1).\u00a0The\u00a0DeBeers\u00a0company\u00a0is\u00a0a\u00a0profit-maximizing\u00a0monopolist\u00a0that\u00a0exercises\u00a0monopoly\u00a0power\u00a0in\u00a0the\u00a0distribution\u00a0of\u00a0diamonds.\u00a0If\u00a0the\u00a0company\u00a0earns\u00a0positive\u00a0economic\u00a0profits\u00a0this\u00a0year,\u00a0the\u00a0price\u00a0of\u00a0diamonds\u00a0will: \u00a0\t“\ufffd Exceed\u00a0the\u00a0marginal\u00a0cost\u00a0of\u00a0diamonds\u00a0but\u00a0equal\u00a0to\u00a0the\u00a0average\u00a0total\u00a0cost\u00a0of\u00a0diamonds. \u00a0\t“\ufffd Exceed\u00a0both\u00a0the\u00a0marginal\u00a0cost\u00a0and\u00a0the\u00a0average\u00a0total\u00a0cost\u00a0of\u00a0diamonds. \u00a0\t“\ufffd Be\u00a0equal\u00a0to\u00a0the\u00a0marginal\u00a0cost\u00a0of\u00a0diamonds. \u00a0\t“\ufffd Be\u00a0equal\u00a0to\u00a0the\u00a0average\u00a0total\u00a0cost\u00a0of\u00a0diamonds.\t\u00a0\t2).\u00a0Using\u00a0100\u00a0workers\u00a0and\u00a010\u00a0machines,\u00a0a\u00a0firm\u00a0can\u00a0produce\u00a010,000\u00a0units\u00a0of\u00a0output;\u00a0using\u00a0250\u00a0workers\u00a0and\u00a025\u00a0machines,\u00a0the\u00a0firm\u00a0produces\u00a021,000\u00a0units\u00a0of\u00a0output.\u00a0These\u00a0facts\u00a0are\u00a0best\u00a0explained\u00a0by:\u00a0 \u00a0\t“\ufffd Economies\u00a0of\u00a0scope\u00a0\t“\ufffd Diseconomies\u00a0of\u00a0scale\u00a0\t“\ufffd Diminishing\u00a0marginal\u00a0productivity\u00a0\t“\ufffd Economies\u00a0of\u00a0scale\t\u00a0\t3).\u00a0Suppose\u00a0that\u00a0college\u00a0tuition\u00a0is\u00a0higher\u00a0this\u00a0year\u00a0than\u00a0last\u00a0and\u00a0that\u00a0more\u00a0students\u00a0are\u00a0enrolled\u00a0in\u00a0college\u00a0this\u00a0year\u00a0than\u00a0last\u00a0year.\u00a0\u00a0Based\u00a0on\u00a0this\u00a0information,\u00a0we\u00a0can\u00a0best\u00a0conclude\u00a0that: \u00a0\t“\ufffd despite\u00a0the\u00a0increase\u00a0in\u00a0price,\u00a0quantity\u00a0demanded\u00a0rose\u00a0due\u00a0to\u00a0some\u00a0other\u00a0factors\u00a0changing.\u00a0\t“\ufffd the\u00a0demand\u00a0for\u00a0a\u00a0college\u00a0education\u00a0is\u00a0positively\u00a0sloped.\u00a0\t“\ufffd the\u00a0law\u00a0of\u00a0demand\u00a0is\u00a0invalid.\u00a0\t“\ufffd this\u00a0situation\u00a0has\u00a0nothing\u00a0to\u00a0do\u00a0with\u00a0the\u00a0law\u00a0of\u00a0demand.\t\u00a0\t4).\u00a0A\u00a0monopoly\u00a0firm\u00a0is\u00a0different\u00a0from\u00a0a\u00a0perfectly\u00a0competitive\u00a0firm\u00a0in\u00a0that: \u00a0\t“\ufffd A\u00a0monopolist’s\u00a0demand\u00a0curve\u00a0is\u00a0perfectly\u00a0inelastic\u00a0whereas\u00a0a\u00a0perfectly\u00a0competitive\u00a0firm’s\u00a0demand\u00a0curve\u00a0is\u00a0perfectly\u00a0elastic.\t“\ufffd A\u00a0competitive\u00a0firm\u00a0has\u00a0a\u00a0u-shaped\u00a0average\u00a0cost\u00a0curve\u00a0whereas\u00a0a\u00a0monopolist\u00a0does\u00a0not.\u00a0\t“\ufffd A\u00a0monopolist\u00a0can\u00a0influence\u00a0market\u00a0price\u00a0whereas\u00a0a\u00a0perfectly\u00a0competitive\u00a0firm\u00a0cannot.\u00a0\t“\ufffd There\u00a0are\u00a0many\u00a0substitutes\u00a0for\u00a0a\u00a0monopolist’s\u00a0product\u00a0whereas\u00a0there\u00a0are\u00a0no\u00a0substitutes\u00a0for\u00a0a\u00a0competitive\u00a0firm’s\u00a0product.