Question 1

Empirical evidence suggests that advertising usually leads to an increase in the price of advertised products.

Accepted Answer

A) True 
 B)False

Question 2

Refer to the information provided.Consumer advocacy groups that have encouraged the Premier to restrict advertising of computer hardware on billboards are most likely to do so on the basis that advertising:

Accepted Answer

A) unnecessarily raises expectations of the proletariat 
B) manipulates people's tastes 
C) lends credibility to claims of superior product quality 
D) does all of the above 
A) unnecessarily raises expectations of the proletariat 
B) manipulates people's tastes 
C) lends credibility to claims of superior product quality 
D) does all of the above

Question 3

Evaluate the following statement: 'Advertisements that use celebrity endorsements are devoid of any value and do not enhance the efficient functioning of markets'.

Accepted Answer

Some people argue that celebri

Question 4

In many university towns, private independent bookstores typically locate on the periphery of the campus.However, in some university towns, the university has used political power to restrict private bookstores near the campus through community zoning laws.Use your knowledge of markets to predict the price and quality of service difference in the market for university textbooks under these two different market regimes.

Accepted Answer

In monopoly markets, price wil

Question 5

If firms in a monopolistically competitive industry are making losses:

Accepted Answer

A) they will likely be subject to regulation 
B) they ought to form a cartel 
C) new firms will enter the market 
D) some firms must exit the market 
A) they will likely be subject to regulation 
B) they ought to form a cartel 
C) new firms will enter the market 
D) some firms must exit the market

Question 6

Edward consumes Arnott's Tim Tams exclusively.He claims that there is a clear taste difference and that competing brands of chocolate biscuits leave an unsavoury residual taste in his mouth.However, in a blind taste test, Edward is found to prefer generic store brand chocolate biscuits to Tim Tams eight out of ten times.The results of Edward's taste test would be consistent with which of the following statements?

Accepted Answer

A) consumers of brand name products are likely to be uninformed about the quality of competing generic products 
B) consumers of brand name products do not know their true preferences 
C) consumers may choose brand names to ensure the general quality of the product 
D) all of the above are consistent 
A) consumers of brand name products are likely to be uninformed about the quality of competing generic products 
B) consumers of brand name products do not know their true preferences 
C) consumers may choose brand names to ensure the general quality of the product 
D) all of the above are consistent

Question 7

The debate over whether society is wasting the resources it devotes to advertising has largely been resolved by which of the following groups?
(i) economists who study the tastes and preferences of individuals
(ii) psychologists who evaluate the manipulative effects of advertising
(iii) sociologists who document the destructive social forces inherent in advertising

Accepted Answer

A) (i), (ii) and (iii) 
B) (i) only 
C) (ii) and (iii) only 
D) none of the above 
A) (i), (ii) and (iii) 
B) (i) only 
C) (ii) and (iii) only 
D) none of the above

Question 8

One theory of advertising suggests that:

Accepted Answer

A) information on price is always a requisite for effective advertising 
B) celebrity advertising is not effective in retail food markets 
C) the content of advertising may be irrelevant to product success in the market 
D) Uncle Toby's and Sanitarium should not advertise new cereals 
A) information on price is always a requisite for effective advertising 
B) celebrity advertising is not effective in retail food markets 
C) the content of advertising may be irrelevant to product success in the market 
D) Uncle Toby's and Sanitarium should not advertise new cereals

Question 9

Whenever a monopolistically competitive firm marks price above marginal cost, the firm will make a profit.

Accepted Answer

A) True 
 B)False

Question 10

Policymakers do not accept the view that advertising enhances the efficiency of markets.

Accepted Answer

A) True 
 B)False

Question 11

Which of the following markets impose deadweight losses on society?
(i) monopoly
(ii) monopolistic competition
(iii) oligopoly

Accepted Answer

A) (i) and (ii) 
B) (ii) and (iii) 
C) (i) and (iii) 
D) (i) and (ii) and (iii) 
A) (i) and (ii) 
B) (ii) and (iii) 
C) (i) and (iii) 
D) (i) and (ii) and (iii)

Question 12

Graph 17-1  
-Refer to Graph 17-1.If a firm in a monopolistically competitive market was producing the level of output depicted as Qd in panel d, it would:

Accepted Answer

A) be minimising its losses 
B) be losing market share to other firms in the market 
C) be operating at excess capacity 
D) not be maximising its profit 
A) be minimising its losses 
B) be losing market share to other firms in the market 
C) be operating at excess capacity 
D) not be maximising its profit

Question 13

Suppose that in the short run, a monopolistically competitive firm sells its product for $20 per unit.Its average total cost at the optimal level of output is $30.This means that:

Accepted Answer

A) the firm makes a loss in the short run and the long run 
B) the firm makes a profit in the short run and the long run 
C) the firm's demand curve will shift to the left as new firms enter the market 
D) the firm's demand curve will shift to the right as firms leave the market 
A) the firm makes a loss in the short run and the long run 
B) the firm makes a profit in the short run and the long run 
C) the firm's demand curve will shift to the left as new firms enter the market 
D) the firm's demand curve will shift to the right as firms leave the market

Question 14

In the long run, the output of a monopolistically competitive firm will be:

Accepted Answer

A) less than the efficient scale at zero economic profit 
B) greater than the efficient scale at a positive economic profit 
C) equal to the efficient scale at a zero economic profit 
D) consistent with diseconomies of scale 
A) less than the efficient scale at zero economic profit 
B) greater than the efficient scale at a positive economic profit 
C) equal to the efficient scale at a zero economic profit 
D) consistent with diseconomies of scale

Question 15

If the principal effect of advertising is to decrease the elasticity of demand, the critics argue that firms will be able to:

Accepted Answer

A) lower their advertising budget 
B) charge a lower mark-up over marginal cost 
C) increase their advertising budget 
D) charge a larger mark-up over marginal cost 
A) lower their advertising budget 
B) charge a lower mark-up over marginal cost 
C) increase their advertising budget 
D) charge a larger mark-up over marginal cost

Question 16

If firms in a monopolistically competitive market are earning economic profits, which of the following scenarios would best reflect the change facing incumbent firms as the market adjusts to its new equilibrium?

