behaviour

    • B. 

      Inevitably, all government programs cause inefficiency

    • C. 

      Payment of taxes cause an inherent reduction in standard of living

    • D. 

      Taxes cause inequities

  • 56. 
    Which of the following would be an effect of replacing income tax with a flat rate consumption tax?
    • A. 

      It would of encouraged less saving

    • B. 

      It would make the tax system progressive

    • C. 

      It would mean two families with the same income would not have the same tax bill

    • D. 

      It would decrease after-tax interest rates received on bank accounts

  • 57. 
    If a person pays $2000 tax on an income of $10,000 and $3000 on an income of $20,000 what is the following tax structure?
    • A. 

      Proportional

    • B. 

      Lump sum

    • C. 

      Regressive

    • D. 

      Progressive

  • 58. 
    If a person's average tax rate is 25% and the marginal tax rate is 40%, they then receive an additional $100 of income, what is the amount of the implied additional tax payment?
    • A. 

      $10

    • B. 

      $25

    • C. 

      $40

    • D. 

      Option 4

  • 59. 
    Which one of the following bears the entire burden of the incidence of the corporate income tax?
    • A. 

      Consumers

    • B. 

      Owners

    • C. 

      Workers

    • D. 

      People

  • 60. 
    What is the best tradeoff in economics?
    • A. 

      Trade off between efficiency and equity

    • B. 

      Tradeoff between vertical and horizontal equity

    • C. 

      Tradeoff between business taxes and individual taxes

    • D. 

      Tradeoff between the needs of the many and the desires of the few

  • 61. 
    What tax system is a vertical equity? 
    • A. 

      Average tax rate is higher for those with higher incomes

    • B. 

      Marginal tax rate is the same for all

    • C. 

      Those with higher incomes pay more taxes

    • D. 

      Those is similar situations pay the same amount in taxes

  • 62. 
    What is the main source of income for the federal government?
    • A. 

      Payroll taxes

    • B. 

      Corporate income taxes

    • C. 

      Individual income taxes

  • 63. 
    What is the largest single source of revenue for Canada's provincial government
    • A. 

      Transportation

    • B. 

      Education

    • C. 

      Health care

    • D. 

      Social services

  • 64. 
    Most efficient type of tax?
    • A. 

      Lump sum tax

    • B. 

      Individual income tax

    • C. 

      Corporate income tax

    • D. 

      Consumption tax

  • 65. 
    What is the best example of a tax that is usually justified on the grounds of the "ability to pay"
    • A. 

      Corporate income tax

    • B. 

      Property tax

    • C. 

      Sales tax

    • D. 

      Progressive income tax

  • 66. 
    Which defines an efficient tax
    • A. 

      One that raises large amounts of money quickly

    • B. 

      One that generates revenues at the least cost to the taxpayers

    • C. 

      One that satisfies both vertical and horizontal equity

    • D. 

      One that is easy to administer

  • 67. 
    Which is associated with vertical equity and horizontal equity? 
    • A. 

      Benefits principle of taxation

    • B. 

      The ability-to-pay of taxation

    • C. 

      Falling marginal tax rates

    • D. 

      Rising marginal tax rates

  • 68. 
    What is true for a firm operating in a perfectly competitive market?
    • A. 

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

    • B. 

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

    • C. 

      The firm can control its output but not its price

    • D. 

      The firm can control both its price and its output

  • 69. 
    Sun cost is a cost that, although it is committed, can be recovered
    • A. 

      True

    • B. 

      False

  • 70. 
    For all firms, average revenue and marginal revenue equals the price of the good
    • A. 

      True

    • B. 

      False

  • 71. 
    Marginal revenue is the additional revenue a firm receives for selling any unit above the break-even level of output
    • A. 

      True

    • B. 

      False

  • 72. 
    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.
    • A. 

      True

    • B. 

      False

  • 73. 
    A profit maximizing competitive firm will produce until P = MC 
    • A. 

