# Shared Flashcard Set

Econ 218
practice final
30
Economics
04/29/2011

## Additional Economics Flashcards

Term
 To be useful, a theory must
Definition
 predict well
Term
 Which of the following is an example of a positive economic statement?
Definition
 The after-tax distribution of income is more equal than the pre-tax distribution of income
Term
 Which of the following assumptions about indifference curves is incorrect?
Definition
 A) Consumer usually prefer more to less.B) Consumers’ preferences are transitive.C) The size of marginal rate of substitution declines along an indifference curve.D) * Indifference curves are concave to the origin
Term
 Suppose initially that the price of X is \$10, the price of Y is \$15, and the consumer's income is \$100. If Y is measured on the vertical axis and X is measured on the horizontal axis, and if the price of Y decreased to \$10,
Definition
 A) the entire budget line will shift inward toward the origin, with its slope changing from – 2/3 to - 1. B) the budget line will pivot outward along the X axis, with its slope changing from –3/2 to -1. C)* the budget line will pivot outward along the Y axis, with the slope changing from –2/3 to - 1. D) the budget line will pivot inward toward the origin along the Y axis, with the slope changing from – 3/2 to -1.
Term
 Using the utility approach, the consumer is in equilibrium when
Definition
 the marginal utility per dollar's worth of each good is equal
Term
 If a higher price results in no change in total expenditure, then demand is
Definition
 unit-elastic
Term
 Consider indifference curves for Mike and Nancy with sweet corn on the x-axis and whole wheat bread on the Y-Axis. Mike likes sweet corn better and Nancy prefers Whole Wheat bread. Assume that they have the same level of income to spend on the two kinds of food and are faced by the same price ratio. When they maximize their utilities
Definition
 slope of indifference curve for Mike will be steeper than the slope of indifference curve for Nancy at the tangent point
Term
 When the income-consumption curve is upward-sloping to the right, the good represented on the X axis must be:
Definition
 a normal good
Term
 If isoquants are drawn as straight lines, it implies that
Definition
 the two inputs are perfect substitutes for each other
Term
 Suppose that at a point on an isoquant, the following information is true: MPL = 3 and MPK = 2. Then if K falls by 6, L must increase by
Definition
 A) 0.67. B) 9.00. C) *4.00. D) 1.00.
Term
 Assume that with 20L and 30K a given firm can produce 100 units of output and that 60L and 90K will produce 325. Based on this information, we can conclude that
Definition
 A) decreasing returns to scale exist. B) average cost is increasing. C) average cost is constant. D)* increasing returns to scale exist
Term
 Once law of diminishing returns have set in, each additional unit of output
Definition
 A) requires less of the variable input than the previous unit. B) requires less cost than the previous unit. C) requires more of the fixed input than the previous unit. D)* requires more cost than the previous unit.
Term
 Suppose a firm is using two inputs, labor and capital. What will happen if the price of labor rises?
Definition
 A)* The firm's average cost curve will shift upward. B) The firm's marginal cost curve will remain unchanged. C) The firm will hire more workers for the same output. D) The firm’s total fixed cost curve will shift upward.
Term
 For a firm in perfect competition, if price falls, in the short run, the firm will respond by
Definition
 A) shutting down.B) equating average variable cost to marginal revenue.C)* reducing output along its marginal cost curve as long as average revenue exceeds average variable cost.D) None of the above
Term
 In a constant cost competit
Definition
Term
 The total surplus gained by participants in a competitive market is the area between the
Definition
 A) demand curve and the equilibrium price line out to the equilibrium output rate Q.B) * demand curve and the supply curve out to the equilibrium output rate Q.C) demand curve and the horizontal axis out to the equilibrium output rate Q.D) price line and the horizontal axis out to the equilibrium output rate Q.
Term
 An excise tax is imposed on the product produced by an increasing cost competitive industry. In absolute terms the price elasticity of supply is greater than the price elasticity of demand. This means that
