Econ Quizzes Exam 3
What is the budget surplus if the total amount of taxes collected by a local government is $171,000 and the total amount spent is $90,000? a. $81,000 b. $100,000 c. $70,000 d. $262,000
a. $81,000
If a seller's marginal cost is $25, and the price at which the good is sold is $15, the producer surplus is a. -$10 b. $10 c. $15 d. $25
a. -$10
Smoking increases the risk of lung infections not only for active smokers but also for other people inhaling the smoke passively. Which of the following will help in reducing smoking? a. A corrective tax b. A health tax c. A health insurance d. A life insurance
a. A corrective tax
Suppose a market has only one seller and only one buyer of a good. The buyer has a reservation value of $25 and the seller has a reservation value of $15. The market price of the good is determined at $20. If they trade, the social surplus will be a. $10 b. $20 c. $40 d. $60
a. $10
A firm with a fixed cost of $300 every month and variable cost of $200 every month decides to shut down. In such a situation it would lose: a. $300 every month. b. $200 every month. c. $500 every month. d. $0 every month.
a. $300 every month.
Vaccination against a disease helps in preventing the spread of the disease. Which of the following can help in increasing the number of people vaccinated to the socially optimal level? a. A corrective tax b. A life insurance c. A health tax d. An income tax
a. A corrective tax
Which of the following statements is true? a. Central planners in command economies have to make decisions that prices would have automatically made in market economies. b. The incentive problem and the coordination problem lead to lower efficiency in market economies. c. Bringing economic agents together to trade is easier in command economies in comparison to market economies. d. Command economies do a better job at maximizing social welfare in comparison to market economies.
a. Central planners in command economies have to make decisions that prices would have automatically made in market economies.
The government of a certain country decides that all its citizens should be equally well off. It decides to redistribute money so that each person has a roughly equal share of the total income. How would this policy affect economic activity in the country? a. It would be adversely affected since incentives to work or seek profits would be greatly diminished. b. It would be boosted since the poor will now be spending funds the rich would have otherwise saved. c. It would be adversely affected since the poor are generally incapable of wisely investing money d. It would be enhanced by the euphoria and sense of unity brought about by the creation of an egalitarian society.
a. It would be adversely affected since incentives to work or seek profits would be greatly diminished.
The tables below show the reservation values of buyers and sellers in the market for used iPhones. (Quiz ch 7) Suppose the minimum price is given as $55 (a "price floor"). Which of the following statements is true in the market for used iPhones? a. Madeline and Katie will each be willing to buy an iPhone. b. Sean and Dave will each be willing to buy an iPhone. c. Dave and Ian will each be willing to buy an iPhone. d. Kim and Ty will each be willing to buy an iPhone.
a. Madeline and Katie will each be willing to buy an iPhone.
____________ taxes are paid by a buyer as a percentage of the market price of an item. a. Sales b. Wealth c. Payroll d. Property
a. Sales
Which of the following can give rise to a negative externality? a. Smoking a cigarette b. Working for long hours c. Planting a tree d. Consuming vegetarian food
a. Smoking a cigarette
Private solutions to externalities are most effective if a. transaction costs associated with bargaining are low b. transaction costs associated with bargaining are high c. property rights are not defined clearly d. a large number of people are affected by the externalities
a. transaction costs associated with bargaining are low
The reservation value of a buyer reflects her a. willingness to pay for a good or service b. trade-off between buying various goods and services c. total utility from a good or service d. total income
a. willingness to pay for a good or service
The following figure shows the marginal cost curves of two profit-maximizing firms—Firm A and Firm B—in a perfectly competitive market (hw ch. 7) Refer to the figure above. Which of the following statements is true? a. The profit-maximizing level of output of Firm B will be greater than that of Firm A at all prices. b. For a particular market price, Firm A will enjoy a greater producer surplus. c. Firm A produces at a lower marginal cost. d. Firm B will have a higher reservation value than Firm A.
a. The profit-maximizing level of output of Firm B will be greater than that of Firm A at all prices.
An externality occurs when _____________. a. an economic activity affects third parties not engaged in the activity b. the quantity supplied of a good exceeds the quantity demanded c. the quantity demanded of a good exceeds the quantity supplied d. the government regulates production and consumption decisions
a. an economic activity affects third parties not engaged in the activity
The presence of a positive externality in a market leads to a. an underproduction of the good b. an overproduction of the good c. a deadweight loss d. a fall in the consumer surplus
a. an underproduction of the good
A ________ occurs when government spending exceeds tax revenue. a. budget deficit b. negative externality c. consumer surplus d. positive externality
a. budget deficit
Consumer surplus is the: a. difference between the buyer's reservation value and the price he actually pays. b. product of a buyer's reservation value and the price he actually pays. c. sum of a buyer's reservation value and the price he actually pays. d. ratio of a buyer's reservation value to the price he actually pays.
a. difference between the buyer's reservation value and the price he actually pays.
