micro economics test 3

Which of the following would increase quantity supplied, decrease quantity demanded, and increase the price that consumers pay? The imposition of a binding price floor The removal of a binding price floor The passage of a tax levied on producers The repeal of a tax levied on producers

The imposition of a binding price floor

Alex opens a lemonade stand for two hours. He spends $10 for ingredients and sells $60 of lemonade. In the same two hours Alex could have mowed his neighbor's lawn for $40. Alex has an accounting profit of _____ and an economic profit of ______. $50, $10 $90, $50 $10, $50 $50, $90

$50, $10

When the government imposes a binding price floor, it causes: The supply curve to shift to the left The demand curve to shift to the right A shortage of the good to develop A surplus of the good to develop

A surplus of the good to develop

Which of the following are true? Marginal cost eventually rises with the quantity of output The average total cost curve is always U-shaped. The marginal cost curve crosses both the average total cost curve and the average variable cost curve at their minimums. All are true.

All are true.

The U-shape of ATC and AVC curves is due to: When output is increased in the short run, it can only be done by increasing the variable input The law of diminishing productivity causes marginal and average productivities to fall As average and marginal productivities fall, average and marginal costs rise All of the above

All of the above

The economist Ronald Coase suggests that a private market solution to externalities can lead to an efficient outcome, but that this can break down when: There are high transaction costs Bargaining simply breaks down There are a large number of interested parties All of the above

All of the above

Which of the following are true? A price ceiling transfers surplus from producers to consumers A price ceiling generates deadweight loss A price ceiling reduces equilibrium quantity All of the above

All of the above

Which of the following are true? A price floor transfers surplus from consumers to producers A price floor generates deadweight loss A price floor reduces equilibrium quantity All of the above

All of the above

Which of the following are true? Price ceilings create shortages With price ceilings, existing goods are no longer rationed entirely by price so other methods of rationing arise Price ceilings below equilibrium price will have an effect on the market All of the above

All of the above

Which of the following are true? Production exhibits economies of scale when long-run average total costs decrease as output increases Production exhibits diseconomies of scale when long-run average total costs increase as output increases Constant returns to scale occur when production techniques can be replicated again and again to increase output without an increase or decrease in marginal costs All of the above are true.

All of the above are true.

Which of the following is true or most true? Non-rivalry and non-excludability are both required for something to be a public good. Non-rivalry and non-excludability create what is called a "free rider" problem. Even though a good or service has marginal benefits that exceed marginal costs, if there is a free rider problem no firm is willing to supply that good or service to the market. All of the above are true.

All of the above are true.

The law of diminishing marginal productivity states: As more of a variable input is added to an existing fixed input, after some point the additional output from the additional input will fall As more of a fixed input is added to variable inputs, after some point the additional output for the additional input will fall As more of a variable input is added to an existing fixed input, after some point the additional input from the from the additional input will fall As more of a variable input is added to an existing fixed input, after some point the additional output from the additional input will rise

As more of a variable input is added to an existing fixed input, after some point the additional output from the additional input will fall

Fender produces 20 guitars each day with an average total cost of $350 and a marginal cost of $300. If it were to increase production to 21 guitars, which of the following must occur? Marginal cost would decrease Marginal cost would increase Average total cost would decrease Average total cost would increase

Average total cost would decrease

The government imposes a $1,000 license fee on all pizza restaurants. Which cost curves shift as a result? Average total cost and marginal cost Average total costs and average fixed cost Average variable cost and marginal cost Average variable cost and average fixed cost

Average total costs and average fixed cost

Variable cost divided by the quantity of output is called: Average variable cost Marginal cost Average marginal cost Total variable cost

Average variable cost

_______ total cost is the total cost divided by the quantity of output. _______ cost is the amount by which total cost rises if output is increased by one unit. Average, Marginal Fixed, variable Marginal, average Variable, Fixed

Average, Marginal

Economists oppose price floors and ceilings because: Resources are not allocated efficiently They create a deadweight loss (loss of consumer/producer surplus) Both A and B None of the above

Both A and B

Which of the following are true? An optimal policy (such as an environmental policy) is one in which the marginal cost of undertaking the policy equals the marginal benefit of that policy. The optimal level of pollution is not zero pollution, but the amount where the marginal benefit of reducing pollution equals the marginal cost Both A and B Neither A or B

Both A and B

Which of the following are true? If marginal productivity is rising, marginal costs are falling If average productivity is falling, average costs are rising Both A and B Neither A or B

Both A and B

Which of the following is the most true? In a third-party-payer market, the consumer and the one who pays the cost differ. In a third-party-payer market, the consumer and the one who pays are one and the same. Quantity demanded, price, and total spending are greater when a third party pays some or all of the cost compared to when the consumer pays all of the cost. Both A and C.

