Micro Econ Exam 3

Which of the following is correct? a. Any event that changes the supply or demand for labor must change the value of the marginal product. b. A profit-maximizing firm hires workers so long as the wage rate exceeds the value of the marginal product of labor. c. An increase in the supply of labor increases both employment and wages. d. A decrease in the demand for labor decreases wages but increases employment.

a. Any event that changes the supply or demand for labor must change the value of the marginal product.

Some goods can be classified as either public goods or private goods depending on the circumstances. a. True b. False

a. True

Four roommates share an off-campus house and equally share the cost of rent. Everyone says that she values a clean house, yet the house is usually dirty. To an economist, a clean house in this case represents a. a common resource problem. b. a public good. c. a club good. d. All of the above are correct.

a. a common resource problem.

A tax on gasoline often reduces road congestion because gasoline a. and driving are complements. b. and driving are substitutes. c. is a normal good, while driving is an inferior good. d. is an inferior good, while driving is a normal good.

a. and driving are complements.

An important factor in the decline of the U.S. textile industry over the past 100 or so years is a. foreign competitors that can produce quality textile goods at low cost. b. lower prices of goods that are substitutes for clothing. c. a decrease in Americans' demand for clothing, due to increased incomes and the fact that clothing is an inferior good. d. the fact that the minimum wage in the U.S. has failed to keep pace with the cost of living.

a. foreign competitors that can produce quality textile goods at low cost.

Suppose the nation of Canada forbids international trade. In Canada, you can obtain a hockey stick by trading 5 baseball bats. In other countries, you can obtain a hockey stick by trading 8 baseball bats. These facts indicate that a. if Canada were to allow trade, it would export hockey sticks. b. Canada has an absolute advantage, relative to other countries, in producing hockey sticks. c. Canada has a comparative advantage, relative to other countries, in producing baseball bats. d. All of the above are correct.

a. if Canada were to allow trade, it would export hockey sticks.

When the government imposes taxes on buyers or sellers of a good, society a. loses some of the benefits of market efficiency. b. gains efficiency but loses equality. c. is better off because the government's tax revenues exceed the deadweight loss. d. moves from an elastic supply curve to an inelastic supply curve.

a. loses some of the benefits of market efficiency.

For private goods allocated in markets, a. prices guide the decisions of buyers and sellers and these decisions lead to an efficient allocation of resources. b. prices guide the decisions of buyers and sellers and these decisions lead to an inefficient allocation of resources. c. the government guides the decisions of buyers and sellers and these decisions lead to an efficient allocation of resources. d. the government guides the decisions of buyers and sellers and these decisions lead to an inefficient allocation of resources.

a. prices guide the decisions of buyers and sellers and these decisions lead to an efficient allocation of resources.

When a free-rider problem exists, a. the market will devote too few resources to the production of the good. b. the cost of the good will always be more than the benefit of the good. c. the good will not be produced. d. entrepreneurs will eventually find a way to make free-riders pay their share.

a. the market will devote too few resources to the production of the good.

When a good is taxed, the burden of the tax a. falls more heavily on the side of the market that is more elastic. b. falls more heavily on the side of the market that is more inelastic. c. falls more heavily on the side of the market that is closer to unit elastic. d. is distributed independently of relative elasticities of supply and demand.

b. falls more heavily on the side of the market that is more inelastic.

Most taxes distort incentives and move the allocation of resources away from the social optimum. Why do corrective taxes avoid the disadvantages of most other taxes? a. Corrective taxes apply only to goods that are bad for people's health, such as cigarettes and alcohol. b. Because corrective taxes correct for market externalities, they take into consideration the well-being of bystanders. c. Corrective taxes provide incentives for the conservation of natural resources. d. Corrective taxes do not affect deadweight loss.

b. Because corrective taxes correct for market externalities, they take into consideration the well-being of bystanders.

When a country allows international trade and becomes an importer of a good, domestic producers of the good are better off, and domestic consumers of the good are worse off. a. True b. False

b. False

The tax on cigarettes is an example of a. a consumption tax. b. a corrective tax. c. an income tax. d. a command-and-control policy.

b. a corrective tax.

If the world price of coffee is higher than Colombia's domestic price of coffee without trade, then Colombia a. should import coffee. b. has a comparative advantage in coffee and should export coffee. c. should produce just enough coffee to satisfy domestic demand. d. should produce no coffee domestically.

b. has a comparative advantage in coffee and should export coffee.

Firms that are involved in more than one type of business could be evidence of an attempt to a. increase private profit at the expense of consumers. b. internalize some forms of positive externalities. c. reduce the impact of government regulations on their business. d. increase the private marginal cost of production.

b. internalize some forms of positive externalities.