A concert in a crowded auditorium is in __________ consumption. a. excludable and rival b. excludable but non-rival c. non-excludable and non-rival d. non-excludable but rival
a. excludable and rival
Assume there are two industries in our economy: the production of pizza and the production of calzones. Each of these products is produced in a similar way with similar ingredients and requires similar skills. If the market price of pizza in this competitive market is below the ATC curve and the price of calzones is above the ATC curve, ____________. a. firms currently making pizza will switch to making calzones. b. firms currently making calzones will switch to making pizza. c. firms will increase their productivity to lower their marginal costs. d. firms will continue making their current product since demand curves will adjust to equilibrate prices in both markets.
a. firms currently making pizza will switch to making calzones.
Three friends stay in an apartment. Their landlord offers to air-condition the apartment if they pay for the installation charges. Although they all want an air-conditioner, none of them say so. This is an example of the __________. a. free-rider problem b. paradox of plenty c. paradox of thrift d. tragedy of commons
a. free-rider problem
The largest source of the federal tax revenue is a. individual income taxes b. corporate income taxes c. excise taxes d. payroll taxes
a. individual income taxes
An economic agent ___________ when he accounts for the full costs and benefits of his actions. a. internalizes an externality b. maximizes his profit c. is called a free rider d. is called a rent seeker
a. internalizes an externality
Taxes listed as Federal Insurance Contribution Act taxes on the employee paystub are a. payroll taxes b. value-added taxes c. income taxes d. excise taxes
a. payroll taxes
The production of a certain fertilizer emits a gas that keeps away mosquitoes and other insects from the surrounding community. This is an example of a a. positive externality b. negative externality c. pecuniary externality d. comparative externality
a. positive externality
Positive economic profits in a perfectly competitive market imply that: a. producers are earning more than their opportunity cost. b. existing firms are likely to leave the market. c. the cost of production is equalized across producers. d. government intervention is required to stabilize the market.
a. producers are earning more than their opportunity cost.
The burden of a tax falls entirely on buyers if a. the price elasticity of demand is zero (perfectly inelastic) b. the price elasticity of demand is greater than 1 c. the income elasticity of demand is high d. the price elasticity of supply is unitary elastic
a. the price elasticity of demand is zero (perfectly inelastic)
If a tax is imposed on each unit of a good purchased, a. the supply curve for the good shifts to the right b. the supply curve for the good shifts to the left c. the demand curve for the good shifts to the right d. the demand curve for the good shifts to the left
b. the supply curve for the good shifts to the left
A firm produced 376 units with 10 workers. When the eleventh worker was hired, the output increased to 398 units. The marginal product of the eleventh worker is: a. 37.6 units b. 398 units c. 22 units d. 36.18 unit
c. 22 units
A buyer is willing to buy 10 units of a good at a maximum price of $10 per unit. The reservation value of the buyer in this case is: a. $1 b. $10 c. $20 d. $100
b. $10
A firm sells 20 units of a good at a price of $5 per unit. If the average cost of production of the good equals $3 per unit, the firm's revenue is: a. $120 b. $100 c. $60 d. $40
b. $100
Suppose a market has only one seller and only one buyer of a good in the market. The buyer is willing to pay $50 for the good and the seller is willing to accept $15. The market price of the good is determined at $30. If they trade, the social surplus will be ________. a. $65 b. $35 c. $45 d. $15
b. $35
The marginal cost and total revenue of a firm are $5 and $275, respectively. The reservation value of the seller in this case is a. $0 b. $5 c. $55 d. $275
b. $5
Which of the following taxes does NOT lead to a deadweight loss? a. A proportional income tax b. A lump-sum tax c. A progressive income tax d. A proportional tax on property
b. A lump-sum tax
Which of the following statements are true regarding externalities? a. For computing efficient outcomes, economic agents adjust the demand curve to account for negative externalities. b. Deadweight loss can be either a foregone benefit or the total cost of the externality to society. c. In the case of an externality, the free market will maximize social surplus. d. None of the above
b. Deadweight loss can be either a foregone benefit or the total cost of the externality to society.
Which of the following activities can give rise to a positive externality? a. Jogging every morning b. Getting a flu vaccination c. Consuming herbal products d. Buying a pair of gloves
b. Getting a flu vaccination
Which of the following is not an externality? a. Jose, who is allergic topollen, is sick from the flowers that grow in his neighbor's garden. b. Jordan has lung cancer from smoking cigarettes. c. Alisha did not sleep well because her neighbor was playing loud music. d. Rochelle has asthma caused by the pollution of a local factory near her home.
b. Jordan has lung cancer from smoking cigarettes.