Both A and C.

Pepe Le Pew has been making French wine. It's been a one person company and Pepe has been doing it all. Pepe now hires someone, it is now a two person company, and they divide the work so that they can each specialize and be more productive. Their winery will likely exhibit _________ of scale and ___________ average total cost. Economies, falling Economies, rising Diseconomies, falling Diseconomies, rising

Economies, falling

Which of the following is not an example of a price ceiling? Rent control Laws preventing ticket scalping Regulated prices for natural gas transportation Equilibrium prices

Equilibrium prices

Which of the following is true? Externalities are the effects of a decision on a third party that are not taken into account by the decision-makers to a transaction. Negative externalities occur when the effects are beneficial to others Positive externalities occur when the effects are detrimental to others All of the above

Externalities are the effects of a decision on a third party that are not taken into account by the decision-makers to a transaction

A farmer agrees to allow a wind power plant to be built on his farm and receives rent from the power plant. Nonetheless, he does not like the whooshing sound of the rotating blades, especially at night when he is trying to sleep. This is an example of a negative externality.

False

True or False: By operating a power plant having low fixed costs and high variable costs as a peaking unit, the high variable costs are spread over as many kilowatt-hours as possible, thus minimizing total variable costs.

False

True or False: In 1986 the Chernobyl nuclear plant in northern Ukraine went Ooopps. Various workers at the plant received radiation. This is an example of a negative externality.

False

True or False: The steam cycle rejected heat from the St. Lucie nuclear plant is a negative externality because it provides an improved habitat for the growth of mussels which then clog up the power plant's pipes and the mussels have to be removed ("terminated with prejudice") by the utility at some cost. (This one takes a little bit more thinking than problem 12.)

False

A firm's total cost can be divided between fixed costs and variable costs. _____ costs are costs that do not change when the firm alters the quantity of output produced. _______ costs are costs that change when the firm alters the quantity of output produced. Variable, fixed Fixed, variable Modified fixed, variable Straight fixed, variable

Fixed, variable

In a market with a binding price ceiling, if we increase the ceiling it will ______ the quantity supplied, ______ the quantity demanded, and reduce the _______. Increase, decrease, surplus Decrease increase, surplus Increase, decrease, shortage Decrease, increase, shortage

Increase, decrease, shortage

Market failures, such as from an externality, cause markets to allocate resources ___________. Efficiently Inefficiently Randomly None of the above

Inefficiently

Government failure occurs when government intervention in the market to improve the market failure actually makes the situation worse. Which is not a cause of government failure? Government doesn't have enough information to deal with the problem. The cure is worse than the disease (It can distort the market and affect competition) Intervention in markets is as easy for the government to carry out as it initially seems The bureaucratic nature of government intervention does not allow fine-tuning

Intervention in markets is as easy for the government to carry out as it initially seems

Is the visual impact of the St. Lucie nuclear plant a negative externality or a positive externality? It is always a negative externality It is always a positive externality It can be both a positive and a negative externality based upon the visual preferences of the observer. It is neither a positive or a negative externality

It can be both a positive and a negative externality based upon the visual preferences of the observer.

Which of the following is false? The optimal amount of a public good that should be provided by the government, and paid for through taxes, is up to that amount where the marginal benefits of providing the public good equals the marginal costs of providing that public good. When the marginal benefits of providing a public good are less than the marginal costs of providing that public good, then the government program should not be undertaken. When the marginal benefits of providing a public good are greater than the marginal costs of providing that public good, then it would be uneconomical or wasteful (inefficient) for society not to pay taxes to spend on that government program. It is easy to determine the marginal benefits of a government program.

It is easy to determine the marginal benefits of a government program.

