Micro unit 6

Which of the following is likely to result in allocative inefficiency? a) An oligopoly market structure b) A firm producing at the level of output where price is equal to marginal cost c) A perfectly competitive market in long-run equilibrium with no externalities d) A perfectly price-discriminating monopoly e) A monopsonist that faces a minimum wage where marginal revenue product equals the supply of labor

a) An oligopoly market structure

The Lorenz curve is used to show which of the following? a) The total income generated from all activities b) The degree of inequality in the distribution of income within a country c) The progressivity of the income-tax structure within a country d) The extent of wage differences among workers in similar occupations e) The change in the poverty rate within a country over time

b) The degree of inequality in the distribution of income within a country

Which of the following is an example of a pure public good? a) A hamburger sold in a restaurant on a college campus b) Medical education to become a doctor c) A hurricane warning siren d) Paper pulp produced with pollution emissions e) A ticket to the movie theater

c) A hurricane warning siren

The graph above depicts the marginal private benefit (MPB), the marginal social benefit (MSB), and the marginal social cost (MSC)of producing a good. Which of the following correctly identifies both the problem illustrated in the graph and the remedy to the problem? a) Negative externality; a corrective per-unit tax equal to the external cost of $2 will lead to the socially optimal output. b) Negative externality; a corrective per-unit tax equal to the external cost of $4 will lead to the socially optimal output. c) Positive externality; a corrective per-unit subsidy equal to the external benefit of $2 will lead to the socially optimal output. d) Positive externality; a corrective per-unit subsidy equal to the external benefit of $4 will lead to the socially optimal output. e) Positive externality; a corrective per-unit tax equal to the external benefit of $6 will lead to the socially optimal output.

d) Positive externality; a corrective per-unit subsidy equal to the external benefit of $4 will lead to the socially optimal output.

Assume the government introduces a lump-sum tax on each firm within a perfectly competitive industry. Which of the following will be true after the introduction of this tax? a) Consumer prices will increase b) There will be no change in any firm's level of profits c) A deadweight efficiency loss will occur d) There will be no change in the market quantity of output e) Each firm's short-run marginal cost curve will increase

d) There will be no change in the market quantity of output

Assume a profit-maximizing monopoly and firms in a perfectly competitive market have identical cost and revenue conditions. In which market will a binding price ceiling result in a more efficient outcome and why? a) The perfectly competitive market will become more efficient because the deadweight loss will decrease. b) The perfectly competitive market will become more efficient because consumers will be able to purchase greater quantities of the good at a lower price. c) The monopoly will become more efficient because the deadweight loss will decrease. d) The monopoly will become more efficient because producers will be able to sell greater quantities of the good at a higher price. e) Both markets will become more efficient because total economic surplus will increase.

c) The monopoly will become more efficient because the deadweight loss will decrease.

Assume that many boats have free and open access to fishing in the waters of a country. Which of the following statements is true? a) With the availability of fish for all consumers, there is a positive externality; therefore, governments need to encourage greater use of the common areas with more production and increased consumption. b) Over time, fishing operations will voluntarily leave the market as a result of increased competition. c) There will be a tendency for fishing operations to overfish, reduce the stock of fish, and limit the future availability of fish for succeeding generations. d) The waters of a country are a rare example of a resource that is not scarce. Therefore, standard economic analysis does not apply. e) The advantage of allowing free and open access to fishing is to limit the harm from a negative externality where too few fish are currently caught.

c) There will be a tendency for fishing operations to overfish, reduce the stock of fish, and limit the future availability of fish for succeeding generations.

Which of the following actions is most likely to reduce the degree of income inequality within a society? a) Lowering the tax rate on income from savings b) Increasing regulations on labor unions c) Increasing the cost to households of primary and secondary education d) Introducing progressive inheritance taxes on accumulated wealth e) Eliminating taxes on corporate profits

d) Introducing progressive inheritance taxes on accumulated wealth

In the absence of externalities, which of the following is true of a competitive market in equilibrium? a) Consumer surplus is maximized. b) Producer surplus is maximized. c) Marginal benefit exceeds marginal cost. d) Marginal social benefit equals marginal social cost. e) Consumer surplus equals producer surplus.

d) Marginal social benefit equals marginal social cost.

The graph above shows the price and cost condition for a natural monopoly. The amount of lump-sum subsidy required to regulate the monopoly to produce the allocatively efficient quantity is given by the area a) P5P6FL b)P1P5LH c) P1P6FH d) P2P3JK e) GQ2Q3J

d) P2P3JK

Which of the following statements about income inequality is true? a) A low average household income in a society suggests significant income inequality. b) A society with progressive income taxes will likely have a very unequal after-tax distribution of income. c) Low taxes on savings tend to lead to a more equitable distribution of after-tax income. d) Raising taxes on savings and providing subsidies to low-income households will lead to more equal after-tax and transfer incomes. e) Low tax rates on wealth will lead to less unequal income distributions.

d) Raising taxes on savings and providing subsidies to low-income households will lead to more equal after-tax and transfer incomes.

If a positive externality exists in the consumption of a good, the private market equilibrium quantity will be a) the same as the socially optimal quantity, since the marginal private benefit equals the marginal social benefit b) greater than the socially optimal quantity, since the marginal social cost exceeds the marginal private cost c) greater than the socially optimal quantity, since the marginal private benefit exceeds the marginal social benefit d) less than the socially optimal quantity, since the marginal social benefit exceeds the marginal private benefit e) less than the socially optimal quantity, since the marginal private benefit exceeds the marginal private cost

d) less than the socially optimal quantity, since the marginal social benefit exceeds the marginal private benefit

Which pair of characteristics is associated with a pure public good? a) Nonrival consumption and ability to exclude nonpayers b) Increasing marginal utility of consumption and a free-rider problem c) Rival consumption and an ability to exclude nonpayers d) Rival consumption and a free-rider problem e) Nonrival consumption and a free-rider problem

e) Nonrival consumption and a free-rider problem

The graph above depicts the marginal social cost (MSC), marginal private cost (MPC), and marginal social benefit (MSB)associated with the production of a good that generates an externality. Based on the information in the graph, which of the following is true? a) There is a positive externality because, relative to the socially optimal output, too little is produced in an unregulated market. b) The unregulated market produces QB and sets the price at PB. c) The allocatively efficient level of output is QP. d) The good generates an external benefit equal to AB. e) There is a negative externality because marginal social cost exceeds marginal private cost.

e) There is a negative externality because marginal social cost exceeds marginal private cost.

The market inefficiency of a negative production externality will be eliminated if a policy is put in place that results in which of the following outcomes? a) the level of output produced is maximized b) the marginal benefit of production is maximized c) the marginal cost of production is minimized d) the marginal social benefit of production exceeds the marginal social cost e) the marginal social benefit of production is equal to the marginal social cost

e) the marginal social benefit of production is equal to the marginal social cost