National defense is a classic example of a public good because a. there is no market for private security services. b. it is difficult to exclude people from receiving the benefits from national defense once it is provided. c. everyone agrees that some level of national defense is important, but only the government knows the optimal amount. d. there are no private firms willing to supply defense goods such as tanks and weapons.

b. it is difficult to exclude people from receiving the benefits from national defense once it is provided.

All remedies for externalities share the goal of a. moving the allocation of resources toward the market equilibrium. b. moving the allocation of resources toward the socially optimal equilibrium. c. increasing the allocation of resources. d. decreasing the allocation of resources.

b. moving the allocation of resources toward the socially optimal equilibrium.

The provision of a public good generates a a. positive externality, as does the use of a common resource. b. positive externality and the use of a common resource generates a negative externality. c. negative externality, as does the use of a common resource. d. negative externality and the use of a common resource generates a positive externality.

b. positive externality and the use of a common resource generates a negative externality.

The Coase theorem suggests that private markets may not be able to solve the problem of externalities a. if the government does not become involved in the process. b. when the number of interested parties is large and bargaining costs are high. c. if the firm in the market is a monopoly. d. if some people benefit from the externality.

b. when the number of interested parties is large and bargaining costs are high.

The marginal product of labor is the a. marginal revenue product minus the wage paid to the worker. b. total amount of output divided by the total units of labor. c. increase in the amount of output from an additional unit of labor. d. None of the above is correct.

c. increase in the amount of output from an additional unit of labor.

Which of the following statements is not correct? a. Tradable pollution permits have an advantage over corrective taxes if the government is uncertain as to the optimal size of the tax necessary to reduce pollution to a specific level. b. Both corrective taxes and tradable pollution permits provide market-based incentives for firms to reduce pollution. c. Corrective taxes set the maximum quantity of pollution, whereas tradable pollution permits fix the price of pollution. d. Both corrective taxes and tradable pollution permits reduce the cost of environmental protection and thus should increase the public's demand for a clean environment.

c. Corrective taxes set the maximum quantity of pollution, whereas tradable pollution permits fix the price of pollution.

Resources tend to be allocated inefficiently when goods a. are private goods. b. are rival in consumption and excludable. c. are available free of charge. d. are available only at very high prices.

c. are available free of charge.

Opponents of free trade often want the United States to prohibit the import of goods made in overseas factories that pay wages below the U.S. minimum wage. Prohibiting such goods is likely to a. cause these factories to pay the U.S. minimum wage. b. increase the rate of technological advance in poor countries so that they can afford to pay higher wages. c. increase poverty in poor countries and benefit U.S. firms which compete with these imports. d. harm U.S. firms which compete with these imports.

c. increase poverty in poor countries and benefit U.S. firms which compete with these imports.

In a market economy, government intervention a. will always improve market outcomes. b. reduces efficiency in the presence of externalities. c. may improve market outcomes in the presence of externalities. d. is necessary to control individual greed.

c. may improve market outcomes in the presence of externalities.

Assume, for Vietnam, that the domestic price of textiles without international trade is higher than the world price of textiles. This suggests that, in the production of textiles, a. Vietnam has a comparative advantage over other countries and Vietnam will import textiles. b. Vietnam has a comparative advantage over other countries and Vietnam will export textiles. c. other countries have a comparative advantage over Vietnam and Vietnam will import textiles. d. other countries have a comparative advantage over Vietnam and Vietnam will export textiles.

c. other countries have a comparative advantage over Vietnam and Vietnam will import textiles.

Markets do not ensure that the air we breathe is clean because a. clean air has no value. b. the government prevents markets from doing so. c. property rights are not well established for clean air. d. clean air is impossible to produce .

c. property rights are not well established for clean air.

Since almost all forms of transportation produce some type of pollution, a. the government should ban all transportation. b. the government should ban all pollution. c. society has to weigh the cost and benefits when deciding how much pollution to allow. d. refrain from intervening because the market can best solve this problem.

c. society has to weigh the cost and benefits when deciding how much pollution to allow.

Trade enhances the economic well-being of a nation in the sense that a. both domestic producers and domestic consumers of a good become better off with trade, regardless of whether the nation imports or exports the good in question. b. the gains of domestic producers of a good exceed the losses of domestic consumers of a good, regardless of whether the nation imports or exports the good in question. c. trade results in an increase in total surplus. d. trade puts downward pressure on the prices of all goods.

c. trade results in an increase in total surplus.

Without government intervention, public goods tend to be a. overproduced and common resources tend to be overconsumed. b. overproduced and common resources tend to be underconsumed. c. underproduced and common resources tend to be overconsumed. d. underproduced and common resources tend to be underconsumed.

c. underproduced and common resources tend to be overconsumed.

