ECON Midterm 2

The Coase Theorem suggests that private solutions to an externality problem

will usually allocate resources efficiently if private parties can bargain without cost

if the price a consumer pays for a product is equal to a consumer's willingness to pay, then the consumer surplus relevant to that purchas is

zero

Industrial organization is the study of

how firms' decisions regarding prices and quantities depend on the market conditions they face

Welfare economics is the study of

how the allocation of resources affects economic well-being

Market power and externalities are examples of

market failure

Which of the following policies is an example of a command-and-control policy?

maximum levels of pollution that factories may emit

In a market economy, government intervention

may improve market outcomes in the presence of externalities

National defense is an example of a good that is

non-excludable and non-rival

The reason the marginal cost curve eventually increases as output increases because:

of the diminishing returns

Which would be an implicit cost for a firm? The cost

of wages foregone by the owner of the firm when he decided to start his own business

Which of the following policies is the government most inclined to use when faced with a positive externality?

subsidies

A production function describes

how a firm turns inputs into output

Formula for average total cost

ATC=TC/Q

Formula for total cost

FC+VC=TC

Formula for Profit

P+TR-TC

People can be prevented from using a good if the good is

a private good or a club good

Suppose a tax is imposed on the sellers of fast-food french fries. The burden of the tax will

be shared by the buyers and sellers of fast-food french fries but not necessarily equally

Consider a good to which a per-unit tax applies.The greater the price elasticities of demand and supply for the good, the

greater the deadweight loss from the tax

Formula for marginal cost

changes in TC divided by Quantity

The parable called the Tragedy of the Commons applies to goods such as

clean air and clean water

Economists assume that a firm's objective is to maximize its:

economic profit

If an aluminum manufacturer does not bear the entire cost of the smoke it emits, it will

emit a higher level of smoke than is socially efficient

If policymakers use a pollution tax (imposed on producers) to control pollution and bring about an efficient level of output, the tax per unit of pollution should be set:

equal to the external cost of production

A firms' opportunity costs of production are equal to its

explicit costs + Implicit costs

When a good is taxed, the burden of the tax

falls more heavily on the side of the market that is more inelastic

If the use of a common resource is not regulated,

it will be overused

When the government imposes taxes on buyers or sellers of a good, society

loses some of the benefits of market efficiency

Because of the free-rider problem,

private markets tend to undersupply public goods

The phenomenon of free riding is most closely associated with which type of good?

public goods

Consumer surplus is

the amount a buyer is willing to pay for a good minus the amount the buyer actually pays

Economists disagree on whether labor taxes cause small or large deadweight losses. This disagreement arises primarily because economists hold different views about

the elasticity of labor supply

Which of these assumptions is often realistic for a firm in the short run?

the firm can vary the number of workers it employs but not the size of its factory

Deadweight loss is:

the reduction in economic surplus resulting from a market not being in competitive equilibrium

Efficiency in a market is achieved when

the sum of producer and consumer surplus is maximized

The laffer curve relates

the tax rate to tax revenue raised by the tax