You are the County Commissioner of Hazard County. There is a popular lake for fishing located in eastern Hazard County on county-owned park land, which is open to the public. Recently, the Reed brothers have started using large nets to catch large amounts of fish, severely depleting the amount of fish left for other fishermen. The fish in the lake are an example of a common pool resource. What approach would be the least effective way to deal with the overfishing problem? a. Restock the lake more often with fish. b. Limit who is allowed to fish in the lake. c. Enact a law limiting the number of fish that can be caught per person. d. Charge a tax per fish caught.
b. Limit who is allowed to fish in the lake.
Which of the following relationships correctly identifies the profit maximization condition of a firm in a perfectly competitive market? a. Marginal cost < Price = Marginal revenue b. Marginal cost = Price = Marginal revenue c. Marginal cost > Price = Marginal revenue d. Marginal cost = Price < Marginal revenue
b. Marginal cost = Price = Marginal revenue
Does price gouging have the same effect as setting prices above equilibrium level? a. No, price gouging harmsbuyers, while prices set above equilibrium damages sellers. b. No, price gouging is actually an equilibrium outcome, while the setting of prices above equilibrium is not. c. Yes, both result in unjustifiably high prices given underlying supply and demand conditions. d. Yes, both produce an excess of quantity supplied over quantity demanded.
b. No, price gouging is actually an equilibrium outcome, while the setting of prices above equilibrium is not.
Which of the following best illustrates the tragedy of the commons? a. Donating to the World Wildlife Fund. b. Overfishing in public waters. c. Buying a Nintendo DS instead of funding the public library. d. Sneaking into a concert without paying for a ticket.
b. Overfishing in public waters.
Which of the following statements is true of a perfectly competitive market? a. At equilibrium, it is possible to make someone better off without making someone else worse off. b. The equilibrium price in a competitive market efficiently allocates scarce resources to participants. c. The equilibrium price is determined by a few large firms in the market. d. The sum of consumer surplus and producer surplus is not maximized at the equilibrium
b. The equilibrium price in a competitive market efficiently allocates scarce resources to participants.
Which of the following statements is true of perfect competition? a. The outcome in a perfectly competitive market is Pareto inefficient. b. The total value of production across a perfectly competitive industry is maximized. c. Firms under perfect competition produce at a point where price is greater than marginal cost. d. Consumers in a competitive market purchase at a point where marginal utility is greater than price
b. The total value of production across a perfectly competitive industry is maximized.
Social surplus is the ____________. a. excess of aggregate demand over aggregate supply. b. Total value from trade in a market c. difference between the amount that buyers actually pay and what they wish to pay d. difference between the consumer surplus and producer surplus.
b. Total value from trade in a market
A government regulation that bans the use of a certain polluting technology in the production of a good is an example of a _______ to solve an externality. a. social enforcement mechanism b. command and control approach c. market-based approach d. Coasian approach
b. command and control approach
If a tax is imposed per unit of a good sold, a. the supply curve for the good shifts to the right b. the supply curve for the good shifts to the left c. the demand curve for the good shifts to the right d. the demand curve for the good shifts to the left
b. the supply curve for the good shifts to the left
You are the County Commissioner of Hazard County. Dwight's neighbors bring a complaint before you that Dwight's hog farm is creating a terrible odor, and they are demanding government action. You decide to respond to the neighbor's complaints by limiting the number of hogs that Dwight can have on his farm. This is an example of using a command-and-control approach. If you were to recommend a command-and-control approach, a disadvantage would be that it ___________. a. puts too much of a burden on a producer. b. creates few incentives for innovation. c. is more efficient than the Pigouvian tax approach d. leads topro-government sentiment
b. creates few incentives for innovation.
Producer surplus is the: a. sum of a seller's reservation value and the price he finally receives. b. difference between a seller's reservation value and the price he finally receives. c. product of a seller's reservation value and the price he finally receives. d. ratio of a seller's reservation value to the price he finally receives.
b. difference between a seller's reservation value and the price he finally receives.
