Econ test

Suppose that the federal government places a binding price floor on chocolate. To help support the price floor, the government purchases all chocolate that consumers do not buy. If the price floor remains in place for a number of years, what do you expect to happen to the quantity of chocolate purchased by the government compared to the quantity of chocolate purchased by the government when the price floor is first imposed? a. It will increase. b. It will decrease or increase depending on the type of chocolate. c. It will decrease. d. It will remain the same.

a. It will increase.

Assume that all fast-food restaurants employ many minimum wage workers. Suppose 20,000 people in Pennsylvania work in fast-food restaurants for the federal minimum wage of $7.25/hour. If the state of Pennsylvania increases its minimum wage to $9.00/hour, who will be better off? Who will be worse off? a. Some minimum wage workers will be better off, some minimum wage workers will be worse off, and all fast-food restaurant owners will be worse off. b. All minimum wage workers will be better off, and all fast-food restaurant owners will be worse off. c. Some fast-food restaurant owners will be better off, some fast-food restaurant owners will be worse off, and all minimum wage workers will be better off. d. All minimum wage workers will be better off, and all fast-food restaurant owners will also be better off.

a. Some minimum wage workers will be better off, some minimum wage workers will be worse off, and all fast-food restaurant owners will be worse off.

In order for a price ceiling to be binding, it must be set a. below the equilibrium price. b. above the equilibrium price. c. at the equilibrium price. d. either above or below the equilibrium price.

a. below the equilibrium price.

Which of the following is a factor of production? a. capital b. the PPF c. output d. the demand curve

a. capital

Profits when a competitive firm shuts down are -$7,250 and profits are -$250 when the firm continues to produce. This firm will minimize losses by a. continuing to produce b. decreasing production c. shutting down d. either shutting down or continuing to produce

a. continuing to produce

Where there are established, well-defined private property rights, externalities will be a. less prevalent. b. not dependent on private property rights. c. dependent on private property rights. d. more prevalent.

a. less prevalent.

Billy Bob runs a seafood restaurant. Last year he earned $50,000 in revenue. He had explicit costs of $20,000. Billy Bob could have made $30,000 working for the county and could have received an additional $20,000 if he rented out his building and equipment. Calculate Billy Bob's implicit costs. a. $20,000 b. $70,000 c. $50,000 d. $30,000

c. $50,000

The term market failure refers to a. firms' failure to provide quality products. b. an unsuccessful advertising campaign, which reduces demand. c. a market that fails to allocate resources efficiently. d. ruthless competition among firms.

c. a market that fails to allocate resources efficiently.

A producer would decide to produce in a competitive market in which she will earn zero profit in the long run because a. the zero profit in the long run is, in fact, zero accounting profit, and only matters on the books. b. the producer has a high cost of exiting this market, and counting that cost, it's better for her to continue operating at zero profit. c. at zero profit, her revenue will cover all her costs, both explicit and implicit (opportunity cost). d. in the short run her profit is positive.

c. at zero profit, her revenue will cover all her costs, both explicit and implicit (opportunity cost).

The cost of a firm's inputs increased by 40%. As a result, output increased by 25%. This firm experienced a. constant returns to scale. b. diminishing returns. c. diseconomies of scale. d. economies of scale.

c. diseconomies of scale.

Firms producing an identical product in a competitive market are producing at a level of output that maximizes profit. The current market price is $4.50 per unit and the firms are producing at a long-run average cost of $3.50 per unit. Over the long-run one should expect a. the whole market to collapse, and every firm leave. b. exit of firms from this market c. entry of new firms into this market d. no change in the number of firms in this market

c. entry of new firms into this market

In a perfectly competitive market, the long-run market supply curve is a. downward sloping b. upward sloping c. horizontal at the market price d. vertical at the profit maximizing output level

c. horizontal at the market price

Which of the following is NOT an example of a public good? a. national defense b. lighthouses c. pools d. street performers

c. pools

Which of the following is a solution to negative externalities? a. tax deductions for charitable contributions b. price ceilings c. taxes d. subsidies

c. taxes

Two roommates are opposites. One enjoys playing Modern Warfare with his friends all night. The other likes to get to bed early for a full 8 hours of sleep. The roommate who plays Modern Warfare values gaming more than his roommate values his sleep. According to the Coase theorem, a. the person who plays Modern Warfare will compensate his roommate for loss of sleep. b. the person who prefers sleep will pay the gamer to keep quiet at night. c. neither roommate will compensate the other. d. the roommates will alternate sleeping and gaming.

a. the person who plays Modern Warfare will compensate his roommate for loss of sleep.

Suppose that the equilibrium price of a bike is $250. The government passes a law setting a maximum price of $150 for a bike. As a result of the legislation, the equilibrium quality of bikes will most likely a. either improve or decline. b. decline. c. improve. d. stay the same.

b. decline.

The marginal cost curve a. always declines. b. intersects the ATC at its minimum point. c. intersects the AFC at its minimum point. d. is always S-shaped.

b. intersects the ATC at its minimum point.

In the long run with regard to price ceilings, we can expect a. more inelastic demand curve and more inelastic supply curve. b. more elastic demand curve and more elastic supply curve. c. more inelastic demand curve and more elastic supply curve. d. more elastic demand curve and more inelastic supply curve.

b. more elastic demand curve and more elastic supply curve.

If the average total costs is falling, a. the marginal cost curve must be above the average total cost curve. b. the marginal cost curve must be below the average total cost curve. c. the MC curve is rising. d. the MC curve is horizontal (neither rising nor falling).

b. the marginal cost curve must be below the average total cost curve.

Which of the following is an example of the tragedy of the commons? a. the collapse of wild fish populations due to pollution from cruise ships b. the overgrazing of common pastures shared by herders in pastoral communities c. a student plays loud music with the window open all night in a quiet, residential neighborhood d. air quality degradation due to pollution

b. the overgrazing of common pastures shared by herders in pastoral communities

Public goods are ___________ in the market. a. overproduced b. underproduced c. produced efficiently d. produced inefficiently

b. underproduced

Rent control is an example of a. a price floor. b. a price gouging law. c. a market clearing device. d. a price ceiling.

d. a price ceiling

In the case of negative externalities, social costs are ____________ internal costs. a. less than b. equal to c. sometimes greater than and sometimes less than d. greater than

d. greater than

Diminishing marginal product refers to marginal product that often initially _____ but eventually ______. a. increases; further increases b. decreases; levels out c. decreases; increases d. increases; decreases

d. increases; decreases

A price ceiling is a legally imposed ___________ price. a. equilibrium b. minimum c. minimum or maximum d. maximum

d. maximum

Copyright laws make the digital music you buy a. rival and excludable. b. rival and nonexcludable. c. nonrival and nonexcludable. d. nonrival and excludable.

d. nonrival and excludable.

Which antipollution policy does not consider cost-benefit analysis? a. giving tax breaks for switching to eco-friendly equipment b. charging an emissions fee that taxes polluters c. issuing pollution permits that can be traded in an open market d. passing a law that bans all pollution

d. passing a law that bans all pollution

Many local governments use parking meters on crowded downtown streets. However, the parking spaces along the street are typically hard to find because the metered price is often set below the market price. This represents a ___________, which results in a ___________ of parking spots. a. price floor; surplus b. price floor; shortage c. price ceiling; surplus d. price ceiling; shortage

d. price ceiling; shortage

In the long run, costs are a. dependent on the firm. b. variable and fixed. c. fixed only. d. variable only.

d. variable only.