      True

    • B. 

      False

  • 74. 
    A firm producing an output where MC > MR is producing more than the profit maximizing quantity
    • A. 

      True

    • B. 

      False

  • 75. 
    Long run supply is always horizontal for competitive industries
    • A. 

      True

    • B. 

      False

  • 76. 
    For a competitive firm, total revenue is proportional to the amount of output 
    • A. 

      True

    • B. 

      False

  • 77. 
    In the long run equilibrium, competitive firms must operate at their minimum efficient scale
    • A. 

      True

    • B. 

      False

  • 78. 
    A competitive firm maximizes profit when
    • A. 

      The price is equal to average cost

    • B. 

      The price is equal to average revenue

    • C. 

      The price is equal to marginal cost

    • D. 

      The price is equal to marginal revenue

  • 79. 
    Profit maximizing competitive firm will produce to the point where 
    • A. 

      Total revenue is maximized

    • B. 

      Marginal revenue is maximized

    • C. 

      Total cost is minimized

    • D. 

      Marginal revenue = marginal cost

  • 80. 
    Barbels Backerei is a competitive firm producing MR = $4 and MC = $2. What strategy will maximize profit? 
    • A. 

      Expand output

    • B. 

      Cut back on output

    • C. 

      Raise prices to increase total revenue

    • D. 

      Cut prices to increase total revenue

  • 81. 
    What is the shape of the demand curve faced by a perfectly competitive firm? 
    • A. 

      Vertical

    • B. 

      Downward slope

    • C. 

      Horizontal

    • D. 

      Upward slope

  • 82. 
    What best describes when the long-run market supply curve is likely to slope upward?
    • A. 

      When additional firms are attracted into the industry in the long run

    • B. 

      When not all firms have the same cost of production

    • C. 

      When diminishing marginal product sets in

    • D. 

      When there are no barriers to entry into the industry

  • 83. 
    How does a profit maximizing competitive firm determine output?
    • A. 

      Equating marginal revenue and marginal cost

    • B. 

      Equating marginal cost and average revenue

    • C. 

      Equating average cost and marginal revenue

    • D. 

      Option 4

  • 84. 
    Which one of the following situations should cause a firm to shut down in the short run?
    • A. 

      It is not covering its variable costs

    • B. 

      It is not covering its fixed costs

    • C. 

      It is not covering total costs

    • D. 

      It is not covering its money outlays or explicit costs

  • 85. 
    Which one of the following situations should cause a firm to shut down in the long run?
    • A. 

      It's not covering its fixed costs

    • B. 

      Not covering it's accounting costs

    • C. 

      Not covering money outlays

    • D. 

      Not covering its economic costs

  • 86. 
    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?
    • A. 

      Expand output

    • B. 

      Reduce output

    • C. 

      Leave output unchanged

    • D. 

      Change the price of the product

  • 87. 
    Suppose the demand increases for the output of a competitive firm therefore driving up the price. Each of the 1000 current firms are willing to increase quantity supplied by 2 units in response to the higher price. Assuming free entry and exit, what will in crease the total quantity supplied that the industry will eventually experience? 
    • A. 

      Less than 2000

    • B. 

      Exactly 2000

    • C. 

      More than 2000

    • D. 

      2000 initially, then it will fall back to the original level in the long run

  • 88. 
    What describes a perfectly competitive firms marginal revenue curve? 
    • A. 

      Vertical

    • B. 

      Horizontal

    • C. 

      Upward sloping

    • D. 

      Downward sloping

  • 89. 
    A monopolist produces where
    • A. 

      MC = MR

    • B. 

      MC = P

    • C. 

      P = ATC

    • D. 

      P > ATC

  • 90. 
    At a monopolists profit maximizing output, 
    • A. 

      P > ATC

    • B. 

      P > MC

    • C. 

      P > AR

    • D. 

      Option 4

  • 91. 
    Unlike competitive producers, a monopolist restricts output below the level at which MR = MC
    • A. 

