6. An oligopoly is a market a. with few buyers. b. with one buyer. c. dominated
ID: 1213908 • Letter: 6
Question
6. An oligopoly is a market a. with few buyers. b. with one buyer. c. dominated by a few sellers. d. under the control of a few politically powerful individuals.
7. The apparent stickiness of the price of goods sold by oligopolists can be explained by the
a.
contestable markets model.
b.
sales maximization model.
c.
kinked demand curve model.
d.
entry deterrence model.
____ 8. If an oligopolistic manufacturer believes that he faces a kinked demand curve for his product, he thinks his competitors will ____ if he lowers his price and ____ if he raises his price.
a.
lower their prices; raise their prices.
b.
lower their prices; not raise their prices
c.
not lower their prices; raise their prices
d.
not lower their prices; not raise their prices
Figure 12-3
____ 9. Oligopolist A cuts price in an attempt to enlarge his share of the market. His competitors retaliate with identical price cuts. In this case, in Figure 12-3, oligopolist A will move from point A to which point?
a.
B
b.
E
c.
D
d.
C
____ 10. A market transaction causes an externality if someone
a.
directly involved in the transaction receives uncompensated benefits or costs from it.
b.
not directly involved in the transaction receives uncompensated benefits or costs from it.
c.
directly involved in the transaction seeks legal assistance to ensure that the transaction is carried out.
d.
not directly involved in the transaction interferes in it by imposing regulations or product standards.
____ 11. A firm is generating detrimental externalities when
a.
MSC is less than MPC.
b.
MSC is the same as MPC.
c.
MSC is greater than MPC.
d.
MPC includes some incidental costs.
____ 12. The classic example of a detrimental externality is
a.
education.
b.
pollution.
c.
discovery of an AIDS vaccine.
d.
Mrs. Lewis' prize-winning rose garden.
Figure 15-1
____ 13. Figure 15-1 describes conditions in the monopolized weezil industry. In the absence of government intervention, the monopolist will produce an output equal to
a.
W.
b.
X.
c.
Y.
d.
Z.
____ 14. Figure 15-1 describes conditions in the monopolized weezil industry. If the government replaces the monopolist with perfectly competitive firms and forces these firms to take account of all the costs and benefits they impose on society, the industry will produce an output equal to
a.
W.
b.
X.
c.
Y.
d.
Z.
____ 15. In the case of a beneficial externality
a.
marginal private cost is below marginal social cost.
b.
marginal social cost is above marginal private cost.
c.
marginal social cost and marginal private cost are equal.
d.
the free market price is below the socially efficient price.
____ 16. A true public good is characterized by
a.
depletability but not excludability.
b.
excludability but not depletability.
c.
both depletability and excludability.
d.
neither depletability nor excludability.
____ 17. The "free rider" problem occurs when a good is
a.
not available.
b.
not excludable.
c.
not depletable.
d.
not sold in free markets.
____ 18. National defense and coastal lighthouses are examples of
a.
public goods.
b.
private goods.
c.
high marginal cost goods.
d.
depletable goods.
____ 19. Which of the following is not a public good?
a.
a coastal lighthouse
b.
national defense
c.
a city park playground
d.
the latest Walt Disney movie
____ 20. The cost disease of the service sector is evidenced by
a.
a failure of the market mechanism.
b.
increased quality of public and private services.
c.
dramatic increases in municipal budget burdens for education, health care, and police and fire protection.
d.
the increased productivity in the services area.
____ 21. Which of the following contribute to productivity growth?
a.
the education and experience of the labor force.
b.
investment in plants and equipment.
c.
innovation resulting in new products.
d.
innovation resulting in new processes.
e.
All of the above are correct.
____ 22. Capitalism is a market economic system with
a.
most production processes controlled by the government.
b.
most production processes controlled by private firms with minimal government control.
c.
all production processes controlled by private firms.
d.
all production processes controlled by the government.
____ 23. Firms share technology with rivals,
a.
in order to better compete with their rivals.
b.
in order to help out when their rivals are in trouble.
c.
to share the substantial risks of innovation.
d.
because they are required to by law.
e.
in order to pass false information to their rivals in order to drive them out of business.
