Econ Midterm #2

at equilibrium, total surplus is represented by the area

a+b+C+D+h+f

what is the total cost of producing 2 units of output?

$48

the least expensive way to clean up the environment is for all firms to reduce pollution by an equal percentage.

(true/false)

although economists and accountants treat many costs differently, they both treat the cost of capital the same

False

in a market characterized by externalities, the market equilibrium fails to maximize the total benefit to society as a whole.

True

jack borrows $10,000 from a bank and withdraws $20,000 from his personal savings to open a tattoo parlor. The intrest rate is 3 percent for both the bank loan and his personal savings. Jaxon also quit his job as a waiter, which paid $20,000. According to an economist, Jaxon's opportunity cost of opening the tattoo parlor equals $20,900.

True

the equilibrium of supply and demand in a market maximizes the total benefits to buyers and sellers of participating in that market

True

if the government allowed the a free market in organs for transplant there would be

an decrease in the waiting period for transplant organs

What is the difference between command-and-control policies and market-based policies towards externalilities?

command and control policies regulate behavior directly, whereas market-based policies provide incentives for private decision makers to change their behavior

in the long run the local coffee shop incurs total costs of $625 when output is 1250 cups of coffee and $750 when output is 1500 coups of coffee. For the range of output, the coffee shop exhibits

constant returns to scale

When a policy succeeds in giving buyers and sellers in a market an incentive to take into account the external effects of their actions, the policy is said to

equalize private value and private costs

Consumer surplus is the amount a buyer is willing to pay for a good minus the seller's cost.

false

If your willingness to pay for a hamburger is $3.00 and the price is $2.00, your consumer surplus is $5.00.

false

let P represent price, let Qs represent quantity supplied, and assume the equation of the supply curve is ...If 80 units of the goods are produced and sold the producer surplus amounts to $1,200

false

Producer surplus is a measure of the unsold inventories of suppliers in a market

false (measure of the benefits of market participation to the sellers in a market.)

consider a good for which the number of people who benefit from the good is large and the exclusion of one of these goods is impossible. in this case, the good will likely have a

free rider problem

farmer brown's marginal cost curve is

increasing

how long does it take the firm to go from the short run to the long run?

it depends on the firm

both public goods and common resources are

nonexcludable

for most goods in an economy, the primary signal that guides the decisions of buyers and sellers is

price

when marginal cost is greater than average cost, average cost is

rising

the ogalla aquifer is a large underground pool of freshwater under several western states in the U.S. Any farmer with land above the aquifer can at present pump water out of it. Which of the following statements about the aquifer is correct?

the aquifer is a common resource which will be overused if no one owns it

University researchers create a positive externality because what they discover in their research labs can easily be learned by others who haven't contributed to the research costs. What could the federal government do to equate the equilibrium quantity of university research and the socially optimal quantity of university research produced?

the equilibrium quantity is less than the socially optimal quantity

if education produces positive externalities and the government does not intervene in the market, we would expect

the equilibrium quantity to be lower than the optimal level

in deciding whether a good is a public good, one must determine

the excludability of the good

that some firms are engaged in more than one type of buisness is explained, in some cases, by t

the fact that the internalization of externalities sometimes coincides with the self interest of the relevant parties

a lighthouse might be considered a private good if

the owner of the lighthouse is able to exclude beneficiaries from receiving benefits of the lighthouse

an example of an opportunity cost that is an implicit cost is

the value of the business over time

the "invisible hand" leads markets to maximize

total benefit to society from that market

profit is defined as

total revenue minus total cost

Consumer surplus is a good measure of buyers' benefits if buyers are rational.

true

Cost to the seller includes the opportunity cost of the seller's time.

true

If the demand curve in a market is stationary, consumer surplus decreases when the price in that market increases.

true

The cost of producing an additional unit of a good is not the same as the average cost of the good

true

The height of the supply curve is the marginal seller's cost.

true

the market equilibrum fails to maximize the total benefit to society as a whole

true

variable costs usually change as the firm alters the quantity of output produce.

true

A seller's opportunity cost measures the

value of everything she must give up to produce a good

a seller's oppertunity cost measures the

value of everything she must give up to produce a good

tradable pollution permits

will be more valuable to firms that can reduce pollution only at high costs