(Complete) Exam #3

Collective goods tend to be underprovided by private markets because:

it's not socially optimal for the price of these goods to be greater than zero

Suppose that this graph describes the current labor market for high school teachers: If the wage is w*, then:

there will be neither a shortage nor a surplus of certified teachers.

Curly pays $12,000 in taxes and earns $150,000. Moe pays $7,000 in taxes. If the tax system is proportional, then Moe's income is:

$87,500.

According to the textbook, the union wage premium for workers with the same amount of human capital is about ______.

10%

Consider the accompanying figure representing the labor market below. Suppose the government passes a minimum wage requiring employers to pay at least $8.00 per hour. After the imposition of the minimum wage, employment will equal ______ person-hours per day.

2,000

Suppose that a vaccine is developed for a highly contagious strain of flu. The likelihood that anyone will get this flu decreases as more people receive the vaccine. One of the demand curves below represents the private demand for the vaccine and the other represents the social demand for the vaccine. The private market equilibrium quantity is ______ doses per day.

75 D1 is the private demand curve, so the private market equilibrium quantity is 75 doses per day.

After the imposition of the quota, the quantity demanded of TVs is _____.

80,000

Two firms, Acme and FirmCo, have access to five production processes, each of which has a different cost and gives off a different amount of pollution. The daily costs of the processes and the corresponding number of tons of smoke emitted are shown in the table below. Suppose the firms are both currently using process A. If the government imposes a tax of $110 per ton of smoke emitted, then Acme will use process ______, and FirmCo will use process ______.

C A

In an open economy, this country will ________ million bushels of corn.

Export 600

Which one of the following government actions is intended to generate positive externalities?

Subsidies for planting trees on hillsides

Suppose a government is considering imposing either a tariff or a quota on imported grain, and either policy will result in exactly 750 tons of grain being imported. How do these policies differ?

The quota will generate revenue for the firms that hold import licenses, while the tariff will generate revenue for the government.

An in-kind transfer payment is:

a benefit in the form of a good or service.

Early settlers in the town of Dry Gulch drilled wells to pump as much water as they wanted from the single aquifer beneath the town. (An aquifer is an underground body of water.) As more people settled in Dry Gulch, the aquifer level fell and new wells had to be drilled deeper at higher cost. The town council has proposed putting a meter on each household's pump, and charging residents for each gallon of water used. This would:

discourage residents from using too much water

Refer to the figure below. At the private market equilibrium quantity, the marginal cost of the last unit produced is ______ the social marginal benefit of the last unit produced.

less than

An external benefit implies that private markets will provide ______ than the socially optimal quantity, and an external cost implies that private markets will provide ______ than the socially optimal quantity.

less; more

The additional output a firm gets from hiring an additional unit of labor is the

marginal product of labor

If taxpayers pay a smaller fraction of their income in taxes as their incomes rise, the tax is ______ and if taxpayers pay a larger fraction of their income in taxes as their income rise, the tax is ______.

regressive; progressive

Espresso Yourself Coffee Shop hires workers in a competitive labor market to make coffee. The ingredients required to make each cup of coffee cost 50 cents. The coffee shop's hourly output of coffee varies with the number of workers hired, as shown in the table. Each cup of coffee sells for $2.00. The most the coffee shop would be willing pay the third worker is ______ per hour.

$22.50 2x15 = 30 30 - (15 x .50) = 22.5

Suppose the Tasty Taco Company produces tacos. The number of tacos it can produce each hour depends on the number of workers it hires, as shown in the accompanying table. In addition, each taco can be sold for 50 cents more than the cost of the ingredients needed to produce it. What is the value of the marginal product of the 4th worker hired each hour?

$5

Leo is a welfare recipient who qualifies for two means-tested cash benefit programs. If he does not earn any income, he receives $225 from each program. For each dollar he earns (which his employer is required to report to the welfare agency), his benefit from each program is reduced by 75 cents until the benefit equals zero. Suppose Leo earns $10. He will lose ______ from each benefit, for a total loss of _____.