____ 24. A profit-maximizing monopoly will spend on a process innovation
a.
up to the point where P = MC.
b.
up to the point where P = AC.
c.
anywhere where MR>MC.
d.
up to the point where MR = MC.
e.
anywhere where MR<MC.
____ 25. A successful process innovation can be expected to lead to
a.
an upward shift of the MC and AC curves which will lower output and raise the price of the product.
b.
an upward shift of the MC and AC curves which will raise output and lower the price of the product.
c.
a downward shift of the MC and AC curves which will lower output and raise the price of the product.
d.
a downward shift of the MC and AC curves which will raise output and lower the price of the product.
e.
a downward shift of the MC and AC curves which will leave unchanged the output and price of the product.
____ 26. A firm producing a smoke externality is producing
a.
more than the socially optimal quantity of output.
b.
less than the socially optimal quantity of output.
c.
exactly the socially optimal quantity of output.
d.
There is insufficient information to answer.
____ 27. Rising prices help control the process of resource depletion by
a.
discouraging consumption and waste.
b.
stimulating more efficient use of the depletable resource.
c.
encouraging resource-saving innovation.
d.
doing all of the above.
____ 28. Rising prices for a natural resource stimulate
a.
the development of complements for the resource.
b.
the development of substitutes for the resource.
c.
the development of externalities from the resource.
d.
All of the above are correct.
____ 29. Taxes on sales of liquor, tobacco, gasoline and non-essentials are examples of
a.
direct taxes.
b.
excise taxes.
c.
progressive taxation.
d.
loopholes.
____ 30. The incidence of a tax refers to
a.
who actually collects the tax.
b.
how frequently the tax is collected.
c.
who bears the economic burden of the tax.
d.
how the tax affects prices or wages.
Figure 18-2
____ 31. Figure 18-2 shows the widget market before and after an excise tax is imposed. The tax per widget equals ____.
a.
$5
b.
$20
c.
$25
d.
$30
____ 32. Figure 18-2 shows the widget market before and after an excise tax is imposed. After the tax is imposed, the amount that a firm keeps for itself from the sale of each widget is ____.
a.
$95
b.
$100
c.
$120
d.
$125
____ 33. Figure 18-2 shows the widget market before and after an excise tax is imposed. The revenue collected by the tax is ____.
a.
$8,000
b.
$50,000
c.
$100,000
d.
$150,000
____ 34. Figure 18-2 shows the widget market before and after an excise tax is imposed. What percentage of the tax per widget is borne by consumers, considering the true economic incidence of the tax?
a.
0 percent
b.
20 percent
c.
50 percent
d.
80 percent
____ 35. Which factor of production receives the greatest share of the U.S. national income?
a.
land
b.
labor
c.
capital
d.
entrepreneurship
____ 36. The marginal productivity principle says that a profit-maximizing firm should
a.
hire capital until its marginal product is zero.
b.
hire labor until another worker costs more to hire than he can earn for the firm.
c.
hire the quantities of capital and of labor at which their marginal products are equal.
d.
hire capital until its marginal product is negative.
____ 37. Mr. Calhoun owned a worn-out piece of farmland for growing cotton, which he had been unable to rent for years. Suddenly he was getting offers from cotton farmers to lease his land. What is the most likely explanation of this?
a.
The price of cotton went down.
b.
The physical productivity of the land went up.
c.
Taxes on land went up.
d.
The price of cotton went up.
____ 38. Capital is the
a.
flow of new equipment that a firm acquires over the course of a year.
b.
amount of increase in a firm's equipment over a year.
c.
amount of money that a firm has on hand at a given time.
d.
stock of plant, equipment, and other productive resources held by a firm.
____ 39. The interest rate is determined by
a.
the supply and demand of loanable funds.
b.
the supply and demand of land.
c.
the supply and demand of marginal land.
d.
None of the above is correct.
____ 40. A $1,000 to be received at a future date
a.
is worth less than a $1,000 received today.
b.
is worth more than a $1,000 received today.
c.
has the same value as $1,000 received today.
d.
is worth less than $1,000 received yesterday.
____ 41. At high levels of interest, borrowers will borrow ____ and suppliers will supply ____.
a.
more; less
b.
less; more
c.
less; less
d.
more; more
____ 42. Firms should stop borrowing funds
a.
as soon as the bank raises the interest rate.
b.
when the MRP of borrowed funds is equal to the cost of borrowing.
c.
whenever the future of the firm looks gloomy.
d.
if their debts are more than 25 percent of the value of the firm.