The figure below shows the demand, supply, and marginal social bene t curves for Good Y. The triangular region ABC represents the ____________. a. deadweight loss due to the presence of a negative externality b. economic loss of not recognizing a positive externality c. deadweight loss due to the presence of a pecuniary externality d. an inefficiency created by not recognizing a negative externality
b. economic loss of not recognizing a positive externality
Once planners have successfully brought economic agents together, a second problem of aligning the interests of the economic agents must be solved. This is known as the ____________ problem. a. integration b. incentive c. alignment d. coordination
b. incentive
A Pigouvian tax is a tax designed to a. induce consumers of a good to reduce the consumption of the good b. induce producers generating negative externalities to reduce production c. induce producers generating positive externalities to reduce production d. induce producers to stop the production of a good
b. induce producers generating negative externalities to reduce production
An economic agent _________ when he accounts for the full costs and benefits of his actions. a. is called a free rider b. internalizes an externality c. maximizes his profit d. is called a rent seeker
b. internalizes an externality
If firms in a competitive industry independently operate to maximize profits, the __________ are eventually equalized across the firms a. total costs b. marginal costs c. profits d. revenues
b. marginal costs
Which of the following is the correct definition of marginal social cost? a. marginal cost of the externality + marginal external cost. b. marginal private cost + marginal external cost. c. marginal cost + marginal benefit. d. None of the above.
b. marginal private cost + marginal external cost.
When two firms in a perfectly competitive market seek to maximize profit in the long run, they eventually end up: a. producing at a suboptimal level. b. minimizing total cost of production. c. earning the same level of profits. d. producing the same level of output.
b. minimizing total cost of production.
Traffic congestion is an example of a a. positive externality b. negative externality c. pecuniary externality d. free-rider problem
b. negative externality
The Coase theorem relies on internalizing externalities through ____________. a. social enforcement mechanisms b. negotiations between the parties involved c. the imposition of corrective taxes d. the provision of corrective subsidies
b. negotiations between the parties involved
Five players are given $10 each and asked to contribute any portion of it to a group account. They are also told that the total collection will be doubled and distributed equally among each of them. In this case, the players are likely to contribute __________. a. $5 each b. nothing c. $1 each d. $10 each
b. nothing
If a good is excludable, a. one person's use of the good reduces the amount of the good available to others b. people can be prevented from using the good c. more than one person cannot use the good at the same time d. several people can use the good simultaneously
b. people can be prevented from using the good
In a perfectly competitive market: a. price is always greater than marginal revenue. b. price is always equal to marginal revenue. c. price is always equal to marginal cost. d. price is always greater than marginal cost.
b. price is always equal to marginal revenue.
A ________ tax system is one in which tax rates increase with taxable base incomes. a. regressive b. progressive c. proportional d. supplementary
b. progressive
The term ________ refers to how the burden of the tax is distributed across various agents in the economy. a. tax funding b. tax incidence c. tax haven d. tax discrimination
b. tax incidence
The tax incidence on sellers is higher if a. the buyers and sellers of a good are equally sensitive to price changes b. the buyers are more sensitive to price changes than the sellers c. the sellers are more sensitive to price changes than the buyers d. the number of buyers in a market is larger than the number of sellers
b. the buyers are more sensitive to price changes than the sellers
When a Pigouvian tax is imposed, ____________. a. the marginal social cost curve shifts downward b. the marginal private cost curve shifts upward c. the marginal social benefit curve shifts downward d. the demand curve shifts rightward
b. the marginal private cost curve shifts upward
In a progressive tax system, a. the average tax rate equals the marginal tax rate b. the marginal tax rate exceeds the average tax rate c. the average tax rate exceeds the marginal tax rate d. the average tax rate is equal for all taxpayers
b. the marginal tax rate exceeds the average tax rate
If the production of a good involves negative externalities, a. the quantity of the good supplied in the market is lower than the efficient level b. the optimal price of the good is higher than the price charged in the market c. total welfare can be increased by increasing the production of the good d. average cost of production can be reduced by increasing output above the optimal level
b. the optimal price of the good is higher than the price charged in the market
A retired athlete built a gym near his house that could be used for free by all the residents in the neighborhood. However, the overuse of the facilities soon led to irreparable damages. This is an example of the _________. a. paradox of thrift b. tragedy of the commons c. prisoners' dilemma d. pecuniary externality
b. tragedy of the commons
The marginal social cost of producing the last unit of a good is $1.10 while the consumers' willingness to pay for the last unit is $0.80. The deadweight loss from the production of the last unit of the good in equilibrium is ________. a. $1.10 b. $0.50 c. $0.30 d. $1.90
c. $0.30
If a firm faces an average total cost of $100 and sells its product for $115, how much profit does it make when it sells 20 units of the product? a. $200 b. $115 c. $300 d. $800
