Econ Exam 2

If demand is perfectly elastic, the absolute value of the price elasticity coefficient is A) infinity. B) zero. C) one. D) equal to the absolute value of the slope of the demand curve.

A

If demand is perfectly inelastic, the absolute value of the price elasticity of demand is A) zero. B) less than one. C) more than one. D) equal to the absolute value of the slope of the demand curve.

A

The cost borne by a producer in the production of a good or service is called A) private cost. B) public cost. C) social cost. D) internal cost.

A

The free rider problem refers to a situation in which A) people consume a pure public good without payment, even though the good may not be produced if no one chooses to pay. B) the marginal cost of allowing additional consumers to consume a public good is zero. C) high income individuals subsidize the production of goods, such as education, that make society better off. D) markets fail to allocate resources efficiently when benefits outweigh costs.

A

Which of the following displays these two characteristics: nonrivalry and nonexcludability in consumption? A) public goods B) private goods C) quasi-public goods D) common resources

A

A product is considered to be nonexcludable if A) you can keep those who did not pay for the item from enjoying its benefits. B) you cannot keep those who did not pay for the item from enjoying its benefits. C) your consumption of the product reduces the quantity available for others to consume. D) it is jointly owned by all members of a community.

B

If the market for a product is broadly defined, then A) the good has many complements. B) there are few substitutes for the product and the demand for the product is relatively inelastic. C) there are many substitutes for the product and the demand for the product is relatively elastic. D) the expenditure on the good is likely to make up a large share of one's budget.

B

The "tragedy of the commons" refers to the phenomenon where A) individuals are free riders. B) people overuse a common resource. C) people do not internalize an externality. D) there is rivalry in consumption.

B

When there is a positive externality A) the marginal private benefit received by consumers is greater than the external benefit. B) the marginal social benefit received by consumers is greater than the marginal private benefit. C) the marginal private benefit received by consumers is greater than the marginal private cost. D) the marginal private benefit received by consumers is greater than the marginal social benefit

B

Which of the following is an example of a positive externality? A) raising the speed limit to 60 mph in school zones B) planting trees along a sidewalk which add beauty and create shade C) permitting smoking on commercial airplanes D) a police department stops enforcing DUI laws

B

According to ________, in a market with an externality, private parties would voluntarily negotiate an efficient outcome without government intervention. A) A. C. Pigou B) Adam Smith C) Ronald Coase D) John Maynard Keynes

C

If 50 units are sold at a price of $20 and 80 units are sold at a price of $15, what is the absolute value of the price elasticity of demand? Use the midpoint formula. A) 0.17 B) 0.62 C) 1.62 D) 5

C

If the percentage increase in price is 15 percent and the value of the price elasticity of demand is -3, then quantity demanded A) will increase by 45 percent. B) will increase by 5 percent. C) will decrease by 45 percent. D) will decrease by 5 percent.

C

Suppose a hurricane decreased the supply of oranges so that the price of oranges rose from $120 a ton to $180 a ton and quantity sold decreased from 800 tons to 240 tons. What is the absolute value of the price elasticity of demand? A) 0.11 B) 0.37 C) 2.69 D) 9.33

C

When production generates a negative externality, the true cost of production is the A) private cost of production. B) public cost of production. C) social cost of production. D) average cost of production.

C

Which of the following would result in a positive externality?A) A local government establishes a price ceiling on rental apartments. B) An electric utility burns coal that causes acid rain. C) Medical research results in a cure for malaria. D) McDonald's adds new fat-free items to its menu.

C

"A competitive market achieves economic efficiency by maximizing the sum of consumer surplus and producer surplus." This statementA) is true only if there are positive externalities in production in the market. B) is true only if there are no negative externalities in the market. C) is true only if there are no positive or negative externalities in the market. D) is true in theory, but economic efficiency cannot be achieved in a real market.

D

A positive externality results when A) economists are sure that a good or service provides benefits to consumers. B) someone pays for a good or service even though she is not directly affected by the production or consumption of it. C) people who live in one country benefit from the production of a good or service that occurs in another country. D) people who are not directly involved in producing or paying for a good or service benefit from it.

D

Consider a situation in which a utility company emits high levels of sulfur dioxide and the company is not liable for the damages its pollution causes. According to the Coase theorem, government action is ________ to achieve an ________ amount of pollution. A) necessary; equitable B) necessary; efficient C) not necessary; equitable D) not necessary; efficient

D

Holding everything else constant, the absolute value of the price elasticity of demand for Saucony tennis shoes is ________ the price elasticity of demand for tennis shoes in general. A) less than B) equal to C) twice as great as D) greater than

D

If a firm raised its price and discovered that its total revenue fell, then the demand for its product is A) perfectly inelastic. B) relatively inelastic. C) perfectly elastic. D) relatively elastic.

D

Pollution is an example of a A) public good. B) positive externality. C) private cost. D) negative externality

D

The costs in time and other resources that parties incur in the process of facilitating an exchange of goods and services are called A) enforcement costs. B) implicit costs. C) explicit costs. D) transactions costs.

D

The price elasticity of demand is equal to A) the value of the slope of the demand curve. B) the change in quantity demanded divided by the change in price. C) the percentage change in price divided by the percentage change in quantity demanded. D) the percentage change in quantity demanded divided by the percentage change in price.

D

Mandatory motorcycle helmet laws are designed to reduce the severity of injuries resulting from motorcycle involvement in traffic accidents. In this sense, these mandatory helmet laws are reducing ________ of risky behavior.

Negative externalities

Externality

benefit or cost experienced by someone who is not a producer or consumer of a good or service.

Private costs

borne by producers of a good while social costs are borne by society at large

Market Failure

the inability of the market to allocate resources efficiently up to the point where marginal social benefit equals marginal social cost