AP Microecon Unit 6 MCQ

As an unregulated monopolist, City Cable is earning positive economic profits. If the government regulated the firm by requiring it to produce the level of output that allowed the firm to earn zero economic profit, City Cable would set a price that is equal to its

average total cost

One justification for government regulation of a monopoly is that the unregulated monopoly

charges a price higher than a competitive market price

A governmental welfare program that taxes the labor income of the wealthy and redistributes the tax revenue to low income citizens will

decrease income inequality and efficiency

If the government regulates a natural monopolist to produce the allocatively efficient level of output, it will require the monopolist to set a price that is

equal to its marginal cost and grant a subsidy to cover the loss

A perfectly competitive market produces the socially efficient level of output when the marginal social benefit of the last unit of output produced is

equal to the marginal social cost

In a perfectly competitive labor market, an increase in an effective minimum wage will result in

fewer workers being hired

If the monopolist produces the allocatively efficient level of output rather than the profit-maximizing level of output, consumer surplus will (there is a graph here i cant add sorry)

increase the area P5JKP4

Good X is aproduced in a perfectly competitive industry in a long-run equilibrium. If the consumption of good x generates positive externalities, the private market will produced

less than the socially optimum amount of good X

A chemical plant pollutes a river that serves as the water supply for a nearby town. From an economist's point of view, pollution from the plant should be reduced until the

marginal benefit from the cleaner water is equal to the marginal cost of making the water cleaner

pollution abatement policies will improve efficiency if the

marginal cost of abatement is less than the marginal benefit of abatement

The socially optimal quantity of a public good is provided when

marginal social cost equals marginal social benefit

Apple trees need bees to pollinate their flowers and produce apples. Apple farmers hire beekeepers to bring bees to their orchards to pollinate the flowers. This is an example of a

market transaction

A free-rider problem arises when a good is

nonexcludable

National defense is a good example of a pure public good because it is

nonrival and nonexcludable

To correct for positive externalities, the government should

pay a subsidy equal to the marginal external benefit

The following questions refer to the following diagram, which shows the marginal social cost (MSC), the marginal private cost (MPC), and the marginal social benefit (MSB) associated with the production of a good in a market.

per-unit tax equal to (P4-P2)

The following questions refer to the diagram below, which shows a market's cost and revenue curves The graph shows the marginal social cost curve, the marginal private cost curve, and the marginal social benefit. The MSC is higher up than the MPC curve. The MSB curve meets at equilibrium with the MSC and MPC curves. Given the position of the marginal social cost curve, one can conclude that the

production of good X creates a negative externality

All of the following are sources of inequality in the distribution of personal income EXCEPT

progressive income taxes

If the government imposes a per-unit tax on the output of a monopoly with a downward-sloping demand curve, the burden of the tax will be

shared by consumers and the monopolist

A lorenz curve can be used to

show inequality in the income distribution

In the US, the federal government redistributes income primarily by

taxing different income levels at different rates

The lorenz curve is used to show which of the following

the degree of inequality in the distribution of income within a country

Which of the following best defines a pure public food?

A good whose benefits can be enjoyed by many consumers at the same time and from which consumers cannot be excluded

Assume that the marginal social benefit of the last unit of vaccination provided is greater than the marginal social cost. Which of the following can be used to achieve efficiency in the market for vaccination?

A per-unit subsidy for vaccinations

A society that wishes to achieve greater income equality is most likely to have which of the following?

A progressive income tax system and high estate and gift taxes

Which of the following is an example of a violation of antitrust laws

Engaging in collusive behavior to restrain competition

Income inequality is measured by what economic concept

Gini coefficient

Based on the information in the lorenz curve above, which of the following is true?

Income is more equally distributed in Country X than in Country Z

National defense is an example of a public good because

It is a nonexcludable and nonrival

Which of the following is a characteristic of a public good?

It is nonrival in consumption

Which of the following is always true about a negative externality?

It results in a market output that is greater than the socially optimal output

Which of the following is most likely to reduce inequality in a country's distribution of income?

Job training for low skilled workers.

If a per unit tax is imposed on a monopolist, how will the monopolist's marginal cost curve, output, and the price paid by the consumers be affected?

Marginal Cost | Output | Price --------------------------------------------- Shift up | Decrease | Decrease

In the absence of externalities, which of the following is true of a competitive market in equilibrium?

Marginal social benefit equals marginal social cost

Which of the following is the best example of a pure public good?

National defense

A pre-unit tax on pollution produced by a firm will affect the firm's output and pollution levels in which of the following ways?

Output = Decrease Pollution = Decrease

The following questions are based on the graph below, which shows the cost and revenue curves of a natural monopolist. If the government wants to regulate this monopoly to produce the socially optimum level output, it should set a price equal to

P2

If an industry ignore the external costs it generates in its production, which of the following will be true a t the competitive market equilibrium output?

Price will be less than the marginal social cost

Which of the following is an example of a good that is nonexcludable and rival in consumption?

Public highway

Home remodeling services are provided in a perfectly competitive market but generate noise that angers neighbors. What is the socially optimal quantity of home remodeling services and the area that represent deadweight loss associated with the market equilibrium ?

Q1 and area ABC

Public goods are underproduced in a competitive market because the free-rider problem causes which of the following?

Reduced market demand

National defense is generally provided by the public sector for which of the following reasons?

The benefits of national defense are mostly onrival and nonexcludable

The equilibrium quantity of labor used in the production of a good will be the largest under which of the following conditions?

When both the labor and output markets are perfectly competitive

The following questions refer to the following diagram, which shows the marginal social cost (MSC), the marginal private cost (MPC), and the marginal social benefit (MSB) associated with the production of a good in a market.

__________________________________________________________ Type of Externality | Deadweight Loss | -----------------------|-----------------------| Negative | egh |

The following questions refer to the diagram below, which shows a market's cost and revenue curves The graph shows the marginal social cost curve, the marginal private cost curve, and the marginal social benefit. The MSC is higher up than the MPC curve. The MSB curve meets at equilibrium with the MSC and MPC curves.

_____________________________________________________________________ | Socially Optimal Quantity | Per-unit tax | |--------------------------------|--------------------| | Q2 | P3 - P1 |

An increase in the marginal social benefit of consuming a public good should result in

an increase in the optimal quantity of the good

This is a graph, will try my best to replicate it P | \ / MSC = MSP r | \ / i | \ / c | \ / e | \ / | \ / \ o | / \ f | / \ \ | / \ MPB \ MSB e | /__________________________________ _____________________ MSC = MPB - Marginal Social Cost = Marginal Private cost MSB = Marginal social benefit MPB = Marginal Private Benefit

Consumers of education could be subsidized in order to achieve the socially optimal quantity

The table above shows the distribution of income in Country X in 2010 before and after taxes and transfer payments. Which of the following can be concluded about the effect of the government's tax and transfer policies on income distribution in Country X

The major transfer of income is from the highest quintile to the two lowest quintiles

Assume a profit-maximizing monopoly and firm in a perfectly competitive market have identical cost and revenue conditions. In which market will be a binding price ceiling result in a more efficient outcome and why?

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

The surgeon general has determined that smoking causes cancer and heart disease for both smokers and passive smokers, nonsmokers who breathe smoke filled air. If cigarette prices are determined in a free market, which of the following will be true?

The price of cigarettes will be too low and the quantity sold will be too high