c. $300
The government of Lithasia ran a budget deficit of $60,000 in 2017. If the tax revenue of the Lithasian government in 2017 was $320,000,000, how much did the government spend in that year? a. $319,940,000 b. $1,060,000 c. $320,060,000 d. $49,000,000
c. $320,060,000
If Kate pays an average tax rate of 12.5% and her total income is $34,000, she pays ________ as tax. a. $5,500 b. $17,000 c. $4,250 d. $3,200
c. $4,250
If the producer surplus in a market for a good is $36 and the consumer surplus in the market for the same good is $9, the social surplus in the market is a. $4 b. $27 c. $45 d. $325
c. $45
Ron plays loud music, which prevents his neighbor from studying. His neighbor values studying at $5,000, while the cost of soundproofing Ron's room is $3,000. Which of the following problems arises in this scenario? a. Low transaction costs b. The free-rider problem c. A negative externality d. Moral hazard
c. A negative externality
Which of the following is an example of a public good? a. A house in a tourist destination b. A training program for a company's employees c. A radio broadcast d. A magazine subscription
c. A radio broadcast
Ron plays loud music, which prevents his neighbor from studying. His neighbor values studying at $5,000, while the cost of soundproofing Ron's room is $3,000. If Ron has the right to listen to music at night, how much does his neighbor need to pay him to stop playing music? a. Any amount below $3,000 b. Any amount between $5,000 and $8,000 c. Any amount between $3,000 and $5,000 d. Any amount above $5,000
c. Any amount between $3,000 and $5,000
Which of the following gives rise to a positive externality? a. Sudden increase in the demand for diamonds leading to an increase in their price b. Deforestation leading to the extinction of many species c. Consumption of a drug to cure a communicable disease d. Sudden increase in the price of oil due to a supply shock
c. Consumption of a drug to cure a communicable disease
Which of the following gives rise to a negative externality? a. Sudden increase in the price of wheat due to a fall in supply b. Sudden increase in the demand for diamonds leading to an increase in their price c. Deforestation leading to the extinction of many species d. Globalization leading to creation of many new job opportunities
c. Deforestation leading to the extinction of many species
Which of the following is true? a. If consumption of a good gives rise to a negative externality, it can be internalized by subsidizing the purchase of the good. b. If production of a good gives rise to a positive externality, it can be internalized by taxing the consumers of the good. c. If production of a good gives rise to a negative externality, it can be internalized by taxing the producers of the good. d. If consumption of a good gives rise to a positive externality, it can be internalized by taxing the producers of the good.
c. If production of a good gives rise to a negative externality, it can be internalized by taxing the producers of the good.
Which of the following statements regarding the Coase Theorem is not true? a. Regardless of who has the legal ownership of property or resources, the socially efficient outcome can be achieved through private bargaining. b. The final outcome of bargaining will match the preferences of those who value ownership the most. c. Initial property right allocation determines whether the socially efficient outcome can be achieved. d. Negotiation between the concerned parties is necessary to solve the externality problems.
c. Initial property right allocation determines whether the socially efficient outcome can be achieved.
Which of the following statements regarding internalizing an externality is true? a. It means companies and individuals consider the internal effects of their actions. b. It is a theme that separates various solutions to the problem of externalities. c. It means agents account for the full costs and benefits of their actions. d. It results in a market equilibrium that lowers social well-being.
c. It means agents account for the full costs and benefits of their actions.
$100 is to be divided among two individuals Mary and Jenna. Which of the following allocations is Pareto efficient? a. Mary receives $45, and Jenna receives $45. b. Mary receives $20, and Jenna receives $75. c. Mary receives $1, and Jenna receives $99. d. Mary receives $90, and Jenna receives $9.
c. Mary receives $1, and Jenna receives $99.
Which of the following is an objective of government taxation? a. Reducing the demand for money in the economy b. Increasing the supply of money in the economy c. Redistribution of funds d. Reducing the growth rate of the economy
c. Redistribution of funds
In which of the following situations can an externality be internalized by using the Pigouvian subsidy? a. John likes to play loud music in the middle of the night which disturbs his roommate's sleep. b. The pollution caused by a firm has adverse health consequences for nearby residences. c. Sophia's flower garden provides a pleasant view for her neighbors. d. None of the above.
c. Sophia's flower garden provides a pleasant view for her neighbors.
The social surplus in a market is $50. If another economic agent enters the market such that the marginal cost he incurs is $10 and the marginal benefit he receives from the trade is $5, then which of the following statements is true? a. The social surplus will remain the same b. The social surplus will increase by $5 c. The social surplus will decrease by $5 d. The social surplus will increase by $10
c. The social surplus will decrease by $5
Pay-per-view broadcasts are __________. a. common pool resources b. public goods c. club goods d. private goods
c. club goods
The tragedy of the commons results when ___________. a. people are excluded from public goods. b. common pool resources are underused. c. common pool resources are overused. d. too many public goods are provided.
c. common pool resources are overused.
