Micro Unit 2: Cap 6, 7, 10, 14

Two firms, A and B, each currently emit 100 tons of chemicals into the air. The government has decided to reduce the pollution and from now on will require a pollution permit for each ton of pollution emitted into the air. The government gives each firm 40 pollution permits, which it can either use or sell to the other firm. It costs Firm A $200 for each ton of pollution that it eliminates before it is emitted into the air, and it costs Firm B $100 for each ton of pollution that it eliminates before it is emitted into the air. After the two firms buy or sell pollution permits from each other, we would expect that:

Answer/Option on a different card

Tom's Tent Company has total fixed costs of $300,000 per year. The firm's average variable cost is $80 for 10,000 tents. At that level of output, the firm's average total costs equal $110 $90 $80 $100

Answer: $110

Jacqui decides to open her own business and earns $50,000 in accounting profit the first year. When deciding to open her own business, she withdrew $20,000 from her savings, which earned 5 percent interest. She also turned down a job offer with annual salary of $45,000. What is Jacqui's economic profit from running her own business? −$6,000 $4,000 −$56,000 $19,000

Answer: $4,000

Kate is a florist. Kate can arrange 20 bouquets per day. She is considering hiring her husband William to work for her. Together Kate and William can arrange 35 bouquets per day. What is William's marginal product? 35 bouquets 15 bouquets 55 bouquets 22.5 bouquets

Answer: 15 bouquets

Card #6 Continued: A) Firm A will emit 80 tons of pollution into the air, and Firm B will emit 0 tons of pollution into the air. B) Firm A will emit 100 tons of pollution into the air, and Firm B will emit 80 tons of pollution into the air. C) Firm A will emit 40 tons of pollution into the air, and Firm B will emit 40 tons of pollution into the air. D) Firm A will emit 0 tons of pollution into the air, and Firm B will emit 80 tons of pollution into the air.

Answer: A) Firm A will emit 80 tons of pollution into the air, and Firm B will emit 0 tons of pollution into the air.

A supply curve can be used to measure producer surplus because it reflects A) sellers' costs. B) quantity supplied. C) the amount that will be purchased by consumers in the market. D) the actions of sellers

Answer: A) sellers' costs.

Zaria and Hannah are roommates. Zaria assigns a $30 value to smoking cigarettes. Hannah values smoke-free air at $15. Which of the following scenarios is a successful example of a private solution? A) Zaria pays Hannah $14 so that Zaria can smoke. B) Hannah offers Zaria $20 not to smoke. Zaria accepts and does not smoke. C) Hannah offers Zaria $15 not to smoke. Zaria accepts and does not smoke. D) Zaria pays Hannah $16 so that Zaria can smoke.

Answer: B) Hannah offers Zaria $20 not to smoke. Zaria accepts and does not smoke.

In some cases, tradable pollution permits may be better than a corrective tax because A) pollution permits generate more revenue for the government than a corrective tax. B) the government can set a maximum level of pollution using permits. C) pollution permits allow for a market solution while a corrective tax does not. D) pollution permits are never preferred over a corrective tax.

Answer: B) the government can set a maximum level of pollution using permits.

Accounting profit is greater than or equal to economic profit. True False

True

Market power and externalities are examples of market failures. True False

True

Flu shots provide a positive externality. Suppose that the market for vaccinations is perfectly competitive. Without government intervention in the vaccination market, which of the following statements is correct? A) A per-shot tax could turn an inefficient situation into an efficient one. B) At the current output level, the marginal social cost exceeds the marginal private cost. C) At the current output level, the marginal social benefit exceeds the marginal private benefit. D) The current output level is inefficiently high

Answer: C) At the current output level, the marginal social benefit exceeds the marginal private benefit.

On a 100-acre farm, a farmer is able to produce 3,000 bushels of wheat when he hires 2 workers. He is able to produce 4,400 bushels of wheat when he hires 3 workers. Which of the following is consistent with the property of diminishing marginal product? A) The farmer is able to produce 6,200 bushels of wheat when he hires 4 workers. B) The farmer is able to produce 6,000 bushels of wheat when he hires 4 workers. C) The farmer is able to produce 5,600 bushels of wheat when he hires 4 workers. D) The farmer is able to produce 5,800 bushels of wheat when he hires 4 workers.