Suppose that eight workers can manufacture 70 radios per day and that nine workers can manufacture 90 radios per day. If radios can be sold for $20 each, the value of marginal product of the ninth worker is a. 20 radios. b. 90 radios. c. $200. d. $400.

d. $400.

If the wages of a CPA decrease, (i) (ii) (iii) (iv) her opportunity cost of leisure increases. her opportunity cost of leisure decreases. her hours of labor supply may increase. her hours of labor supply may decrease. a. (i) and (iii) only b. (ii) and (iv) only c. (i), (iii), and (iv) only d. (ii), (iii), and (iv) only

d. (ii), (iii), and (iv) only

Altering incentives so that people take account of the external effects of their actions a. is called internalizing the externality. b. can be done by imposing a corrective tax. c. is the role of government in markets with externalities. d. All of the above are correct.

d. All of the above are correct.

Capital, labor, and land a. have derived demands. b. are factors of production. c. are inputs used in the production of goods and services. d. All of the above are correct.

d. All of the above are correct.

Taxes cause deadweight losses because taxes a. reduce the sum of producer and consumer surpluses by more than the amount of tax revenue. b. prevent buyers and sellers from realizing some of the gains from trade. c. cause marginal buyers and marginal sellers to leave the market, causing the quantity sold to fall. d. All of the above are correct.

d. All of the above are correct.

When a tax is levied on a good, a. government collects revenues which might justify the loss in total welfare. b. there is a decrease in the quantity of the good bought and sold in the market. c. a wedge is placed between the price buyers pay and the price sellers effectively receive. d. All of the above are correct.

d. All of the above are correct.

Which of the following represents a way that a government can help the private market to internalize an externality? a. taxing goods that have negative externalities b. subsidizing goods that have positive externalities c. The government cannot improve upon the outcomes of private markets. d. Both a and b are correct.

d. Both a and b are correct.

Suppose a tax is imposed on the sellers of fast-food French fries. The burden of the tax will a. fall entirely on the buyers of fast-food French fries. b. fall entirely on the sellers of fast-food French fries. c. be shared equally by the buyers and sellers of fast-food French fries. d. be shared by the buyers and sellers of fast-food French fries but not necessarily equally.

d. be shared by the buyers and sellers of fast-food French fries but not necessarily equally.

What is the fundamental basis for trade among nations? a. shortages or surpluses in nations that do not trade b. misguided economic policies c. absolute advantage d. comparative advantage

d. comparative advantage

When a tax is imposed on a good, the a. supply curve for the good always shifts. b. demand curve for the good always shifts. c. amount of the good that buyers are willing to buy at each price always remains unchanged. d. equilibrium quantity of the good always decreases.

d. equilibrium quantity of the good always decreases.

An increase in the size of a tax is most likely to increase tax revenue in a market with a. elastic demand and elastic supply. b. elastic demand and inelastic supply. c. inelastic demand and elastic supply. d. inelastic demand and inelastic supply.

d. inelastic demand and inelastic supply.

A tariff is a a. limit on how much of a good can be exported. b. limit on how much of a good can be imported. c. tax on an exported good. d. tax on an imported good.

d. tax on an imported good.

Jamaica has a comparative advantage in the production of aluminum, but currently allows no international trade in aluminum. We can conclude that a. the domestic price of aluminum in Jamaica is higher than the world price for aluminum. b. Jamaica has an absolute advantage in the production of aluminum. c. Jamaica should import aluminum. d. the domestic price of aluminum in Jamaica is lower than the world price for aluminum.

d. the domestic price of aluminum in Jamaica is lower than the world price for aluminum.

Taxes on labor have the effect of encouraging a. workers to work more hours. b. the elderly to postpone retirement. c. second earners within a family to take a job. d. unscrupulous people to take part in the underground economy.

d. unscrupulous people to take part in the underground economy.

Which of the following tools help us evaluate how taxes affect economic well-being? (i) Consumer surplus (ii) producer surplus (iii) tax revenue (iv) deadweight loss a.) (i) and (ii) only b.) (i), (ii), and (iii) only c.) (iii) and (iv) only d.) (i), (ii), (iii), and (iv)

d.) (i), (ii), (iii), and (iv)

When a tax is levied on a good, the buyers and sellers of the good share the burden, a.) provided the tax is levied on the sellers b.) provided the tax is levied on the buyers c.) provided a portion of the tax is levied on the buyers, with the remaining portion levied on the sellers d.) regardless of how the tax is levied

d.) regardless of how the tax is levied