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In the production possibilities frontier model, the bowing of the curve out from the origin is caused by limited resources.
False
 
An overall increase in available resources (for instance, growth in the labor market) will cause the production possibilities frontier curve to
shift outward.
 
Investment in a business is an example of the factor of production known as ________
Capital
 
The form of income paid for entrepreneurship as a factor of production is known as profit.
True
 
What are externalities?
The costs and benefits of a market activity that affect a third party, often lead to undesirable consequences.
 
What are internal costs?
The costs of a market activity are paid only by an individual participant.
 
The amount an individual pays for gasoline for his or her car is an example of what type of cost?
Internal cost, cost for participation.
 
Suzanne drives to work each day. The amount Suzanne pays to maintain her car is an example of what type of cost?
Internal cost
 
What are external costs?
The costs of the market activity imposed on people who are not participants in the market.
 
An___________cost is best defined as the cost of an activity imposed on third party.
External
 
For a market where external costs exist to work efficiently the external costs must be _______________.
Internalized
 
The pollution emitted by a car is an example of a(n) _____________________ cost.
External
 
Lila shares a house with two other people. She is a concert pianist and often practices at home. One roommate enjoys listening to
her practice, but the other does not. For the roommate who enjoys listening to Lila play, this is an example of _____________;
for the other roommate, it is an example of ____________.
For the roommate who enjoys listening to Lila play, this is an example of positive externality; for the
other roommate, it is an example of a negative externality.
 
Negative externalities have what kind of costs for third parties?
Vehicles on the roads causes air pollution.
 
What kind of externality exists when production of a good creates an external cost?
An external cost occurs when producing or consuming a good or service imposes a cost
(negative effect) upon a third party.
 
For a market with a negative externality, what will happen to the market good quantity when the market participants tend to
ignore external cost of their decision?
The market tends to over produce the good as it ignores the external costs involved in their decision
 
For a negative externality, some costs are borne by a third party. T or F?
True
 
When pollution (a negative externality) is created by firms who produce good X, what are the valid ways for the government
to restore the social optimum?
Reduce damages, forces firms to abate pollution, taxing production will lead to social optimal output.
 
Government can correct for the positive externality associated with vaccines by subsidizing consumers. What will be the
effect of this on the demand curve for vaccines?
There would not be enough of the good being consumed and produced
 
When a firm is required to internalize the pollution costs associated with production, what will be the subsequent causes of this?
The private costs of the firm increases and it will be equal to the social cost and the externality will decrease
 
What kind of externality exists whenever production of good creates an external benefit?
Positive externality
 
Global warming (filling the air with CO2) is an example of what economic concept?
Cost-benefit analysis
 
When does the tragedy of the commons occur?
When a rival (and non-excludable) good becomes depleted or ruined
 
The tragedy of the commons occurs for goods that are rival or nonrival? Excludable or nonexcludable?
Rival and non-excludable
 
Downloadable music that you can buy is a _______________good.
club
 
The challenge of public good provision and the tragedy of the commons
are two problems associated with which characteristic of good
 
Clean air is a ____________________ good.
public
 
Give examples of a common-resource good.
fishing, hunting, public campsites
 
Common-resource goods are nonrival, like public goods, and nonexcludable, like private goods. T or F?
False, it's rival but non-excludable
 
Common resources are _______________. (overused or underused)
overused
 
Can a club good be defined as rival or nonrival? Excludable or non-excludable?
nontrivial and excludable
 
The city decides to offer a subsidy to each homeowner's association that plants flowers in their common areas. In the
market for flowers, what will be its effect on the demand curve?
Demand curve will shift to the right, as subsidy is given to consumers
of flowers
 
Free public parking spaces is an example of what kind of good?
common resource good
 
Is entertainment television a public good?
No
 
Because any passerby can enjoy the show without paying, street performances can be considered a_____good.
Public
 
Assume there are no externalities. The market works efficiently if the good is rival or nonrival? Excludable or non-excludable?
rival and nonexcludable
 
__________________ goods can be jointly consumed by more than one person, and nonpayers are difficult to exclude.
public
 
Which characteristics best define a public good? Rival or nonrival? Excludable or non- excludable?
Non-rival and nonexcludable
 
Economics deals with the ideas of
scarcity and choices.
 
The statement “there’s no such thing as a free lunch” arises from the economic concept of
opportunity costs
 
The value of the resources that consumers give up when choosing one item over the next best option is called the invisible hand.
False
 
The production possibility curve relies on which of the following assumptions?
All resources are fully utilized.
 
Scarcity requires all economic systems to answer three basic questions. One of these questions is:
For whom should goods be produced?
 
