Econ exam 2

At the optimal quantity of a public good:

marginal benefit equals marginal cost

Implicit and explicit costs are different in that: a) explicit costs are opportunity costs; implicit costs are not. b) implicit costs are opportunity costs; explicit costs are not. c) the latter refer to nonexpenditure costs and the former to monetary payments. d) the former refer to nonexpenditure costs and the latter to monetary payments.

d) the former refer to nonexpenditure costs and the latter to monetary payments.

With a tax of $2,000 on $30,000 of income, and $2,000 on $70,000 of income, we can describe the structure of this tax as

regressive

An effective price ceiling will:

result in a product shortage

An effective price floor will:

result in a product surplus

In a free-market economy, a product that entails a negative externality (additional social cost) will be a) overproduced. b) underproduced. c) produced at the optimal level. d) provided solely by the government.

a) overproduced

To economists, the main difference between the short run and the long run is that: a) the law of diminishing returns applies in the long run, but not in the short run. b) in the long run all resources are variable, while in the short run at least one resource is fixed. c) fixed costs are more important to decision making in the long run than they are in the short run. d) in the short run all resources are fixed, while in the long run all resources are variable.

b) in the long run all resources are variable, while in the short run

To maximize utility, a consumer should allocate money income so that the: a) elasticity of demand on all products purchased is the same. b) marginal utility obtained fm the last dollar spent on each product is the same. c) total utility derived from each product consumed is the same. d) marginal utility of the last unit of each product consumed is the same.

b) marginal utility obtained fm the last dollar spent on each product is the same.

If the consumption of a product or service involves external benefits, then the government can improve efficiency in the market by a) providing a subsidy to correct for an overallocation of resources. b) providing a subsidy to correct for an underallocation of resources. c) imposing a corrective tax to correct for an overallocation of resources. d) imposing a corrective tax to correct for an underallocation of resources.

b) providing a subsidy to correct for an underallocation of resources.

A positive externality or spillover benefit (additional social benefit) occurs when a) product differentiation increases the variety of products available to consumers. b) the benefits associated with a product exceed those accruing to people who consume it. c) a firm does not bear all of the costs of producing a good or service. d) firms earn positive economic profits.

b) the benefits associated with a product exceed those accruing to people who consume it. (overproduced)

Suppose that Mick and Cher are the only two members of society and are willing to pay $10 and $8, respectively, for the third unit of a public good. Also, assume that the marginal cost of the third unit is $17. We can conclude that: a) the third unit should not be produced b) the third unit should be produced c) zero units should be produced d) 4 units should be produced

b) the third unit should be produced

In a free-market economy, a product that entails a positive externality (additional social benefit) will be a) overproduced. b) underproduced. c) produced at the optimal level. d) provided solely by the government.

b) underproduced

If a firm decides to produce no output in the short run, its costs will be: a) its marginal costs. b) its variable costs. c) its fixed costs. d) zero.

c) its fixed costs

If a good that generates negative externalities were priced to take these negative externalities into account, its a) price would decrease and its output would increase. b) price would remain constant and output would increase. c) price would increase and its output would decrease. d) price would increase but its output would remain constant.

c) price would increase and its output would decrease.

A negative externality or spillover cost (additional social 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.

d) the total cost of producing a good exceeds the costs borne by the producer. (underproduced)

diminishing marginal utility explains why

demand curves are downsloping

Marginal Cost:

equals both average variable cost at their respective minimums

A tax structure is called progressive when

the average tax rate decreases if income decreases

Because of the free-rider problem:

the market demand for a good is nonexistent or understated

What do the income effect, the substitution effect, and diminishing marginal utility have in common?

they all help explain the downsloping demand curve