$7.50, $15

Sam owns a candy factory and hires workers in a competitive labor market to pack cases of candy. The company's weekly output of cases of candy varies with the number of workers hired, as shown in the following table: If each case sells for $5 more than the cost of the materials used in producing it, then the value of marginal product of the 2nd worker is ______ per week.

$750

An economy has two workers, Jen and Rich. Every day they work, Jen can produce 2 TVs or 10 radios, and Rich can produce 4 TVs or 12 radios. What is the opportunity cost for Rich to produce one TV?

3 radios

In an open economy, how many bikes will this country export?

60,000; At the world price of $140 per bike, the quantity of bikes supplied domestically is 80 thousand, and the quantity of bikes demanded domestically is 20 thousand, implying that the country will export 60 thousand bikes.

Given that most people like the smell of baking cinnamon rolls and dislike the smell of burning tires, baking cinnamon rolls generates ______ externality, and burning tires generates ______ externality.

a positive; a negative

An Internet site that maintains a database of product reviews that anyone can access and that has advertisement banners is:

a privately provided public good.

Aaron's neighbor Cliff keeps his front yard well-manicured and plants beautiful flowers which Aaron enjoys. If local law prevents Cliff from fencing his yard, the beauty of Cliff's front yard is:

both nonrival and nonexcludable

Amy can produce either 5,000 pounds of cheese or 20 cars per year. Mike can produce either 5,000 pounds of cheese or 10 cars per year. Amy has a comparative advantage in producing _____, and Mike has a comparative advantage in producing ______.

cars; cheese

Suppose that in most car collisions between cars of unequal size, the smaller car sustains the most damage and its occupants suffer the most injury. In answering the following question, assume that, on average, smaller cars generate less air pollution than larger cars and that every person in the economy drives at least one car. As the average size of cars increases, an individual's incentive to buy a smaller car:

decreases because of the increased risk of injury in a collision.

The Coase theorem implies that the initial allocation of property rights:

determines all aspects of the final outcome of the negotiated agreement.

When Brady is driving he throws his cigarette butts out the window, reasoning that other people will clean up the litter on the side of the road. By throwing his cigarette butts out the window, Brady is:

imposing an external cost on others.

Suppose the elasticity of labor demand is less than 1 in absolute value. Imposing a minimum wage above the equilibrium wage will:

increase the earnings of workers as a group.

When a negative externality is present in a market, the government should:

intervene if the benefit of doing so exceeds the cost.

Jobs in which there is a higher risk of injury or death will:

pay more than otherwise similar jobs.

A benefit of an activity received by people not participating in the activity is called a(n):

positive externality.

The current U.S. income tax system requires taxpayers to pay a higher marginal tax rate on higher levels of taxable income. Suppose that the tax rate is 10 percent on the first $15,000 of taxable income, 15 percent on the next $45,000 of taxable income, 30 percent on the next $60,000 of taxable income, and 35 percent on taxable income above $120,000. This income tax system is:

progressive.

A winner-take-all labor market is one in which:

small differences in human capital translate into large differences in wages.

If the government wants to increase economic efficiency, it should:

subsidize goods that entail positive externalities

The government should only provide a pure public good if ______ and ______.

the good's benefits exceed its costs; there is no less costly way to provide it

Logrolling refers to:

the practice whereby legislators support each other's pork barrel spending.

The tendency for a resource that has no price to be used until its marginal benefit falls to zero is referred to as:

the tragedy of the commons.

If a tax imposed in a market generates deadweight in that market, then the tax:

could still increase economic surplus, depending on how the tax revenue is spent.

For many pure public goods like fireworks displays, weather forecasts, and television broadcasts the marginal cost of serving one more consumer is ______, and the optimal quantity of the public good occurs when______.

zero; the marginal benefit of the public good equals zero.