Definition
 A) * consumers bear a greater burden of the tax than do sellers.B) sellers bear a greater excess burden of the tax than do consumers.C) consumers pay a higher price, but output is not reduced.D) there is no excess burden from the tax.
Term
 Assume that Bost, Incorporated sells game cartridges that can be used in a popular home video system. Bost currently sells 300 cartridges per week and earns \$500 in profit. Bost's production manager calculates that the marginal cost of the next unit is \$5, while marginal revenue for one additional unit is \$10. Based upon this information we would conclude that:
Definition
 A) Bost should reduce their output.B) Bost's profit would rise to \$510 by increasing output 1 unit.C) * Bost's profit would rise to \$505 by increasing output 1 unit.D) Insufficient information.
Term
 The unregulated monopolist in Figure 11-2 will charge price
Definition
 A) * OA.B) OB.C) OI.D) Not shown
Term
 . If a monopolist set its profit maximizing price equal to 10, Marginal Revenue is 5, then the elasticity of demand is:
Definition
 A) -1/2B)* -2C) -1.D) 0.
Term
 Which of the following best describes the effect of a monopolist reducing his output below the competitive level?
Definition
 A) a reduction in producer surplus and a gain in consumer surplusB)* a transfer of consumer surplus to the monopolist as producer surplus and a deadweight loss of consumer and producer surplus from the reduced outputC) only a loss of consumer surplusD) a transfer of all consumer surplus to the monopolist with no deadweight loss of consumer surplus
Term
 Long-run equilibrium for the typical monopolistically competitive firm is characterized by
Definition
 A) price equal to marginal cost at the chosen level of output.B) marginal cost equal to average cost at the chosen level of output.C) * price equal to average cost at the chosen level of output.D) marginal cost equal to average revenue at the chosen level of output
Term
 Most economists would not advocate government intervention in monopolistically competitive industries because
Definition
 A) monopolistically competitive industries are efficient.B) firms earn zero profits in the long run just as perfectly competitive firms do.C) * the product variety produced by monopolistic competition is a benefit that helps offset its relatively small welfare costs.D) these firms tend to be important exporters.
Term
 The prisoners' dilemma illustrates a situation in which
Definition
 A) neither player has a dominant strategy.B) the Nash equilibrium is superior to the dominant strategy equilibrium.C) each oligopolist behaves as if it were a perfectly competitive firm.D) each player pursuing its self-interest generates a collective outcome that is inferior for both
Term
 A Prisoner's Dilemma equilibrium ______ a dominant strategy game and ______ a Nash equilibrium
Definition
 A) * is; hasB) is not; hasC) is; does not haveD) is not; does not
Term
 For a monopolist, marginal revenue is greater than zero when
Definition
 A) elasticity of demand is equal to zero.B)* demand is elastic.C) demand is inelastic.D) demand is unit-elastic
Term
 Consumer surplus is fully extracted by firms under
Definition
 A) * first degree price discrimination.B) second degree price discrimination.C) third degree price discrimination.D) block pricing.
Term
 When a profit-maximizing monopolist sells output in two distinct markets, which of the following is true
Definition
 A) Price will be higher in the market in which demand is unit-elastic.B) * Price will be lower in the more elastic market.C) Price will be equal in each market, as long as there is a constant marginal cost.D) Price will be lower in the market for which there are fewer substitute goods
Term
 The local zoo has a pricing policy in which senior citizens pay a lower price than do younger adults. This policy is
Definition
 A) a form of perfect price discrimination.B) * a form of third degree price discrimination.C) certain to lead to a loss of total revenues for the zoo.D) reduce the number of visitors but will increase total revenues
Term
 With perfect price discrimination
Definition
 A) each customer pays the same price but receives a different quantity.B) * each customer pays a different price based on willingness to pay.C) efficiency loss is maximized.D) price is everywhere above marginal revenue and above marginal cost.
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