A ____________ economy relies on incentives and the self-interested behavior of individuals to direct production
and consumption through "voting with their dollars".
market
 
A traditional economy relies on a centralized government authority to guide and direct production and consumption decisions.
False
 
Assume Mexico and the United States have labor forces of equal size (for simplicity), and operate in an environment
of constant costs. Each nation can produce beans and rice, but at different efficiency levels.
Assume pre-specialization levels as follows:
U.S.: (Pre-specialization) 12 rice, 12 beans; (post-specialization) 24 beans, 0 rice
Mexico: (Pre-specialization) 8 rice, 4 beans; (post-specialization) 16 rice, 0 beans
In this case, what is Mexico’s opportunity–cost ratio (R=rice, B=beans)?
2R = 1B
 
If the cost of an item to Producer A from Producer B is ____________ Producer A’s cost and greater than
Producer B’s cost, both parties will gain from trade.
Less than
 
The presence of increasing opportunity costs suggests that the production possibilities curve will be bowed
outward from the origin.
True
 
If the price is greater than the average variable cost and less than the average total cost at the profit-maximizing
quantity of output in the short run, a perfectly competitive firm will:
continue to produce at an economic loss.
 
Zoe's Bakery operates in a perfectly competitive industry. When the market price of iced cupcakes is $5, the profit-
maximizing output level is 150 cupcakes. Her average total cost is $4, and her average variable cost is $3.
Zoe's marginal cost is ________, and her short-run profits are:
$5; $150
 
Perfect competition is a model of the market that assumes all of the following except:
firms face downward-sloping demand curves.
 
If a competitive firm shuts down for a holiday, it must still pay its:
fixed cost.
 
Suppose that the market for haircuts in a community is perfectly competitive and that the market is initially in long-
run equilibrium. Subsequently, an increase in population increases the demand for haircuts. In the short run, we
expect that the market price will ________ and the output of a typical firm will ________.
rise; rise
 
For a firm producing at any level of output greater than the most profitable one, a reduction in output decreases:
total cost more than total revenue.
 
Critics of the National Collegiate Athletic Association (NCAA) argue that the NCAA monopolizes college athletics and prevents
student-athletes from earning money while in college. If this is true, what type of entry barrier does the NCAA have?
control of a scarce resource or input
 
Because business travelers' demand for airline flights is relatively ________, small increases in price will result in
relatively ________ in additional business travelers.
price-inelastic; small decreases
 
In contrast to perfect competition, a:
monopoly produces less at a higher price.
 
One of the major differences between a monopolist and a purely competitive firm is that the monopolist has a ________
demand curve, while the purely competitive firm has a ________ demand curve.
downward-sloping; perfectly elastic
 
A monopolist's marginal cost curve shifts up, but the firm's demand curve remains the same and the firm does not shut down.
Compared to the condition before the increase in marginal costs, the monopolist will
________ its price and ________ its level of production.
raise; decrease
 
A perfectly competitive industry is in a state of long-run equilibrium. Which of the following must be true?
P = MR = MC = ATC.
 
If a perfectly competitive firm increases production from 10 units to 11 units and the market price is $20
per unit, total revenue for 11 units is:
$220.
 
If price falls below average total costs, then the firm will shutdown in the short run.
true
 
The long-run industry supply curve relates the price of a good or service to the quantity produced after all
adjustments to a price change have been made.
true
 
Heath's company is currently producing 30 units of output. The price of the good is $8 per unit. Total fixed costs are $50
and the average variable cost is $5 at 30 units. This company:
$40.
 
The short-run industry supply curve:
shows the total quantity supplied by all firms in an industry for each possible price when
the number of producers is given.
 
A firm's profit is equal to:
(Price - Average total cost) x Quantity
 
Suppose that the market for haircuts in a community is perfectly competitive and that the market is initially in
long-run equilibrium. Subsequently, an increase in population increases the demand for haircuts. In the short
run, we expect that the typical firm is likely to begin:
earn an economic profit. /increase in business economic profit.
 
Which of the following is a characteristic of a perfectly competitive firm?
JorDawn cannot tell which farm the peaches came from-they all look alike.
 
In the model of perfect competition:
no individual or firm has enough power to have any impact on price.
 
If all firms in an industry are price-takers, then:
an individual firm cannot alter the market price even if it doubles its output.
 
The price received by a firm in a perfectly competitive market:
is equal to the market price.
 
When a firm cannot affect the market price of the good that it sells, it is said to be a:
price-taker.
 
If a perfectly competitive firm can sell a bushel of soybeans for $40 and it has an average variable cost of $50 per
bushel and the marginal cost is $52 per bushel, the firm should:
cut output to zero.
 
For a firm producing at any level of output lower than the most profitable one, an increase in output adds:
more to total revenue than to total cost.
 
In perfect competition:
goods are standardized and all market participants are price-takers.