      True

    • B. 

      False

  • 92. 
    A monopolist produces the socially efficient quantity of output
    • A. 

      True

    • B. 

      False

  • 93. 
    For monopoly, price exceeds marginal revenue
    • A. 

      True

    • B. 

      False

  • 94. 
    In the short run, a monopolist would never produce P < ATC
    • A. 

      True

    • B. 

      False

  • 95. 
    For price discrimination to be effective, a monopolist must be able to separate consumers into different markets
    • A. 

      True

    • B. 

      False

  • 96. 
    Discount coupons are actually irrational behaviour because it is more efficient for them simply to cut price than incur the added cost of producing coupons
    • A. 

      True

    • B. 

      False

  • 97. 
    A natural monopolist cannot earn a profit while producing at the competitive output and price levels
    • A. 

      True

    • B. 

      False

  • 98. 
    A monopolist has an upward-sloping supply curve 
    • A. 

      True

    • B. 

      False

  • 99. 
    A monopolist can charge as high a price as it likes 
    • A. 

      True

    • B. 

      False

  • 100. 
    A monopolist has to accept a lower price if it wants to sell more output
    • A. 

      True

    • B. 

      False

  • 101. 
    An unregulated monopoly is inefficient because it equates
    • A. 

      Marginal cost with demand, rather than with marginal revenue

    • B. 

      Marginal revenue with demand, rather than with marginal cost

    • C. 

      Marginal revenue with average cost, rather than with marginal cost

    • D. 

      Marginal cost with marginal revenue rather than with demand

  • 102. 
    A monopolist sets price
    • A. 

      MC = MR

    • B. 

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

    • C. 

      Where supply = demand

    • D. 

      Where marginal revenue = demand

  • 103. 
    Suppose a monopolist is producing an output level where P=MC. Which one of the following should the monopolist do to maximize profit?
    • A. 

      Increase output lower price

    • B. 

      Decrease output raise price

    • C. 

      Increase both output and price

    • D. 

      Decrease both output and price

  • 104. 
    What makes zero economic profit?
    • A. 

      Monopoly regulated by marginal cost pricing

    • B. 

      Monopoly regulated by average cost pricing

    • C. 

      Monopoly regulated by variable cost pricing

    • D. 

      Monopoly regulated by fixed cost pricing

  • 105. 
    Which one of the following explains why monopoly occurs? 
    • A. 

      Barriers to entry into the industry

    • B. 

      Greed by the seller

    • C. 

      Lack of interest by potential competitors

    • D. 

      Option 4

  • 106. 
    As the only seller of a commodity, you calculate the marginal revenue is $140, while marginal cost is $165. You should 
    • A. 

      Increase output until marginal cost = price

    • B. 

      Reduce output until marginal revenue = price

    • C. 

      Reduce output until marginal revenue equals marginal costs

    • D. 

      Increase output until marginal revenue is zero

  • 107. 
    Which one of the following tends to occur with price discrimination by a monopolist?
    • A. 

      Increase in deadweight loss

    • B. 

      Decreases in economic efficiency

    • C. 

      Leads to output closer to that of the competitive firm

    • D. 

      Increases the gap between marginal revenue and price

  • 108. 
    Suppose a monopolist can sell 20 units of output per week for a price of $30 each, and 21 units of output per week for $29 each. Which one of the follow is it's marginal revenue for the 21st unit sold
    • A. 

      $1

    • B. 

      $9

    • C. 

      $29

    • D. 

      $30

  • 109. 
    Which one of the following would a price-discriminating monopolist probably produce 
    • A. 

      Higher output with average revenue higher than the best single price

    • B. 

      Lower output with average revenue higher than the best single price

    • C. 

      Higher output with average revenue lower than the best single price

    • D. 

      Lower output with average revenue lower than the best single price

  • 110. 
    Which one of the following tends to occur with a price discrimination by a monopolist?
    • A. 

