Microeconomics Unit 2
According to the Coase theorem, in the presence of externalities
private parties can bargain to reach an efficient outcome.
According to the Coase theorem, private markets will solve externality problems and allocate resources efficiently as long as
private parties can bargain with sufficiently low transaction costs.
Research into new technologies
provides positive externalities because it creates knowledge others can use.
Figure 9-15 Refer to Figure 9-15. Producer surplus with the tariff is
C + G.
Table 13-7The Flying Elvis Copter Rides QuantityTotalCostFixedCostVariableCostMarginalCostAverageFixedCostAverageVariableCostAverageTotalCost0$50$50$0--------1$150ABCDEF2GHI$120JKL3MNOPQ$120R Refer to Table 13-7. What is the value of G?
$270
Scenario 13-7Julia prepares tax returns and does bookkeeping. Last year her revenues from the tax and bookkeeping business were $150,000, and her expenses for the business were $15,000. When she started her tax and bookkeeping business, Julia gave up her supplemental job doing in-home pet sitting. She used to earn $10,000 per year from pet sitting. Assume that she incurred no costs for her pet sitting business. Refer to Scenario 13-7. Julia's implicit costs are
$10,000.
Kelly is willing to pay $5.20 for a gallon of gasoline. The price of gasoline at her local gas station is $3.80. If she purchases ten gallons of gasoline, then Kelly's consumer surplus is
$14.
Figure 8-13 Refer to Figure 8-13. Suppose the government places a $5 per-unit tax on this good. The producer surplus after this tax is
$15.
Figure 9-13 Refer to Figure 9-13. Consumer surplus before trade is
$3,600.
Tom walks Bethany's dog once a day for $50 per week. Bethany values this service at $60 per week, while the opportunity cost of Tom's time is $30 per week. The government places a tax of $35 per week on dog walkers. After the tax, what is the loss in total surplus (per week)?
$30
Scenario 13-19 Doreen's Dairy produces and sells Swiss cheese. Last year, it produced 7,000 pounds and sold each pound for $6. In producing the 7,000 pounds, the dairy incurred variable costs of $28,000 and a total cost of $40,000. Refer to Scenario 13-19. In producing the 7,000 pounds of cheese, the firm's average variable cost was
$4.00.
Table 10-2The following table shows the private value, private cost, and social value for a market with a positive externality. Quantity Private Value Private Cost Social Value 1 27 6 34 2 24 10 31 3 21 14 28 4 18 18 25 5 15 22 22 6 12 26 19 Refer to Table 10-2. How large would a subsidy need to be in this market to move the market from the equilibrium level of output to the socially-optimal level of output?
$7
Scenario 13-18Farmer Jack is a watermelon farmer. If Jack plants no seeds on his farm, he gets no harvest. If he plants 1 bag of seeds, he gets 30 watermelons. If he plants 2 bags of seeds, he gets 50 watermelons. If he plants 3 bags of seeds he gets 60 watermelons. A bag of seeds costs $100, and the costs of seeds are his only costs. Refer to Scenario 13-18. Which of the following statements is (are) true? (i) Farmer Jack experiences decreasing marginal product. (ii) Farmer Jack's production function is nonlinear. (iii) Farmer Jack's total cost curve is linear.
(i) and (ii) only
Table 13-3 Number ofWorkers Output FixedCost VariableCost TotalCost 0 0 $50 $0 $50 1 80 $50 $20 $70 2 170 $50 $40 $90 3 230 $50 $60 $110 4 240 $50 $80 $130 Refer to Table 13-3. At which number of workers does diminishing marginal product begin?
3
Figure 9-9 Refer to Figure 9-9. Consumer surplus in this market after trade is
A.
Figure 9-2 The figure illustrates the market for calculators in a country. Refer to Figure 9-2. This country
All of the above are correct.
For a large firm that produces and sells automobiles, which of the following costs would be a variable cost?
All of the above are correct.
Import quotas and tariffs produce similar results. Which of the following is not one of those results?
Consumer surplus of domestic consumers increases.
Table 7-2This table refers to five possible buyers' willingness to pay for a case of Vanilla Coke. BuyerWillingness To PayDavid$8.50Laura$7.00Megan$5.50Mallory$4.00Audrey$3.50 Refer to Table 7-2. If the price of Vanilla Coke is $6.90, who will purchase the good?
David and Laura
Figure 8-8 Suppose the government imposes a $10 per unit tax on a good. Refer to Figure 8-8. After the tax goes into effect, producer surplus is the area
J.
Figure 13-3 Refer to Figure 13-3. Which of the following statements best captures the nature of the underlying production function (not pictured)?
Output increases at a decreasing rate with additional units of input.
Figure 9-4. The domestic country is Nicaragua. Refer to Figure 9-4. Which of the following statements is accurate?
Producer surplus with trade is $375.
Suppose that electricity producers create a negative externality equal to $6 per unit. Further suppose that the government imposes a $8 per-unit tax on the producers. What is the relationship between the after-tax equilibrium quantity and the socially optimal quantity of electricity to be produced?
The after-tax equilibrium quantity is less than the socially optimal quantity.
Which of the following is not a reason why government agencies subsidize basic research?
The government wants to attract the brightest researchers away from private research firms.
The difference between a corrective tax and a tradeable pollution permit is that
a corrective tax sets the price of pollution and a permit sets the quantity of pollution.
All remedies for externalities share the goal of
moving the allocation of resources toward the socially optimal equilibrium.
If an allocation of resources is efficient, then
all potential gains from trade among buyers are sellers are being realized.
Figure 9-14. On the diagram below, Q represents the quantity of crude oil and P represents the price of crude oil. Refer to Figure 9-14. When the country for which the figure is drawn allows international trade in crude oil,
consumer surplus for domestic crude-oil consumers decreases.
Figure 8-23. The figure represents the relationship between the size of a tax and the tax revenue raised by that tax. Refer to Figure 8-23. If the economy is at point B on the curve, then a small decrease in the tax rate will
decrease the deadweight loss of the tax and increase tax revenue.
Figure 9-26 The diagram below illustrates the market for baseballs in the U.S. Refer to Figure 9-26. As a result of opening up the baseball market to international trade, the U.S. will
export 600 baseballs.
The government provides public goods because
free-riders make it difficult for private markets to supply the socially optimal quantity.
Which of the following explains why long-run average cost at first decreases as output increases?
gains from specialization of inputs
If the Korean steel industry subsidizes the steel that it sells to the United States, the
harm done to U.S. steel producers is less than the benefit that accrues to U.S. consumers of steel.
Suppose that alcohol consumption creates a negative externality. What can the government do to equate the equilibrium quantity of alcohol and the socially optimal quantity of alcohol?
impose a tax on alcohol that is equal to the per-unit externality
Figure 8-12 Refer to Figure 8-12. Suppose a $3 per-unit tax is placed on this good. The tax causes the price paid by buyers to
increase by $2.
If marginal cost is rising,
marginal product must be falling.
A seller is willing to sell a product only if the seller receives a price that is at least as great as the
seller's cost of production.
Figure 8-1 Refer to Figure 8-1. Suppose the government imposes a tax of P' - P'''. The area measured by I+J+K+L+M+Y represents
total surplus before the tax.
Figure 9-3. The domestic country is China. Refer to Figure 9-3. If China were to abandon a no-trade policy in favor of a free-trade policy,
total surplus in the Chinese economy would increase.
One of the basic principles of economics is that markets are usually a good way to organize economic activity. This principle is explained by the study of
welfare economics.