\t\u00a0\t5).\u00a0The\u00a0best\u00a0example\u00a0of\u00a0positive\u00a0externality\u00a0is: \u00a0\t“\ufffd Alcoholic\u00a0beverages\u00a0\t“\ufffd Pollution\u00a0\t“\ufffd Education\u00a0\t“\ufffd Roller\u00a0coaster\u00a0rides\t\u00a0\t6).\u00a0The\u00a0theory\u00a0that\u00a0quantity\u00a0supplied\u00a0and\u00a0price\u00a0are\u00a0positively\u00a0related,\u00a0other\u00a0things\u00a0constant,\u00a0is\u00a0referred\u00a0to\u00a0as\u00a0the\u00a0law\u00a0of:\u00a0 \u00a0\t“\ufffd supply\u00a0\t“\ufffd profit\u00a0maximization\u00a0\t“\ufffd opportunity\u00a0cost\u00a0\t“\ufffd demand\t\u00a0\t7).\u00a0A\u00a0reduction\u00a0in\u00a0the\u00a0supply\u00a0of\u00a0labor\u00a0will\u00a0cause\u00a0wages\u00a0to:\u00a0\t“\ufffd Decrease\u00a0and\u00a0employment\u00a0to\u00a0decrease.\u00a0\t“\ufffd Increase\u00a0and\u00a0employment\u00a0to\u00a0increase.\t“\ufffd Decrease\u00a0and\u00a0employment\u00a0to\u00a0increase.\t“\ufffd Increase\u00a0and\u00a0employment\u00a0to\u00a0decrease.\t\u00a0\t8).\u00a0Other\u00a0things\u00a0held\u00a0constant\u00a0in\u00a0a\u00a0competitive\u00a0labor\u00a0market,\u00a0if\u00a0workers\u00a0negotiate\u00a0a\u00a0contract\u00a0in\u00a0which\u00a0the\u00a0employer\u00a0agrees\u00a0to\u00a0pay\u00a0an\u00a0hourly\u00a0of\u00a0$17.85\u00a0while\u00a0the\u00a0market\u00a0equilibrium\u00a0hour\u00a0rate\u00a0is\u00a0$16.50,\u00a0the:\t“\ufffd Quantity\u00a0of\u00a0workers\u00a0demanded\u00a0will\u00a0exceed\u00a0the\u00a0quantity\u00a0of\u00a0workers\u00a0supplied.\u00a0\t“\ufffd Quantity\u00a0of\u00a0workers\u00a0supplied\u00a0will\u00a0exceed\u00a0the\u00a0quantity\u00a0of\u00a0workers\u00a0demanded.\t“\ufffd Supply\u00a0of\u00a0labor\u00a0will\u00a0decrease\u00a0until\u00a0the\u00a0equilibrium\u00a0wage\u00a0rate\u00a0is\u00a0$17.85.\u00a0\t“\ufffd Demand\u00a0for\u00a0labor\u00a0will\u00a0increase\u00a0until\u00a0the\u00a0equilibrium\u00a0wage\u00a0rate\u00a0is\u00a0$17.85.\t\u00a0\t9).\u00a0Alex\u00a0is\u00a0playing\u00a0his\u00a0music\u00a0at\u00a0full\u00a0volume\u00a0in\u00a0his\u00a0dorm\u00a0room.\u00a0The\u00a0other\u00a0people\u00a0living\u00a0on\u00a0his\u00a0floor\u00a0found\u00a0this\u00a0to\u00a0be\u00a0a\u00a0nuisance,\u00a0but\u00a0Alex\u00a0doesn’t\u00a0care.\u00a0Alex’s\u00a0music\u00a0playing\u00a0is\u00a0an\u00a0example\u00a0of:\t“\ufffd Pareto\u00a0externality\u00a0\t“\ufffd Positive\u00a0externality\u00a0\t“\ufffd Negative\u00a0externality\t“\ufffd Normative\u00a0externality\t\u00a0\t10).\u00a0Oligopoly\u00a0is\u00a0probably\u00a0the\u00a0best\u00a0market\u00a0for\u00a0technological\u00a0change\u00a0because: \u00a0\t“\ufffd The\u00a0typical\u00a0oligopoly\u00a0has\u00a0the\u00a0funds\u00a0to\u00a0carry\u00a0out\u00a0research\u00a0and\u00a0development\u00a0and\u00a0believe\u00a0that\u00a0its\u00a0competitors\u00a0are\u00a0innovating,\u00a0which\u00a0motivates\u00a0it\u00a0to\u00a0conduct\u00a0research\u00a0and\u00a0development.