Refer to the figure above. Which of the following statements is true? a. Firm B will produce a lower quantity than Firm A at all prices. b. Firm B produces at a higher marginal cost than Firm A. c. firm A will have a higher reservation value for the good than firm B. d. At a given market price, Firm A will enjoy a greater producer surplus.
c. firm A will have a higher reservation value for the good than firm B.
The marginal social cost curve _________ when production involves negative externalities. a. lies to the right of the supply curve b. is parallel to the horizontal axis c. lies above the supply curve d. is parallel to the demand curve
c. lies above the supply curve
The marginal social cost curve ___________ when production involves negative externalities. a. is parallel to the horizontal axis b. is parallel to the demand curve c. lies above the supply curve d. lies to the right of the supply curve
c. lies above the supply curve
In a perfectly competitive market, if market price is higher than the average total cost of production, a. firms will incur losses in the long run b. firms will make profits in the long run c. new firms will enter the industry d. firms will exit the industry
c. new firms will enter the industry
In a perfectly competitive market, if market price is higher than the average total cost of production, ________. a. firms will incur losses in the long run b. firms will make profits in the long run c. new firms will enter the industry d. firms will exit the industry
c. new firms will enter the industry
An outcome is Pareto efficient if: a. an individual can be made better off without making someone else worse of b. benefits of the outcome are equally distributed among all the participants c. no individual can be made better off without making someone else worse of d. costs of the outcome are equally shared by all the participants
c. no individual can be made better off without making someone else worse of
In a competitive market equilibrium, the allocation of the social surplus is such that ____________. a. equity among the participants is attained. b. all participants are equally satisfied with the outcome. c. no individual can be made better off without making someone else worse off. d. no individual can be made better off or worse off
c. no individual can be made better off without making someone else worse off.
Jack wants to buy a new house. But the surge in housing demand over the last few months has led to a sharp increase in housing prices making it impossible for him to afford one on his current income. This is an example of a a. positive externality b. negative externality c. pecuniary externality d. conspicuous externality
c. pecuniary externality
Which of the following is necessary for efficient markets? a. positive externality b. negative externality c. pecuniary externality d. Free-riding
c. pecuniary externality
The Coase Theorem states that ____________. a. government and private partnerships will result in an efficient allocation of resources. b. public and private partnerships will result in an efficient allocation of resources. c. private bargaining will result in an efficient allocation of resources d. public bargaining will result in an efficient allocation of resources
c. private bargaining will result in an efficient allocation of resources
The total producer surplus in the entire market is given by the: a. product of the individual seller's surplus. b. area between the market supply curve and the market demand curve. c. sum of all the individual sellers' producer surplus. d. area between the market demand curve and the price line.
c. sum of all the individual sellers' producer surplus.
The equilibrium price of a good sold in a competitive market is $10. If an individual firm decides to sell its product at a price higher than $10, _________. a. the firm's cost of production will decrease b. the firm's profits will increase c. the firm will lose all its consumers d. the firm's revenue will increase
c. the firm will lose all its consumers
Government invention is required to solve externality problems if a. transaction costs associated with private negotiations are low b. the number of people affected by the externality is small c. the number of people affected by the externality is large d. property rights are clearly defined
c. the number of people affected by the externality is large
Deadweight loss refers to the loss in a. producer surplus due to a fall in the market price b. consumer surplus due to an increase in the market price c. total surplus due to a market distortion such as an externality d. total surplus due to a change in consumers' preferences
c. total surplus due to a market distortion such as an externality
A ________ externality occurs when a market transaction affects others through market prices. a. positive b. negative production c. negative consumption d. pecuniary
d. pecuniary
Suppose a market has only one seller and only one buyer of a good. The buyer has a reservation value of $25 and the seller has a reservation value of $15. The market price of the good is determined at $20. If they trade, the social surplus will be ________. a. $40 b. $60 c. $20 d. $10
d. $10
The following table displays the reservation values of eight buyers and eight sellers where each individual wants to buy or sell a calculator. (Question 14 on Hw Ch. 7) Refer to the table above. If the market is perfectly competitive, the equilibrium price of calculators is: a. $6 b. $2 c. $20 d. $12
d. $12
John is ready to pay $5 for an extra loaf of bread. Due to an ongoing discount in the store, he gets a loaf for $2. John's consumer surplus from the purchase is _________. a. $2 b. $2.50 c. $10 d. $3
d. $3
Refer to the figure above. What is the market-wide consumer surplus when the market price of wine is $9? a. $180,000 b. $90,000 c. $210,000 d. $60,000
d. $60,000 (21 - 9) * 10 * 0.5
A firm has an average total cost of $50. If it sells 20 units of its product at $80 each, what is its profit? a. $30 b. $1,600 c. $1,000 d. $600
d. $600
If a buyer enjoys a consumer surplus of $25 when he purchases a good for $50, his willingness to pay for the good is a. $2 b. $25 c. $50 d. $75
d. $75
If a seller's marginal cost is $25, and the price at which the good is sold is $15, the producer surplus is ________. a. $15 b. $25 c. $10 d. -$10
d. -$10
The figure below shows the demand, supply, and marginal social bene t curves for Good Y. Social welfare will be maximized if units of Good Y are produced. a. 20 million b. 9 million c. 13 million d. 16 million
d. 16 million
Refer to the table above. If the market is perfectly competitive, the equilibrium quantity of calculators is: a. 8 units b. 3 units c. 6 units d. 5 units
d. 5 units
Which of the following economic tools can be used to solve the tragedy of the commons? a. Privatization of the resource. b. Incentives to self-regulate the use of resources c. Pigouvian tax. d. All of the above.