      Increases in deadweight loss

    • B. 

      Decreases in economic efficiency

    • C. 

      Leads to output closer to that of the competitive firm

    • D. 

      Increases the gap between marginal revenue and price

  • 111. 
    Product differentiation in a monopolistically competitive market means
    • A. 

      The practice by the firm of selling the same product in different markets

    • B. 

      The practice by the firm of producing and selling different products

    • C. 

      The attempt by the firm to produce and sell a product seen to be different from that of its competitors

    • D. 

      The attempt by the firm to produce and sell a product similar to that of its competitors

  • 112. 
    Firms in monopolistic competitive markets can enter and exit the market without restriction, and therefore profits are driven to zero in the long run.
    • A. 

      True

    • B. 

      False

  • 113. 
    There are no externalities associated with the entry of new firms into a monopolistically competitive market
    • A. 

      True

    • B. 

      False

  • 114. 
    Firms in monopolistic ompetition have rivals that
    • A. 

      Set their own price MR= MC

    • B. 

      Set their price according to the demand they face

    • C. 

      Will always match their price increases

    • D. 

      Will always match their price decreases

  • 115. 
    Excess capacity markup over marginal cost are two noteworthy differences between monopolistic and perfect competition
    • A. 

      True

    • B. 

      False

  • 116. 
    What does excess capacity predict?
    • A. 

      Long run equilibrium in a monopolistically competitive market occurs with all firms producing at a lower output level than that at which average total costs are minimized

    • B. 

      Monopolistically competitive firms will achieve positive economic profits by restricting output below the economically efficient level

    • C. 

      Profit-maximizing firms in a monopolistically competitive market restrict output to extract positive economic profit

    • D. 

      There are too many firms producing essentially the same product in a monopolistically competitive market

  • 117. 
    Critics of advertising argue that much advertising is psychological rather than informational; firms advertise in order to manipulate people's taste 
    • A. 

      True

    • B. 

      False

  • 118. 
    Most economists agree that, because of the problem of excess capacity, monopolistic competition is detrimental to soceitys well being. 
    • A. 

      True

    • B. 

      False

  • 119. 
    Which one of the following describes what a monopolistic competitor that is losing money will do in the short run?
    • A. 

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

    • B. 

      It will raise power to reduce it's losses

    • C. 

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

    • D. 

      Option 4

  • 120. 
    Which one explains why some economists consider monopolistic competitors to be inefficient? 
    • A. 

      They rely heavily on advertising

    • B. 

      They produce a limited range of output

    • C. 

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

    • D. 

      They always realize economic profit

  • 121. 
    How does monopolistic competition differ from monopoly?
    • A. 

      Monopolists charge whatever they want

    • B. 

      Monopolists can earn short run profit

    • C. 

      Monopolists earn long run profit

    • D. 

      Monopolists produce where marginal revenue = marginal cost but use the demand curve to set price

  • 122. 
    What will occur as a result of entry into a monopolistically competitive market? 
    • A. 

      The demand curve will shift to the right

    • B. 

      The demand curve will shift to the left

    • C. 

      The demand curve by each firm will shift to the right

    • D. 

      The demand curve by each firm will shift to the left

  • 123. 
    What happens when a monopolistically competitive market raises price? 
    • A. 

      It will increase its profits

    • B. 

      It will increase its revenue

    • C. 

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

    • D. 

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

  • 124. 
    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
    • A. 

      True

    • B. 

      False

  • 125. 
    Forming a cartel results in output that approaches the competitive ideal
    • A. 

      True

    • B. 

      False

  • 126. 
    Most economists believe that resale price maintenance is one way to solve the free-rider program associated with a public good
    • A. 

      True

    • B. 

      False

  • 127. 
    Cooperation of firms with one another is generally good not only for society as a whole, but also the cooperating firms
    • A. 

      True

    • B. 

      False

  • 128. 
    The price effect of an increase in production tends to increase profit.
    • A. 

      True

    • B. 