\t“\ufffd The\u00a0typical\u00a0oligopoly\u00a0lacks\u00a0the\u00a0funds\u00a0to\u00a0carry\u00a0out\u00a0research\u00a0and\u00a0development\u00a0and\u00a0therefore\u00a0will\u00a0use\u00a0basic\u00a0research\u00a0from\u00a0universities.\t“\ufffd Research\u00a0and\u00a0development\u00a0occurs\u00a0only\u00a0if\u00a0government\u00a0subsidizes\u00a0such\u00a0activity,\u00a0and\u00a0government\u00a0tends\u00a0to\u00a0subsidize\u00a0oligopolies.\t“\ufffd The\u00a0typical\u00a0oligopoly\u00a0keeps\u00a0price\u00a0very\u00a0close\u00a0to\u00a0average\u00a0total\u00a0cost\u00a0because\u00a0it\u00a0fears\u00a0the\u00a0entry\u00a0of\u00a0new\u00a0rivals\u00a0if\u00a0its\u00a0profits\u00a0are\u00a0excessively\u00a0high.\t\u00a0\t11).\u00a0A\u00a0perfectly\u00a0competitive\u00a0firm\u00a0facing\u00a0a\u00a0price\u00a0of\u00a0$50\u00a0decides\u00a0to\u00a0produce\u00a0500\u00a0widgets.\u00a0Its\u00a0marginal\u00a0cost\u00a0of\u00a0producing\u00a0the\u00a0last\u00a0widget\u00a0is\u00a0$50.\u00a0If\u00a0the\u00a0firm’s\u00a0goal\u00a0is\u00a0to\u00a0maximize\u00a0profit,\u00a0it\u00a0should:\u00a0 \u00a0\t“\ufffd Produce\u00a0more\u00a0widgets\t“\ufffd Produce\u00a0fewer\u00a0widgets\t“\ufffd Continue\u00a0producing\u00a0500\u00a0widgets\t“\ufffd Shut\u00a0down\t\u00a0\t12).\u00a0Graphically,\u00a0a\u00a0change\u00a0in\u00a0price\u00a0causes:\t“\ufffd the\u00a0demand\u00a0curve\u00a0to\u00a0shift.\t“\ufffd both\u00a0supply\u00a0and\u00a0demand\u00a0to\u00a0shift.\u00a0\t“\ufffd a\u00a0movement\u00a0along\u00a0a\u00a0given\u00a0supply\u00a0curve,\u00a0not\u00a0a\u00a0shift.\t“\ufffd the\u00a0supply\u00a0curve\u00a0to\u00a0shift.\t\u00a0\t13).\u00a0In\u00a01997,\u00a0the\u00a0federal\u00a0government\u00a0reinstated\u00a0a\u00a010\u00a0percent\u00a0excise\u00a0tax\u00a0on\u00a0airline\u00a0tickets.\u00a0The\u00a0industry\u00a0tried\u00a0to\u00a0pass\u00a0on\u00a0the\u00a0full\u00a010\u00a0percent\u00a0ticket\u00a0tax\u00a0to\u00a0consumers\u00a0but\u00a0was\u00a0able\u00a0to\u00a0boost\u00a0fares\u00a0by\u00a0only\u00a04\u00a0percent.\u00a0From\u00a0this\u00a0you\u00a0can\u00a0conclude\u00a0that\u00a0the:\u00a0\t“\ufffd Supply\u00a0of\u00a0airline\u00a0tickets\u00a0is\u00a0perfectly\u00a0inelastic.\u00a0\t“\ufffd Supply\u00a0elasticity\u00a0of\u00a0airline\u00a0tickets\u00a0is\u00a0less\u00a0than\u00a0infinity.\u00a0\t“\ufffd Demand\u00a0elasticity\u00a0for\u00a0airline\u00a0tickets\u00a0is\u00a0greater\u00a0than\u00a0zero\u00a0in\u00a0absolute\u00a0value.\u00a0\t“\ufffd Demand\u00a0for\u00a0airline\u00a0tickets\u00a0is\u00a0perfectly\u00a0inelastic.\t\u00a0\t14).\u00a0In\u00a02011,\u00a0the\u00a0Department\u00a0of\u00a0Justice\u00a0sued\u00a0AT&T\u00a0to\u00a0block\u00a0its\u00a0merger\u00a0with\u00a0the\u00a0cell\u00a0phone\u00a0service\u00a0provider\u00a0T-Mobile.\u00a0To\u00a0defend\u00a0itself\u00a0against\u00a0the\u00a0charge,\u00a0AT&T\u00a0argued\u00a0that\u00a0the:\u00a0\t“\ufffd Combined\u00a0company\u00a0could\u00a0raise\u00a0prices,\u00a0allowing\u00a0it\u00a0to\u00a0survive\u00a0in\u00a0a\u00a0rapidly\u00a0changing\u00a0market.\u00a0\t“\ufffd Government\u00a0had\u00a0no\u00a0authority\u00a0to\u00a0block\u00a0mergers\u00a0in\u00a0the\u00a0telephone\u00a0industry.