____ 43. Usury laws typically regulate
a.
interest rates paid on savings.
b.
interest rates charged on loans.
c.
rents charged on land.
d.
economic rent earned in all factor markets.
Figure 19-3
____ 44. Which panel in Figure 19-3 represents the case of an effective usury law?
a.
1
b.
2
c.
3
d.
4
____ 45. The distinguishing feature of the land market is that the
a.
supply is highly inelastic.
b.
supply is highly elastic.
c.
demand is highly inelastic.
d.
demand is highly elastic.
____ 46. Economic rents are earned whenever
a.
demand for a factor is perfectly inelastic.
b.
a factor receives a reward that exceeds its cost.
c.
a factor earns a reward that is greater than the amount needed to keep the factor in its present employment.
d.
a factor's supply curve intersects its demand curve at a point where demand is inelastic.
____ 47. The theory of land rent holds that
a.
all plots of land are identical.
b.
all land yields a positive rent return.
c.
rent on any piece of land will equal the difference between the cost of producing the output on that land and the cost of producing it on marginal land.
d.
competition for superior plots of land will force the rent on those lands to a marginal return of zero.
____ 48. The income of Alex Rodriguez (New York Yankees star baseball player) above the minimum payment needed to acquire the type of service he performs is
a.
pure profit.
b.
economic rent.
c.
marginal rent.
d.
competitive rent.
____ 49. Which factor receives the profit from production?
a.
land
b.
labor
c.
capital
d.
entrepreneurship
____ 50. Invention is the discovery of a new process or idea. Innovation is
a.
the continuing search for inventions.
b.
copying ideas from rival firms.
c.
putting an invention to work.
d.
basic research.
____ 51. Discounting is the process of
a.
cutting prices to get rid of surplus stocks.
b.
finding the present value of future dollars.
c.
finding the future value of present dollars.
d.
giving special concessions to special customers.
____ 52. A decision to supply labor or not to supply it is also a decision to
a.
earn the highest possible wage.
b.
demand or forgo a certain amount of leisure.
c.
be as productive as possible.
d.
join the union.
____ 53. The income effect of a wage increase is expected to increase
a.
supply of labor.
b.
supply of goods and services.
c.
demand for leisure.
d.
demand for labor.
____ 54. The substitution effect of a wage increase
a.
probably leads most workers to want to work more.
b.
certainly leads all workers to want to work more.
c.
probably leads most workers to want to work less.
d.
certainly leads most firms to want to employ more workers.
____ 55. The shortened work week coupled with rising hourly wages in the U.S. economy shows that
a.
the income effect has been dominant.
b.
the substitution effect does not exist at all.
c.
the U.S. worker is no longer productive.
d.
workers have become increasingly lazy.
____ 56. The labor supply curve starts to bend backward at the point where
a.
the total utility of leisure exceeds the total disutility of labor.
b.
the marginal utility of additional income becomes zero.
c.
the income effect comes to dominate the substitution effect.
d.
the substitution effect comes to dominate the income effect.
Figure 20-3
____ 57. Figure 20-3 shows a worker's backward-bending supply curve of labor. Which of the following statements is correct?
a.
The substitution effect of a change in the wage dominates the income effect at all points on the curve.
b.
The income effect of a change in the wage dominates the substitution effect at all points on the curve.
c.
Above W*, the substitution effect of a change in the wage dominates the income effect; below W*, the income effect dominates the substitution effect.
d.
Above W*, the income effect of a change in the wage dominates the substitution effect; below W*, the substitution effect dominates the income effect.
a.
contestable markets model.
b.
sales maximization model.
c.
kinked demand curve model.
d.
entry deterrence model.
Explanation / Answer
6. An oligopoly is a market is dominated by a few sellers. The market output is dependent on the number of players or firms in the market. All firms are interdependent on each other to compute the level of output they want to produce. The market has a kinked demand curve. A price cut will always be followed by all the firms in the market and an increase in the price will be obliged and will not be followed. Thus a price rise will affect the only firm which has raised the price. The demand will shift to other firms with comparatively lower price.
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