Name: Class: Date: 2. Patents, quotas, tariffs, and government licensing can all create barriers to entry into oligopoly industries. a.

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1 Indicate whether the statement is true or false. 1. Import tariffs in the United States are likely to reduce U.S. exports, both because of the resulting decrease in foreign earnings of dollars from exports to the United States and because of the likelihood of increases in other countries' import restrictions against U.S. goods. a. True b. False 2. Patents, quotas, tariffs, and government licensing can all create barriers to entry into oligopoly industries. a. True b. False 3. One of the most famous cartels is OPEC. a. True b. False 4. Increase in the number of transactors makes it difficult to negotiate private agreements for environmental goods. a. True b. False 5. Import quotas contribute to higher prices of products imported into the U.S., but tariffs do not. a. True b. False Indicate the answer choice that best completes the statement or answers the question. Exhibit 18-1 Copyright Cengage Learning. Powered by Cognero. Page 1

2 Alpha can produce either 18 tons of oranges or 9 tons of apples in a year, while Omega can produce either 16 tons of oranges or 4 tons of apples. 6. Refer to Exhibit If the terms of trade are established as 1 ton of apples for 4 tons of oranges: a. there are no incentives for Omega to engage in international specialization and trade with Alpha. b. it is in the interest of Omega to grow oranges and trade for apples. c. it is in the interest of both countries to specialize and trade with one another. d. there are no incentives for Alpha or Omega to specialize and trade with one another. 7. An import quota does which of the following? a. decreases the price of the imported goods to consumers b. increases the price of the domestic goods to consumers c. increases the domestic quantity demanded. d. both (a) and (c) 8. Refer to Exhibit If trade negotiators are able to communicate effectively about the consequences of various trade policies (i.e., enter into and enforce an agreement about the policy that they should adopt), then we would expect the game outcome to be: a. United States $140; China $5. b. United States $65; China $75. c. United States $35; China $285. d. United States $130; China $ Labor unions Copyright Cengage Learning. Powered by Cognero. Page 2

3 a. are formed to increase members' wages and improve working conditions. b. have represented a declining share of the workforce in the past 50 years. c. have traditionally found it difficult to organize workers in white-collar jobs. d. are characterized by all of the above. Exhibit Refer to Exhibit The amount of government revenue from the tariff is equal to area: a. D + E + F b. E c. B + D + E + F d. C + D + E + F 11. Which of the following is not true? a. Collusion is relatively rare, in part because it is illegal in many countries. b. Collusion is relatively rare, even though members find it easy to agree on key decisions. c. Collusion is relatively rare, in part because members frequently have an incentive to cheat on the cartel. Copyright Cengage Learning. Powered by Cognero. Page 3

4 d. Collusion is harder to maintain when differentiated products are involved, which introduce many ways to undercut a collusive agreement. 12. Equilibrium price and quantity for a collusive oligopoly are determined according to the intersection of the curve and the horizontal sum of the shortrun curves for the oligopolists. a. total revenue; total cost b. marginal revenue; marginal cost c. average revenue; average cost d. marginal revenue; average total cost 13. Nancy loves to landscape her yard, but her neighbor Tom places a low value on his landscaping. When Tom's grass is neglected and gets long, Nancy will mow for Tom. This is an example of: a. the fallacy of composition. b. a pollution tax. c. a private solution to a negative externality problem. d. how lazy Tom is. 14. Public choice theory assumes that voters, politicians, and other political participants are largely motivated by: a. personal self-interest. b. altruism. c. a desire to promote the general welfare. d. a desire to promote allocative economic efficiency. 15. If leisure is a normal good for a worker, and the income effect of a wage change dominates the substitution effect, then if wages increase: a. there will be a decrease in the quantity of labor supplied by the worker. b. there will be an increase in the quantity of labor supplied by the worker. c. there will be no change in the quantity of labor supplied by the worker. d. the worker's individual supply curve will shift to the left. Copyright Cengage Learning. Powered by Cognero. Page 4