\t“\ufffd Government\u00a0had\u00a0guaranteed\u00a0it\u00a0exclusive\u00a0control\u00a0of\u00a0cell\u00a0phone\u00a0service.\u00a0\t“\ufffd Merger\u00a0would\u00a0improve\u00a0and\u00a0expand\u00a0cellular\u00a0service\u00a0to\u00a0consumers.\t\u00a0\t15).\u00a0The\u00a0law\u00a0of\u00a0diminishing\u00a0marginal\u00a0productivity\u00a0implies\u00a0that\u00a0the\u00a0marginal\u00a0product\u00a0of\u00a0a\u00a0variable\u00a0input:\u00a0\t“\ufffd Never\u00a0declines\u00a0\t“\ufffd Always\u00a0declines\t“\ufffd Is\u00a0constant\t“\ufffd Eventually\u00a0declines\t\u00a0\t16).\u00a0Suppose\u00a0OPEC\u00a0announces\u00a0it\u00a0will\u00a0increase\u00a0production.\u00a0Using\u00a0supply\u00a0and\u00a0demand\u00a0analysis\u00a0to\u00a0predict\u00a0the\u00a0effect\u00a0of\u00a0increased\u00a0production\u00a0on\u00a0equilibrium\u00a0price\u00a0and\u00a0quantity,\u00a0the\u00a0first\u00a0step\u00a0is\u00a0to\u00a0show\u00a0the:\u00a0\t“\ufffd supply\u00a0curve\u00a0shifting\u00a0to\u00a0the\u00a0right.\t“\ufffd demand\u00a0curve\u00a0shifting\u00a0to\u00a0the\u00a0left.\t“\ufffd demand\u00a0curve\u00a0shifting\u00a0to\u00a0the\u00a0right.\t“\ufffd supply\u00a0curve\u00a0shifting\u00a0to\u00a0the\u00a0left.\t\u00a0\t17).\u00a0Many\u00a0call\u00a0centers\u00a0that\u00a0provide\u00a0telephone\u00a0customer\u00a0services\u00a0for\u00a0U.S.\u00a0companies\u00a0have\u00a0been\u00a0established\u00a0in\u00a0India,\u00a0but\u00a0few\u00a0or\u00a0none\u00a0have\u00a0been\u00a0established\u00a0in\u00a0China.\u00a0Why?\t“\ufffd China\u00a0is\u00a0at\u00a0a\u00a0more\u00a0advanced\u00a0stage\u00a0of\u00a0economic\u00a0development\u00a0than\u00a0India.\t“\ufffd China\u00a0lacks\u00a0the\u00a0political\u00a0infrastructure\u00a0to\u00a0support\u00a0call\u00a0centers.\u00a0\t“\ufffd Indian\u00a0labor\u00a0costs\u00a0are\u00a0equal\u00a0to\u00a0Chinese\u00a0labor\u00a0costs.\t“\ufffd Chinese\u00a0labor\u00a0lacks\u00a0the\u00a0specific\u00a0language\u00a0skills\u00a0needed\u00a0to\u00a0make\u00a0call\u00a0centers\u00a0profitable\u00a0in\u00a0China.\t\u00a0\t18).\u00a0Suppose\u00a0people\u00a0freely\u00a0choose\u00a0to\u00a0spend\u00a040\u00a0percent\u00a0of\u00a0their\u00a0income\u00a0on\u00a0health\u00a0care,\u00a0but\u00a0then\u00a0the\u00a0government\u00a0decides\u00a0to\u00a0tax\u00a040\u00a0percent\u00a0of\u00a0that\u00a0person’s\u00a0income\u00a0to\u00a0provide\u00a0the\u00a0same\u00a0level\u00a0of\u00a0coverage\u00a0as\u00a0before.\u00a0What\u00a0can\u00a0be\u00a0said\u00a0about\u00a0deadweight\u00a0loss\u00a0in\u00a0each\u00a0case?\t“\ufffd There\u00a0is\u00a0no\u00a0difference\u00a0because\u00a0the\u00a0total\u00a0spending\u00a0remains\u00a0the\u00a0same\u00a0and\u00a0the\u00a0health\u00a0care\u00a0purchased\u00a0remains\u00a0the\u00a0same.\u00a0\t“\ufffd Taxing\u00a0income\u00a0results\u00a0in\u00a0less\u00a0deadweight\u00a0loss\u00a0because\u00a0government\u00a0knows\u00a0better\u00a0what\u00a0health\u00a0care\u00a0coverage\u00a0is\u00a0good\u00a0for\u00a0society.\t“\ufffd Taxing\u00a0income\u00a0results\u00a0in\u00a0deadweight\u00a0loss,\u00a0and\u00a0purchasing\u00a0health\u00a0care\u00a0on\u00a0one’s\u00a0own\u00a0doesn’t\u00a0result\u00a0in\u00a0deadweight\u00a0loss.