d. All of the above --> Privatization of the resource. Incentives toself-regulate the use of resources Pigouvian tax.
The Coase Theorem will breakdown when ____________. a. when property rights are not clearly defined. b. there are a large number of agents. c. agents decide to negotiate directly with each other. d. Both A and B.
d. Both A and B: When property rights are not clearly defined. There are a large number of agents.
Firm A uses production technology that affects the environment. Which of the following are command-and-control policies used by the government to regulate firm A? a. Firm A is not allowed by the government to produce more than 100 units if it does not use environment-friendly technology. b. Firm A has to pay a penalty to the government for not using environment-friendly technology. c. The government makes it compulsory for firm A to use environment friendly technology. d. Both A and C.
d. Both A and C --> Firm A is not allowed by the government to produce more than 100 units if it does not use environment-friendly technology. The government makes it compulsory for firm A to use environment friendly technology.
Which of the following goods have a high excludability? a. Ordinary private goods. b. Public goods. c. Club goods. d. Both A and C.
d. Both A and C --> Ordinary private goods. Club goods.
Sara and Jim are going to lunch together and rank the restaurant options in the following way. Which of the following restaurant choices are Pareto efficient for Sara and Jim? a. Blaze b. Panera c. Naf Naf d. Both A and C are correct
d. Both A and C are correct
Imagine you are a buyer in a double oral auction with a reservation value of $13 and there is a seller asking for $9. If you are the only buyer, and you know that the lowest ask price is $3, should you accept this offer? a. Yes, accepting an offer from any other seller will reduce your surplus. b. No, as the only buyer you can extract a lower ask price. c. Yes, since you will gain $10. d. Both A and C are correct.
d. Both A and C are correct.
Which of the following statements explains the concept of the tragedy of the commons? a. It is an example of a positive externality. b. The open access to common resources results in their depletion through overuse. c. It results when the free market equilibrium quantity is higher than the optimal equilibrium quantity. d. Both B and C.
d. Both B and C --> The open access to common resources results in their depletion through overuse. It results when the free market equilibrium quantity is higher than the optimal equilibrium quantity.
Which of the following goods have a high excludability? a. It is solely provided by the government. b. It is non-excludable and rival in consumption. c. It is non-excludable and non-rival in consumption. d. None of the above.
d. None of the above.
Local governments usually rely on the ___________ tax to fund schools, libraries, and public services such as police and fire protection. a. Payroll b. Excise c. Value-added d. Property
d. Property
A restaurant charges its customers 12% of the total food price as tax. This is an example of a _________ tax. a. Payroll b. Wealth c. Property d. Sales
d. Sales
Which of the following is true? a. Local governments cannot collect taxes in the U.S. b. Only state governments can collect taxes in the U.S. c. Only the federal government can collect taxes in the U.S. d. The central as well as the local governments collect taxes in the U.S.
d. The central as well as the local governments collect taxes in the U.S.
Which of the following will lead to an efficient private solution if negative externalities are present in a market? a. The party having the legal right is taxed. b. The party creating the externality has the legal property right c. The party suffering from the externality has the legal property right. d. The parties involved negotiate with each other and reach an agreement.
d. The parties involved negotiate with each other and reach an agreement.
The following figure shows the demand and supply curves for a good. The initial demand curve is D1 and the supply curve is S. Later, due to an external shock, the demand curve shifts to D2. (hw ch 7) Which of the following is likely to happen if the government imposes a price control at $60, when the demand curve shifts to a. There will be a shortage of 10 units of the good in the market. b. There will be a surplus of 10 units of the good in the market. c. There will be a surplus of 15 units of the good in the market. d. There will be a shortage of 15 units of the good in the market.
d. There will be a shortage of 15 units of the good in the market.
