ECON 20A Lecture Notes - Lecture 6: Market Power, Invisible Hand

1. Suppose that a 10% increase in the wage results in a 5% reduction in employment. In this case, labor demand is said to be:

A. elastic

B. inelastic

C. unit elastic

2. Which of the following best explains why elasticity varies along a linear demand curve?

A. As the quantity of labor demanded rises, the percentage change in quantity demanded declines (for a given change in labor use) while the percentage change in wage increases.

B. As the quantity of labor demanded rises, the percentage change in quantity demanded rises (for a given change in labor use) as does the percentage change in the wage.

C. As the quantity of labor demanded rises, the percentage change in quantity demanded declines (for a given change in labor use) as does the percentage change in the wage.

D. As the quantity of labor demanded rises, the percentage change in quantity demanded declines (for a given change in labor use) while the percentage change in wage decreases

3. Labor demand is more elastic when:

A. the substitution effect resulting from a wage change is larger

B. the scale effect resulting from a wage change is larger

C. both are correct

D. none of the above

4. The scale effect associated with a change in the wage is larger when:

A. the demand for the final product is more elastic

B. labor costs are a smaller share of total costs

C. there are many close substitutes for this category of labor

D. economics of scale are present in the production of the good

5. The price elasticity of demand for the final products affects the own-wage elasticity of demand for labor by affecting the magnitude of:

A. the substitution effect that occurs in the labor market

B. the scale effect that occurs in the labor market

C. both substitution and scale effects

D. neither substitution nor scale effects

6. Unions are expected to attempt to:

A. make it more difficult to replace labor with other resources

B. reduce the elasticity of demand for the final product

C. support laws that reduce the elasticity of supply of other resources

D. all of the above.

E. none of the above

7. Unions are likely to be less successful in negotiating higher wages in those labor markets in which:

A. the demand for the final product is more elastic

B. there are few close substitutes for union workers

C. the price elasticity of supply for other factors of production is relatively high

D. labor costs comprise a small share of total costs

Question 16

1. If price is cut and demand is elastic, total revenue will rise because

   		the change in quantity demanded is greater than the percent change in price.
   		the percent change in quantity demanded is greater than the change in price.
   		the percent change in quantity demanded is greater than the percent change in price.
   		customers can't find substitutes.

3 points

Question 17

1. If price is cut and demand is inelastic, total revenue will fall because

   		the change in quantity demanded is less than the percent change in price.
   		the percent change in quantity demanded is less than the change in price.
   		the percent change in quantity demanded is less than the percent change in price.
   		customers can find substitutes.

3 points

Question 18

1. If something is addictive, then

   		price and demand are inversely related.
   		price elasticity of demand is equal to one.
   		demand is perfectly inelastic.
   		demand is perfectly elastic.

3 points

Question 19

1. In general, elasticities measure

   		the change in quantity demanded when a product attribute changes.
   		the change in consumer spending when income changes.
   		the change in an attribute for a percentage change in price.
   		the percentage change in the quantity demanded resulting from a fixed percentage change in some attribute.

3 points

Question 20

1. Average total costs are defined as

   		total costs divided by the change in output.
   		total costs divided by output.
   		the change in total costs when output changes.
   		average variable costs plus marginal costs.

3 points

Question 21

1. If a firm is experiencing economies of scale, then the long-run average cost curve is

   		falling.
   		rising.
   		horizontal.
   		shifting.

3 points

Question 22

1. If average total cost is rising

   		marginal cost is above average total cost.
   		marginal cost is rising.
   		marginal product is rising.
   		marginal cost is above average total cost and is falling.

3 points

Question 23

1. The period of time over which all inputs are variable is the

   		market horizon.
   		short run.
   		calendar year.
   		long run.

3 points

Question 24

1. The supply chain refers to

   		the supply curve.
   		the process of outsourcing.
   		the process of downsizing.
   		the process of creating and selling a product.

3 points

Question 25

1. When the capital (a fixed input) changes

   		short-run marginal costs rise.
   		short-run average total costs fall but do not shift.
   		labor inputs decline.
   		the short-run average total cost curve shifts.

3 points

Question 26

1. A market of price takers is called

   		perfectly competitive.
   		monopolistically competitive.
   		a monopoly.
   		an oligopoly.

3 points

Question 27

1. A market with a single seller is called

   		perfectly competitive.
   		monopolistically competitive.
   		a monopoly.
   		an oligopoly.

3 points

Question 28

1. A market that mainly stresses product differentiation is called

   		perfectly competitive.
   		monopolistically competitive.
   		a monopoly.
   		an oligopoly.

3 points

Question 29

1. Entry into a competitive market will continue until

   		economic profits are zero.
   		normal profits are zero.
   		when accounting losses are zero.
   		a. and b. are true

3 points

Question 30

1. Firms in an oligopoly

   		act independently.
   		engage in strategic behavior.
   		have perfect knowledge of the behavior of others.
   		openly collude.

17. Which of the following is a determinant of supply?

A. Tastes and preferences

B. Price of a complementary good

C. Consumer income

D. Technology

18. A market is in equilibrium:

A. provided there is no surplus of the product

B. at all prices above that shown by the intersection of the supply and demand curves

C. if the amount producers want to sell is equal to the amount consumers want to buy

D. whenever the demand curve is downsloping and the supply curve is upsloping.

19. If the market price is above the equilibrium price:

A. A shortage will occur and producers will produce more and lower prices

B. A surplus will occur and producers will produce less and lower prices

C. A surplus will result and consumers will bid prices up

D. Producers will make extremely high profits

20. The market system automatically corrects a surplus condition in a competitive market by:

A. Raising the price of the commodity in question while increasing the quantity demanded

B. Raising the price of the commodity in question while decreasing the quantity demanded

C. Reducing the price of the commodity in question while increasing the quantity demanded

D. Reducing the price of the commodity in question while decreasing the quantity demanded

21. The price elasticity of demand measures:

A. buyer responsiveness to price changes.

B. the extent to which demand curve shifts as incomes change.

C. the slope of the demand curve.

D. how far business executives can stretch their fixed costs

22. The elasticity of demand for a product is likely to be greater:

A. if the product is a necessity, rather than a luxury good.

B. the greater the amount of time over which buyers adjust to a price change

C. the smaller the proportion of one's income spent on the product.

D. the smaller the number of substitute products available.

23. Market failure is said to occur whenever:

A. private markets do not allocate resources in the most economically desirable way

B. prices rise

C. some consumers who want a good do not obtain it because the price is higher than they are willing to pay

D. government intervenes in the functioning of private markets.

24. A negative externality or spillover cost occurs when:

A. firms fail to achieve allocative efficiency.

B. firms fail to achieve productive efficiency.

C. the price of the good exceeds the marginal cost of producing it.

D. the total cost of producing a good exceeds the costs borne by the producer