\t“\ufffd There\u00a0is\u00a0no\u00a0difference\u00a0between\u00a0goods\u00a0that\u00a0are\u00a0purchased\u00a0in\u00a0the\u00a0market\u00a0in\u00a0either\u00a0case.\t\u00a0\t19).\u00a0At\u00a0one\u00a0time,\u00a0sea\u00a0lions\u00a0were\u00a0depleting\u00a0the\u00a0stock\u00a0of\u00a0steelhead\u00a0trout.\u00a0One\u00a0idea\u00a0to\u00a0scare\u00a0sea\u00a0lions\u00a0away\u00a0from\u00a0the\u00a0Washington\u00a0coast\u00a0was\u00a0to\u00a0launch\u00a0fake\u00a0killer\u00a0whales,\u00a0which\u00a0are\u00a0predators\u00a0of\u00a0sea\u00a0lions.\u00a0The\u00a0cost\u00a0of\u00a0making\u00a0the\u00a0first\u00a0whale\u00a0is\u00a0$16,000\u00a0($5,000\u00a0for\u00a0materials\u00a0and\u00a0$11,000\u00a0for\u00a0the\u00a0mold).\u00a0The\u00a0mold\u00a0can\u00a0be\u00a0reused\u00a0to\u00a0make\u00a0additional\u00a0whales,\u00a0and\u00a0so\u00a0additional\u00a0whales\u00a0cost\u00a0$5,000\u00a0each.\u00a0Based\u00a0on\u00a0these\u00a0numbers,\u00a0the\u00a0production\u00a0of\u00a0fake\u00a0killer\u00a0whales\u00a0exhibits:\t“\ufffd Diminishing\u00a0marginal\u00a0product\t“\ufffd Decreasing\u00a0returns\u00a0to\u00a0scale\u00a0\t“\ufffd Constant\u00a0returns\u00a0to\u00a0scale\t“\ufffd Increasing\u00a0returns\u00a0to\u00a0scale\t\u00a0\t20).\u00a0There\u00a0are\u00a0many\u00a0restaurants\u00a0in\u00a0the\u00a0city\u00a0of\u00a0Raleigh,\u00a0each\u00a0one\u00a0offering\u00a0food\u00a0and\u00a0services\u00a0that\u00a0differ\u00a0from\u00a0those\u00a0of\u00a0its\u00a0competitors.\u00a0\u00a0There\u00a0is\u00a0also\u00a0free\u00a0entry\u00a0of\u00a0sellers\u00a0into\u00a0the\u00a0market,\u00a0and\u00a0each\u00a0seller\u00a0serves\u00a0a\u00a0very\u00a0small\u00a0fraction\u00a0of\u00a0the\u00a0total\u00a0number\u00a0of\u00a0meals\u00a0served\u00a0each\u00a0day.\u00a0\u00a0The\u00a0restaurant\u00a0industry\u00a0in\u00a0Raleigh\u00a0is\u00a0best\u00a0characterized\u00a0as:\u00a0\t“\ufffd Perfectly\u00a0competitive.\u00a0\t“\ufffd Monopolistically\u00a0competitive.\u00a0\t“\ufffd A\u00a0pure\u00a0monopoly.\u00a0\t“\ufffd An\u00a0oligopoly.\t\u00a0\t21).\u00a0Suppose\u00a0foreign\u00a0shrimp\u00a0prices\u00a0drop\u00a0by\u00a032\u00a0percent\u00a0and\u00a0importers\u00a0gain\u00a0a\u00a090\u00a0percent\u00a0market\u00a0share.\u00a0\u00a0From\u00a0this\u00a0information,\u00a0what\u00a0would\u00a0economists\u00a0strongly\u00a0suspect\u00a0about\u00a0this\u00a0industry?\t“\ufffd Foreigners\u00a0have\u00a0a\u00a0comparative\u00a0advantage\u00a0in\u00a0shrimping.\u00a0\t“\ufffd The\u00a0large\u00a0sales\u00a0of\u00a0foreigners\u00a0indicate\u00a0they\u00a0are\u00a0better\u00a0strategic\u00a0business\u00a0bargainers\u00a0than\u00a0Americans\u00a0are.\t“\ufffd Americans\u00a0have\u00a0a\u00a0comparative\u00a0advantage\u00a0in\u00a0shrimping.\t“\ufffd Foreign\u00a0sellers\u00a0probably\u00a0are\u00a0colluding\u00a0on\u00a0price\u00a0to\u00a0maximize\u00a0profits.\t\u00a0\t22).\u00a0For\u00a0a\u00a0monopolist,\u00a0the\u00a0price\u00a0of\u00a0a\u00a0product:\u00a0\t“\ufffd Is\u00a0less\u00a0than\u00a0the\u00a0marginal\u00a0revenue.