Which of the following statements is true? a. Under a perfectly competitive framework, a ruling authority is essentially required to dictate goals for the betterment of society. b. A firm interested in maximizing profits in a perfectly competitive market will produce output at a level where marginal revenue is equal to the price and greater than the marginal cost. c. The total cost of production in a perfectly competitive market can be minimized only when the marginal costs across firms in the market are different. d. When a competitive market is allowed to operate efficiently, firms end up producing goods using the least amount of scarce resources.
d. When a competitive market is allowed to operate efficiently, firms end up producing goods using the least amount of scarce resources.
A manufacturing plant is emitting hazardous gas into the nearby area, adversely affecting the local citizens. In which of the following situations is private bargaining not likely to lead to an efficient outcome? a. When the law regarding whether the plant has a right to emit hazardous gas or the citizens have the right to a clean environment is clearly defined. b. When the transaction cost associated with negotiation between the two concerned parties is negligible. c. When the number of local citizens affected by the plant's pollution is quite small. d. When negotiating an agreement on the allowable level of emissions and who gets compensated is difficult.
d. When negotiating an agreement on the allowable level of emissions and who gets compensated is difficult.
The entry of new firms into a perfectly competitive market will cause: a. an increase in the profitability of existing firms. b. a right shift of the demand curve of the good being produced by the firms. c. a left shift of the demand curve of the good being produced by the firms. d. a decrease in the profitability of existing firms.
d. a decrease in the profitability of existing firms.
In assessing the performance of a perfectly competitive market, we can say that ____________. a. price efficiently allocates goods and services to buyers and sellers. b. any departure from the equilibrium necessarily reduces social surplus. c. no individual can be made better off without making someone else worse off. d. all of the above.
d. all of the above.
Social surplus is maximized when the ___________. a. competitive market is in equilibrium. b. highest-value buyers are making a purchase and the lowest-cost sellers are selling. c. buyers and sellers as distinct groups are doing as well as they possibly can d. all of the above.
d. all of the above.
An externality occurs when a. the quantity demanded of a good exceeds the quantity supplied b. the quantity supplied of a good exceeds the quantity demanded c. the government regulates production and consumption decisions d. an economic activity affects third parties not engaged in the activity
d. an economic activity affects third parties not engaged in the activity
A buyer is said to be a price taker if she: a. ignores the prices of related goods and considers only the price of the goods she is purchasing. b. always pays less than the market-determined price for the goods she is consuming. c. can bargain over the prices of the goods she consumes. d. can purchase any amount of a good at a fixed price provided she has the money to pay for it.
d. can purchase any amount of a good at a fixed price provided she has the money to pay for it.
A difficult problem for central planners is bringing together those economic agents whose interests coincide in order to trade. This is known as the ____________ problem. a. incentive b. collaboration c. communication d. coordination
d. coordination
Free entry is said to exist in an industry when: a. all firms entering an industry enjoy economies of scale. b. the government subsidizes costs for all new firms entering an industry. c. equal amounts of inputs are available to all firms entering an industry. d. entry is unfettered by any special legal or technical barriers.
d. entry is unfettered by any special legal or technical barriers.
If the marginal cost of a perfectly competitive firm producing a good is $50 and the market price of the good is $100, the firm should: a. decrease its output. b. try to decrease the market price. c. try to increase the market price. d. increase its output.
d. increase its output.
A chemical factory releases its byproducts in a nearby river, which harms aquatic flora and fauna. This is an example of a ____________. a. free-rider problem b. pecuniary externality c. positive externality d. negative externality
d. negative externality
The Coase Theorem states that a. positive externalities lead to higher market prices b. negative externalities lead to lower equilibrium output c. transaction costs are higher in free markets d. negotiation between economic agents leads to an efficient allocation of resources
d. negotiation between economic agents leads to an efficient allocation of resources
Space on a popular, public beach is __________ in consumption. a. non-excludable and non-rival b. excludable and rival c. excludable but non-rival d. non-excludable but rival
d. non-excludable but rival
The production of steel in a factory generates a negative externality. A per-unit tax on the factory that equals ________ of steel production will internalize the externality entirely. a. the marginal private cost b. the marginal social cost c. the marginal external benefit d. the marginal external cost
d. the marginal external cost
The burden of a tax falls entirely on sellers if a. the price elasticity of demand is unitary elastic b. the price elasticity of supply is greater than 1 c. the income elasticity of demand is high d. the price elasticity of supply is zero (perfectly inelastic)
d. the price elasticity of supply is zero (perfectly inelastic)