The demand for salt is relatively price inelastic, while the demand for pretzels is relatively price elastic. How can you best explain why? What will be an ideal response? ANSWER Salt has few substitutes, and takes up a small percentage of the consumer’s budget, and thus demand is likely to be inelastic. While pretzels […]
Governments can eliminate market failure due to an imperfectly competitive market by A) changing the market structure, for example by eliminating monopoly protection. B) having the government own the monopoly. C) imposing regulations that reduce prices. D) All of the above. ANSWER D
At the current price of a good Al’s consumer surplus equals 8 and Ben’s consumer surplus equals 15. By using two-part pricing a monopolist could increase his profit by A) 8. B) 16. C) 15. D) 30. ANSWER B
Suppose the inverse supply curve in a market is Q = 6p2. What is the producer surplus when price is equal to 4? A) 96 B) 128 C) 28 D) 48 ANSWER B
Describe the process by which the competitive market establishes a price at which all firms are just earning normal profits. What will be an ideal response? ANSWER Above normal profits will entice new firms to enter the industry, thereby driving down market price and firm profits until they reach the normal level, after which […]
The official name of the Social Security program is _____. a. Old Age, Survivors, Disability, and Health Insurance b. Old Age, Dependents, Survivors, and Disability Insurance c. Old Age, Dependents, Disability, and Health Insurance d. Seniors, Survivors, Dependents, and Health Insurance ANSWER a
Unions have generally been far more successful in organizing and raising wages in skilled trades such as carpentry than in unskilled trades. Use the laws of derived demand to explain why. What will be an ideal response? ANSWER There are at least two reasons. One is that the elasticity of substitution between skilled workers […]
One way a government can eliminate a market failure A) is to regulate the price so that it equals marginal cost. B) is to implement a price floor equal to marginal cost. C) is to regulate the price so that it is below average cost. D) None of the above solutions will eliminate a market […]
A monopolist’s demand function is P = 1624 – 4Q, and its total cost function is TC = 22,000 + 24Q -4Q2 + 1/3 Q3, where Q is output produced and sold. a. At what level of output and sales (Q) and price (P) will total profits be maximized? b. At what level of output […]
If a firm is to capture all consumer surplus with two-part pricing when customers are different A) it must be able to charge different access fees. B) it cannot charge different prices for access fees. C) it must set unit price below marginal cost. D) it must set unit price above marginal cost. ANSWER […]