\u00a0\t“\ufffd Exceeds\u00a0the\u00a0marginal\u00a0revenue.\u00a0\t“\ufffd Equals\u00a0the\u00a0marginal\u00a0cost.\t“\ufffd Equals\u00a0the\u00a0marginal\u00a0revenue.\t\u00a0\t23).\u00a0When\u00a0Ross\u00a0Perot\u00a0ran\u00a0for\u00a0president\u00a0as\u00a0a\u00a0third\u00a0party\u00a0candidate\u00a0in\u00a01992,\u00a0he\u00a0argued\u00a0that\u00a0free\u00a0trade\u00a0with\u00a0Mexico\u00a0would\u00a0result\u00a0in\u00a0massive\u00a0job\u00a0losses\u00a0in\u00a0the\u00a0United\u00a0States\u00a0because\u00a0Mexican\u00a0wages\u00a0were\u00a0so\u00a0low.\u00a0Which\u00a0of\u00a0the\u00a0following\u00a0is\u00a0the\u00a0best\u00a0explanation\u00a0of\u00a0why\u00a0few\u00a0economists\u00a0agreed\u00a0with\u00a0Perot?\u00a0\t“\ufffd Although\u00a0economics\u00a0predicted\u00a0that\u00a0unemployment\u00a0would\u00a0rise,\u00a0the\u00a0increased\u00a0profits\u00a0of\u00a0corporations\u00a0would\u00a0raise\u00a0stock\u00a0prices\u00a0enough\u00a0to\u00a0compensate\u00a0for\u00a0the\u00a0lost\u00a0jobs.\t“\ufffd Economists\u00a0did\u00a0not\u00a0believe\u00a0any\u00a0jobs\u00a0would\u00a0be\u00a0lost\u00a0in\u00a0the\u00a0United\u00a0States.\t“\ufffd Although\u00a0economists\u00a0believed\u00a0that\u00a0in\u00a0some\u00a0areas\u00a0the\u00a0United\u00a0States\u00a0would\u00a0lose\u00a0jobs,\u00a0they\u00a0expected\u00a0the\u00a0United\u00a0States\u00a0would\u00a0gain\u00a0jobs\u00a0in\u00a0other\u00a0areas.\t“\ufffd Economics\u00a0believed\u00a0that\u00a0the\u00a0U.S.\u00a0unemployment\u00a0would\u00a0rise.\t\u00a0\t24).\u00a0Mr.\u00a0Woodward’s\u00a0cabinet\u00a0shop\u00a0is\u00a0experiencing\u00a0rapid\u00a0growth\u00a0in\u00a0sales.\u00a0As\u00a0sales\u00a0have\u00a0increased,\u00a0Mr.\u00a0Woodward\u00a0has\u00a0found\u00a0it\u00a0necessary\u00a0to\u00a0hire\u00a0more\u00a0workers.\u00a0However,\u00a0he\u00a0has\u00a0observed\u00a0that\u00a0doubling\u00a0the\u00a0number\u00a0of\u00a0workers\u00a0has\u00a0less\u00a0than\u00a0doubled\u00a0his\u00a0output.\u00a0What\u00a0is\u00a0the\u00a0likely\u00a0explanation?\t“\ufffd The\u00a0law\u00a0of\u00a0demand\t“\ufffd The\u00a0law\u00a0of\u00a0diminishing\u00a0marginal\u00a0productivity\t“\ufffd The\u00a0law\u00a0of\u00a0supply\t“\ufffd The\u00a0law\u00a0of\u00a0diminishing\u00a0marginal\u00a0utility\t\u00a0\t25).\u00a0Price\u00a0elasticity\u00a0of\u00a0demand\u00a0is\u00a0the:\t“\ufffd Change\u00a0in\u00a0the\u00a0quantity\u00a0of\u00a0a\u00a0good\u00a0demanded\u00a0divided\u00a0by\u00a0the\u00a0change\u00a0in\u00a0the\u00a0price\u00a0of\u00a0that\u00a0good.\t“\ufffd Percentage\u00a0change\u00a0in\u00a0price\u00a0of\u00a0that\u00a0good\u00a0divided\u00a0by\u00a0the\u00a0percentage\u00a0change\u00a0in\u00a0the\u00a0quantity\u00a0of\u00a0that\u00a0good\u00a0demanded.\t“\ufffd Percentage\u00a0change\u00a0in\u00a0quantity\u00a0of\u00a0a\u00a0good\u00a0demanded\u00a0divided\u00a0by\u00a0the\u00a0percentage\u00a0change\u00a0in\u00a0the\u00a0price\u00a0of\u00a0that\u00a0good.\t“\ufffd Change\u00a0in\u00a0the\u00a0price\u00a0of\u00a0a\u00a0good\u00a0divided\u00a0by\u00a0the\u00a0change\u00a0in\u00a0the\u00a0quantity\u00a0of\u00a0that\u00a0good\u00a0demanded.