5 16. Public goods, like national defense, are usually funded through government because: a. no one cares about them, because they are public. b. it is prohibitively difficult to withhold national defense from someone unwilling to pay for it. c. they cost too much for private firms to produce them. d. they provide benefits only to individuals, and not firms. Exhibit Refer to Exhibit 8-2. The supply curve S social includes the following costs. a. Private costs only b. Private costs and external costs c. External costs and public costs d. all of the above 18. A reduction in the tariff on imported steel would most likely benefit a. workers in the steel industry. b. the domestic consumers of steel. c. the domestic producers of steel. d. foreign producers at the expense of domestic consumers. Copyright Cengage Learning. Powered by Cognero. Page 5

6 19. When wages decrease a. the substitution effect increases the quantity of labor supplied. b. the substitution effect increases the supply of labor. c. the income effect increases the quantity of labor supplied. d. the income effect increases the supply of labor. 20. A payment for a resource above its opportunity cost is known as: a. an interest payment. b. a sunk cost. c. featherbedding. d. an economic rent. 21. Suppose that flu shots create a positive externality equal to $20 per shot. What is the relationship between the market equilibrium output level and the efficient equilibrium output produced? a. They are equal. b. The market equilibrium output level is greater than the efficient equilibrium output level. c. The market equilibrium output level is less than the efficient equilibrium output level. d. None of the above. Exhibit Refer to Exhibit 8-1. Suppose that education provides spillover benefits to the community as illustrated in the diagram. Based on this information, we can say that: Copyright Cengage Learning. Powered by Cognero. Page 6

7 a. the market would exceed short of the desirable level of education, Q 0. b. education is overproduced by Q 1 minus Q 0 units. c. the socially optimal quantity of education is Q 1 units. d. the socially optimal quantity of education is Q 0 units. 23. The greater the magnitude of the external costs of production, a. The larger is the deadweight loss from overproduction. b. The greater would be the optimal pollution tax. c. The further the private market solution ignoring those costs would deviate from the socially efficient level of output. d. All of the above are true. 24. The U.S. government establishing a policy that it will bail out troubled financial institutions and a resulting increase in the number of bank failures is an example of: a. the moral hazard problem. b. the free rider problem. c. the adverse selection problem. d. the "lemon" problem. 25. For a firm to be engaged in predatory pricing, and for it to be successful: a. It would have to charge a price less than the average variable cost of production. b. It would have to drive rivals out of the market. c. It would have to raise its prices after rivals were driven out of the market. d. All of the above would have to be true. 26. Refer to Exhibit If the interest rate is 15 percent, how many projects would the firm invest in? a. 0 b. 1 c. 2 Copyright Cengage Learning. Powered by Cognero. Page 7

8 d Which of the following characterizes an oligopolistic industry? a. Few firms and standardized products b. Few firms and differentiated products c. Few firms and wither standardized or differentiated products d. A large number of competing firms 29. Which of the following statements characterize an oligopoly market? a. Oligopoly firms are guaranteed profits due to the lack of competition. b. Firms are aware that their own economic behavior will influence the decisions of rivals. c. There are few barriers to entry. d. Firms choose price and output independently from the decisions made by competitors. 30. A flat tax: a. is designed so that everybody would pay the same number of dollars in taxes. b. is designed in such a way that as a person's income rises, the tax rate falls. c. is designed so that everybody would be charged the same percentage of their income. d. is designed to take a smaller percentage of higher incomes as compared to lower incomes. 31. make(s) it difficult for an oligopoly to maintain a cooperative outcome with low production, high prices, and monopoly profits. a. Self-interest b. Incentives to cheat c. Government antitrust policy and regulation Copyright Cengage Learning. Powered by Cognero. Page 8

9 d. All of the above 32. Whenever any firms in a concentrated industry merge, the four firm concentration ratio: a. will rise. b. may rise or stay the same. c. may rise or fall. d. will fall. Copyright Cengage Learning. Powered by Cognero. Page 9

10 Answer Key 1. True 2. True 3. True 4. True 5. False 6. a 7. b 8. d 9. d 10. b 11. b 12. b 13. c 14. a 15. a Copyright Cengage Learning. Powered by Cognero. Page 10

11 16. b 17. b 18. b 19. c 20. d 21. c 22. c 23. c 24. a 25. d 26. a 27. c 28. d 29. b 30. c 31. d Copyright Cengage Learning. Powered by Cognero. Page 11

12 32. b Copyright Cengage Learning. Powered by Cognero. Page 12