Accepted Answer

A) a downward shift in their marginal cost curve 
B) an upward shift in their marginal cost curve 
C) an increase in demand 
D) a decrease in demand 
A) a downward shift in their marginal cost curve 
B) an upward shift in their marginal cost curve 
C) an increase in demand 
D) a decrease in demand

Question 17

If firms in a monopolistically competitive market are making accounting profits, this will always encourage more firms to enter the market.

Accepted Answer

A) True 
 B)False

Question 18

Which of the following are attributes of a monopolistic competitive market?
(i) many firms competing for the same group of sellers
(ii) each firm produces a product that is slightly different from the other firms
(iii) in the long run, entry into the industry is restricted

Accepted Answer

A) (i) only 
B) (i) and (ii) only 
C) (ii) and (ii) only 
D) (i), (ii), and (iii) 
A) (i) only 
B) (i) and (ii) only 
C) (ii) and (ii) only 
D) (i), (ii), and (iii)

Question 19

In a small university town, four micro-breweries have opened in the last two years.Demonstrate the effect of these new market entrants on demand for incumbent firms (micro-breweries) that already served this market.Assume that the local community now places a moratorium on new liquor licenses for micro-breweries.How will this moratorium affect the long-run profitability of incumbent firms?

Accepted Answer

The arrival of a new entrant should be g

Question 20

If an economic justification for advertising is that it enhances the ability of a market to allocate resources, then advertising is probably:

Accepted Answer

A) manipulating people's tastes 
B) increasing elasticity of supply 
C) conveying information about price, the existence of new products or locations of retail outlets 
D) addressing psychological rather than informational characteristics of the good 
A) manipulating people's tastes 
B) increasing elasticity of supply 
C) conveying information about price, the existence of new products or locations of retail outlets 
D) addressing psychological rather than informational characteristics of the good

Exam 16: Monopolistic Competition

Empirical evidence suggests that advertising usually leads to an increase in the price of advertised products.

Refer to the information provided.Consumer advocacy groups that have encouraged the Premier to restrict advertising of computer hardware on billboards are most likely to do so on the basis that advertising:

Evaluate the following statement: 'Advertisements that use celebrity endorsements are devoid of any value and do not enhance the efficient functioning of markets'.

If firms in a monopolistically competitive industry are making losses:

One theory of advertising suggests that:

Whenever a monopolistically competitive firm marks price above marginal cost, the firm will make a profit.

Policymakers do not accept the view that advertising enhances the efficiency of markets.

Which of the following markets impose deadweight losses on society? (i) monopoly (ii) monopolistic competition (iii) oligopoly

Graph 17-1 -Refer to Graph 17-1.If a firm in a monopolistically competitive market was producing the level of output depicted as Qd in panel d, it would:

Suppose that in the short run, a monopolistically competitive firm sells its product for $20 per unit.Its average total cost at the optimal level of output is $30.This means that:

In the long run, the output of a monopolistically competitive firm will be:

If the principal effect of advertising is to decrease the elasticity of demand, the critics argue that firms will be able to:

If firms in a monopolistically competitive market are earning economic profits, which of the following scenarios would best reflect the change facing incumbent firms as the market adjusts to its new equilibrium?

If firms in a monopolistically competitive market are making accounting profits, this will always encourage more firms to enter the market.

Which of the following are attributes of a monopolistic competitive market? (i) many firms competing for the same group of sellers (ii) each firm produces a product that is slightly different from the other firms (iii) in the long run, entry into the industry is restricted

If an economic justification for advertising is that it enhances the ability of a market to allocate resources, then advertising is probably:

Ten Lessons From Economics

Thinking Like an Economist

Interdependence and the Gains From Trade

The Market Forces of Supply and Demand

Elasticity and Its Application

Supply, Demand and Government Policies

Consumers, Producers and the Efficiency of Markets

Application: the Costs of Taxation

Application: International Trade

Externalities

Public Goods and Common Resources

The Design of the Tax System

The Costs of Production

Firms in Competitive Markets

Monopoly

Business Strategy and Oligopoly

Competition Policy

The Markets for the Factors of Production

Earnings, Unions and Discrimination

Income Inequity and Poverty

The Theory of Consumer Choice

Frontiers of Microeconomics

Measuring a Nations Income

Measuring the Cost of Living

Production and Growth

Saving, Investment and the Financial System

The Natural Rate of Unemployment

The Monetary System

Inflation: Its Causes and Costs

Open-Economy Macroeconomics: Basic Concepts

A Macroeconomic Theory of the Open Economy

Aggregate Demand and Aggregate Supply

The Influence of Monetary and Fiscal Policy on Aggregate Demand

The Short-Run Trade-Off Between Inflation and Unemployment

Global Financial Crisis of 2008 and Beyond

Five Debates Over Macroeconomic Policy

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