\t\u00a0\t26).\u00a0Which\u00a0of\u00a0the\u00a0following\u00a0statements\u00a0is\u00a0true\u00a0about\u00a0a\u00a0downward-sloping\u00a0demand\u00a0curve\u00a0that\u00a0is\u00a0a\u00a0straight\u00a0line?\t“\ufffd The\u00a0slope\u00a0remains\u00a0the\u00a0same,\u00a0but\u00a0elasticity\u00a0falls\u00a0as\u00a0you\u00a0move\u00a0down\u00a0the\u00a0demand\u00a0curve.\t“\ufffd The\u00a0slope\u00a0remains\u00a0the\u00a0same,\u00a0but\u00a0elasticity\u00a0rises\u00a0as\u00a0you\u00a0move\u00a0down\u00a0the\u00a0demand\u00a0curve.\u00a0\t“\ufffd The\u00a0slope\u00a0and\u00a0the\u00a0elasticity\u00a0fall\u00a0as\u00a0you\u00a0move\u00a0down\u00a0the\u00a0demand\u00a0curve.\u00a0\t“\ufffd The\u00a0slope\u00a0and\u00a0elasticity\u00a0are\u00a0the\u00a0same\u00a0at\u00a0all\u00a0points.\t\u00a0\t27).\u00a0Strategic\u00a0decision\u00a0making\u00a0is\u00a0most\u00a0important\u00a0in:\u00a0\u00a0\t“\ufffd Monopolistically\u00a0competitive\u00a0markets.\t“\ufffd Monopolistic\u00a0markets.\t“\ufffd Oligopolistic\u00a0markets.\t“\ufffd Competitive\u00a0markets.\t\u00a0\t28).\u00a0Cartels\u00a0are\u00a0organizations\u00a0that:\u00a0\t“\ufffd Encourage\u00a0price\u00a0wars.\t“\ufffd Keep\u00a0markets\u00a0contestable.\u00a0\t“\ufffd Use\u00a0predatory\u00a0pricing\u00a0to\u00a0monopolize\u00a0industries.\t“\ufffd Coordinate\u00a0the\u00a0output\u00a0and\u00a0pricing\u00a0decisions\u00a0of\u00a0a\u00a0group\u00a0of\u00a0firms.\t\u00a0\t29).\u00a0Microeconomics\u00a0and\u00a0macroeconomics\u00a0are:\t“\ufffd Interrelated\u00a0because\u00a0what\u00a0happens\u00a0in\u00a0the\u00a0economy\u00a0as\u00a0a\u00a0whole\u00a0is\u00a0based\u00a0on\u00a0individual\u00a0decisions.\u00a0\t“\ufffd Interrelated\u00a0because\u00a0both\u00a0are\u00a0often\u00a0taught\u00a0by\u00a0the\u00a0same\u00a0instructors.\t“\ufffd Not\u00a0related\u00a0because\u00a0they\u00a0are\u00a0taught\u00a0separately.\t“\ufffd Virtually\u00a0identical,\u00a0though\u00a0one\u00a0is\u00a0much\u00a0more\u00a0difficult\u00a0than\u00a0the\u00a0other.\t\u00a0\t30).\u00a0Microeconomics\u00a0is\u00a0the\u00a0study\u00a0of:\t“\ufffd a\u00a0firm’s\u00a0pricing\u00a0policies\t“\ufffd inflation\u00a0\t“\ufffd unemployment\u00a0\t“\ufffd business\u00a0cycles<\/p>\n","protected":false},"excerpt":{"rendered":"
1).\u00a0The\u00a0DeBeers\u00a0company\u00a0is\u00a0a\u00a0profit-maximizing\u00a0monopolist\u00a0that\u00a0exercises\u00a0monopoly\u00a0power\u00a0in\u00a0the\u00a0distribution\u00a0of\u00a0diamonds.\u00a0If\u00a0the\u00a0company\u00a0earns\u00a0positive\u00a0economic\u00a0profits\u00a0this\u00a0year,\u00a0the\u00a0price\u00a0of\u00a0diamonds\u00a0will: \u00a0 “\ufffd Exceed\u00a0the\u00a0marginal\u00a0cost\u00a0of\u00a0diamonds\u00a0but\u00a0equal\u00a0to\u00a0the\u00a0average\u00a0total\u00a0cost\u00a0of\u00a0diamonds. \u00a0 “\ufffd Exceed\u00a0both\u00a0the\u00a0marginal\u00a0cost\u00a0and\u00a0the\u00a0average\u00a0total\u00a0cost\u00a0of\u00a0diamonds. \u00a0 “\ufffd Be\u00a0equal\u00a0to\u00a0the\u00a0marginal\u00a0cost\u00a0of\u00a0diamonds. \u00a0 “\ufffd Be\u00a0equal\u00a0to\u00a0the\u00a0average\u00a0total\u00a0cost\u00a0of\u00a0diamonds. \u00a0 2).