      False

  • 129. 
    As the number of sellers in an oligopoly grows larger, the magnitude of the output effect falls
    • A. 

      True

    • B. 

      False

  • 130. 
    Tit for tat strategies are essentially the biblical strategy of "an eye for an eye, a tooth for a tooth"
    • A. 

      True

    • B. 

      False

  • 131. 
    A key feature of an oligopoly is the tension between cooperation and self-interest
    • A. 

      True

    • B. 

      False

  • 132. 
    The oligopolists engage in collusion and successfully form a cartel, the market outcome is
    • A. 

      The same as if it were a monopoly

    • B. 

      The same as if it were a competitive firm

    • C. 

      The same as if it was a monopolistically competitive firm

    • D. 

      More efficient

  • 133. 
    What one is a characteristic of resale price maintenance?
    • A. 

      Used by government to maintain price floors

    • B. 

      Illegal restraint of trade by retailers acting in collusion

    • C. 

      Establishes a maximum price for resale of items in short supply

    • D. 

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

  • 134. 
    Compared with perfect competition, oligopolists tend to 
    • A. 

      Overproduce and overprice

    • B. 

      Underproduce and overprice

    • C. 

      Overproduce and underprice

    • D. 

      Underproduce and underprice

  • 135. 
    Which is the main reason that cartels such as OPEC tend to fail? 
    • A. 

      Self-interest drives individual players to renege on their cooperative agreements

    • B. 

      There are too many producers for coordination to be feasible

    • C. 

      The players fail to behave rationally

    • D. 

      Demand is inadequate, resulting in falling prices in spite of the agreement to hold back output

  • 136. 
    Some years ago, parliament banned cigarette advertising on television. Surprisingly the cigarette companies did not fight the legislation. What is most likely the reason for this inaction by the cigarette companies?
    • A. 

      Companies did not have enough political clout to fight the ban successfully

    • B. 

      The legislation passed quickly, before the companies could mobilize opposition

    • C. 

      The ban allowed the companies to concentrate their advertising dollars in more effective media

    • D. 

      The ban helped their companies cooperate to end advertising that they could not agree to stop on their own

  • 137. 
    Which one of the following is a dominant strategy?
    • A. 

      All players comply with a collusive agreement

    • B. 

      Each player takes the best possible action given to strategies chosen by other players

    • C. 

      One that is best for a player regardless of the strategies chosen by the other players

    • D. 

      One player cheats until other players cooperate, and then the original players cooperate

  • 138. 
    Raising production will increase the total amount sold, which will decrease the per unit price and lower the profit on all other units sold. What is the name of this concept?
    • A. 

      Price Effect

    • B. 

      Output Effect

    • C. 

      Cost Effect

    • D. 

      Income Effect

  • 139. 
    What would make it difficult for oligopolists to collude to set price?
    • A. 

      Large number of firms

    • B. 

      Standardized product

    • C. 

      High barriers entry

    • D. 

      Licensing restrictions by government

  • 140. 
    Which one of the follwing describes when Nash equilibrium occurs
    • A. 

      When all players comply with a collusive agreement

    • B. 

      When each player takes the best possible action given the strategies chosen by other players

    • C. 

      When a player selects the best strategy regardless of the strategies chosen by the other players

    • D. 

      When one player cheats until other players cooperate then the original players cooperate

  • 141. 
    Which one of the following defines predatory pricing?
    • A. 

      Pricing above cost to drive competitors out of business

    • B. 

      Pricing at cost to drive competitors out of business

    • C. 

      Pricing below cost to drive competitors out of business

    • D. 

      Pricing above fixed cost but below variable cost to drive competitors out of business

  • 142. 
    What does the concentration ratio measure?
    • A. 

      The numbers of firms in an industry

    • B. 

      The number of firms in a country

    • C. 

      The proportion of the owners concentrated in the four largest industries

    • D. 

      The proportion of the total output in the market supplied by the four largest firms