Answer: C) The farmer is able to produce 5,600 bushels of wheat when he hires 4 workers.

In which of the following cases is the Coase theorem most likely to solve the externality? A) Polluted water runoff from farms is making residents of a nearby town sick. B) Industrialization around the world is causing global warming. C) Chemicals from manufacturing plants in the Midwest are causing acid rain in Canada. D) Ed is allergic to his roommate's cat.

Answer: D) Ed is allergic to his roommate's cat.

Which of the following is an example of a positive externality? A) A college student buys a new car when they graduates. B) Local high school teachers have pizza delivered every Friday for lunch. C) An avid fisherman buys new fishing gear for their next fishing trip. D) The mayor of a small town plants flowers in the city park.

Answer: D) The mayor of a small town plants flowers in the city park.

Henry is willing to pay 45 cents, and Janine is willing to pay 55 cents, for 1 pound of bananas. The price of bananas is 40 cents a pound, what are their individual consumer surpluses? Henry's is 20 cents and Janine's is 5 cents. Henry's is 5 cents and Janine's is 15 cents. Henry's is 15 cents and Janine's is 5 cents. Henry's is 10 cents and Janine's is 15 cents.

Answer: Henry's is 5 cents and Janine's is 15 cents.

Which of the following is not a result of rent control? Higher quality housing Bribery Fewer new apartments offered for rent Less maintenance provided by landlords

Answer: Higher quality housing

For a large firm that produces and sells automobiles, which of the following costs would be a variable cost? The cost of internet advertising incurred each year The cost of the steel that is used in producing automobiles The rent that the firm pays for office space in a suburb of St. Louis The $20 million payment that the firm pays each year for accounting services

Answer: The cost of the steel that is used in producing automobiles

Suppose sellers of perfume are required to send $1.00 to the government for every bottle of perfume they sell. Further, suppose this tax causes the price paid by buyers of perfume to rise by $0.60 per bottle. Which of the following statements is correct? This tax causes the demand curve for perfume to shift downward by $1.00 at each quantity of perfume. The effective price received by sellers is $0.40 per bottle less than it was before the tax. This tax does not change the quantity of perfume bought and sold. Sixty percent of the burden of the tax falls on sellers.

Answer: The effective price received by sellers is $0.40 per bottle less than it was before the tax.

Which of the following observations would be consistent with the imposition of a binding price ceiling on a market? After the price ceiling is established, a smaller quantity of the good is demanded. the price rises above the previous equilibrium. a larger quantity of the good is supplied. a smaller quantity of the good is bought and sold.

Answer: a smaller quantity of the good is bought and sold.

When marginal cost is less than average total cost, marginal cost must be falling. average variable cost must be falling. average total cost is falling. average total cost is rising.

Answer: average total cost is falling.

Suppose that the demand for picture frames is highly inelastic, and the supply of picture frames is highly elastic. A tax of $1 per frame levied on picture frames will increase the price paid by buyers of picture frames by less than $0.50. between $0.50 and $1. $1. $0.50.

Answer: between $0.50 and $1

negative externalities lead markets to produce smaller than efficient output levels and positive externalities lead markets to produce greater than efficient output levels. efficient output levels and positive externalities lead markets to produce greater than efficient output levels. greater than efficient output levels and positive externalities lead markets to produce smaller than efficient output levels. greater than efficient output levels and positive externalities lead markets to produce efficient output levels.

Answer: greater than efficient output levels and positive externalities lead markets to produce smaller than efficient output levels.

We can say that the allocation of resources in an economy is efficient if producer surplus is maximized. sellers' costs are minimized. total surplus is maximized. consumer surplus is maximized.

Answer: total surplus is maximized.

Even if markets aren't perfectly competitive, they still maximize the total benefits to buyers and sellers. True False

False

If a firm produces nothing, its total costs are zero. True False

False