\u00a0Using\u00a0100\u00a0workers\u00a0and\u00a010\u00a0machines,\u00a0a\u00a0firm\u00a0can\u00a0produce\u00a010,000\u00a0units\u00a0of\u00a0output;\u00a0using\u00a0250\u00a0workers\u00a0and\u00a025\u00a0machines,\u00a0the\u00a0firm\u00a0produces\u00a021,000\u00a0units\u00a0of\u00a0output.\u00a0These\u00a0facts\u00a0are\u00a0best\u00a0explained\u00a0by:\u00a0 \u00a0 “\ufffd Economies\u00a0of\u00a0scope\u00a0 “\ufffd Diseconomies\u00a0of\u00a0scale\u00a0 “\ufffd Diminishing\u00a0marginal\u00a0productivity\u00a0 “\ufffd Economies\u00a0of\u00a0scale \u00a0 3).\u00a0Suppose\u00a0that\u00a0college\u00a0tuition\u00a0is\u00a0higher\u00a0this\u00a0year\u00a0than\u00a0last\u00a0and\u00a0that\u00a0more\u00a0students\u00a0are\u00a0enrolled\u00a0in\u00a0college\u00a0this\u00a0year\u00a0than\u00a0last\u00a0year.\u00a0\u00a0Based\u00a0on\u00a0this\u00a0information,\u00a0we\u00a0can\u00a0best\u00a0conclude\u00a0that: \u00a0 “\ufffd despite\u00a0the\u00a0increase\u00a0in\u00a0price,\u00a0quantity\u00a0demanded\u00a0rose\u00a0due\u00a0to\u00a0some\u00a0other\u00a0factors\u00a0changing.\u00a0 “\ufffd the\u00a0demand\u00a0for\u00a0a\u00a0college\u00a0education\u00a0is\u00a0positively\u00a0sloped.\u00a0 “\ufffd the\u00a0law\u00a0of\u00a0demand\u00a0is\u00a0invalid.\u00a0 “\ufffd this\u00a0situation\u00a0has\u00a0nothing\u00a0to\u00a0do\u00a0with\u00a0the\u00a0law\u00a0of\u00a0demand. \u00a0 4).\u00a0A\u00a0monopoly\u00a0firm\u00a0is\u00a0different\u00a0from\u00a0a\u00a0perfectly\u00a0competitive\u00a0firm\u00a0in\u00a0that: \u00a0 “\ufffd A\u00a0monopolist’s\u00a0demand\u00a0curve\u00a0is\u00a0perfectly\u00a0inelastic\u00a0whereas\u00a0a\u00a0perfectly\u00a0competitive\u00a0firm’s\u00a0demand\u00a0curve\u00a0is\u00a0perfectly\u00a0elastic. Read More …<\/a><\/p>\n","protected":false},"author":1,"featured_media":0,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[],"tags":[],"class_list":["post-210673","post","type-post","status-publish","format-standard","hentry"],"_links":{"self":[{"href":"https:\/\/www.benedictsol.com\/blogs\/wp-json\/wp\/v2\/posts\/210673","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/www.benedictsol.com\/blogs\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/www.benedictsol.com\/blogs\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/www.benedictsol.com\/blogs\/wp-json\/wp\/v2\/users\/1"}],"replies":[{"embeddable":true,"href":"https:\/\/www.benedictsol.com\/blogs\/wp-json\/wp\/v2\/comments?post=210673"}],"version-history":[{"count":0,"href":"https:\/\/www.benedictsol.com\/blogs\/wp-json\/wp\/v2\/posts\/210673\/revisions"}],"wp:attachment":[{"href":"https:\/\/www.benedictsol.com\/blogs\/wp-json\/wp\/v2\/media?parent=210673"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/www.benedictsol.com\/blogs\/wp-json\/wp\/v2\/categories?post=210673"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/www.benedictsol.com\/blogs\/wp-json\/wp\/v2\/tags?post=210673"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}