Which of the following is false? Just because electricity is sold by public utilities it is therefore a public good. Just because electricity is sold by public utilities doesn't mean that it's a public good. A demand side market failure occurs when it is not possible for a firm to charge consumers for their product. A supply side market failure occurs when a firm does not pay the full cost of producing its output.

Just because electricity is sold by public utilities it is therefore a public good.

Fender produces 1,000 packs of guitar strings each day at a total cost of $5,000. If it were to increase production to 1,001 units, its total costs would rise to $5,008. What does this information tell you about the firm? Marginal cost is $5 and average variable cost is $8. Marginal cost is $8 and average variable cost is $5. Marginal cost is $5 and average total cost is $8. Marginal cost is $8 and average total cost is $5.

Marginal cost is $8 and average total cost is $5.

The increase in total cost that arises from one more unit of production is called: Implicit costs Variable costs Marginal costs Average fixed costs

Marginal costs

When Steve's daughters would ask their dad to buy them some ice cream, Steve would impose a tax by taking a bite of their ice cream (the proverbial tax bite). This tax had the effect of: Shifting his daughters' demand curves for ice cream to the left Shifting his daughters' demand curves for ice cream to the right Shifting both the supply and demand curves to the right None of the above since Steve's daughters were not the one's paying for the ice cream.

None of the above since Steve's daughters were not the one's paying for the ice cream.

Which of the following is not an example of a price floor? Minimum wage Farm price supports Retail prices Minimum tobacco prices

Retail prices

Which of the following is false? Negative externalities lead markets to produce a larger quantity than is socially desireable. Positive externalities lead markets to produce a smaller quantity than is socially desireable. The government can cause externalities to be internalized by placing a tax on goods with negative externalities. The government can cause externalities to be internalized by subsidizing goods with negative externalities.

The government can cause externalities to be internalized by subsidizing goods with negative externalities.

Which is an example of a positive externality? While mowing his neighbor's lawn, Steve's mower spews out nitrous oxides that are breathed by everyone in the neighborhood. Steve mows his neighbor's lawn and is paid $100 for performing this service. By mowing his neighbor's lawn, Steve made the view from his own house more attractive. The neighbor's newly mowed lawn makes the entire neighborhood more attractive to potential home buyers

The neighbor's newly mowed lawn makes the entire neighborhood more attractive to potential home buyers

Diminishing marginal product explains why, as a firm's output increases, The production function and the total cost curve both get steeper. The production function gets flatter while the total cost curve gets steeper. The production function and the total cost curve both get flatter. The production function gets steeper while the total cost curve gets flatter.

The production function gets flatter while the total cost curve gets steeper.

Which of the following would increase the quantity supplied, increase the quantity demanded, and decrease the price that consumers pay? (You'll likely need to sketch some graphs to work this one.) The imposition of a binding price floor The removal of a binding price floor The passage of a tax levied on producers The repeal of a tax levied on producers

The repeal of a tax levied on producers

Fixed costs do not change with increasing output, so why do average fixed costs change with increasing output? They decrease as output increases because the fixed costs are spread over a larger quantity of output. They increase as output increases because the fixed costs are spread over a larger quantity of output. They don't--average fixed costs, the same as fixed costs, are fixed and do not change. None of the above

They decrease as output increases because the fixed costs are spread over a larger quantity of output.

A well-known politician, known for speaking favorably for environmental causes, had blocked the development of an offshore wind farm because it would be visible from his vacation home. He was concerned it would lower the value of his house. Had he not blocked the development of the wind farm, and had his property value been lowered as a result of the wind farm, this would be an example of a negative externality.

True

True or False: All binding price ceilings create shortages. Rent control is a price ceiling. When a maximum allowed rent is below the equilibrium price, it creates a shortage of housing.

True

True or False: All binding price floors create excess supply. Minimum wage is a price floor. When a minimum wage is above the equilibrium price, it creates excess supply and thus creates unemployment.

True

True or False: By operating a power plant having high fixed costs as a baseload unit, the high fixed costs can be spread over a greater quantity of kilowatt-hours produced, thus minimizing average fixed costs.

True

True or False: In 1986 the Chernobyl nuclear plant in northern Ukraine went Ooopps. Various people living near the plant received radiation. This is an example of a negative externality.

True

True or False: Manatees prefer warm water. The steam cycle rejected heat from the St. Lucie nuclear plant causes nearby water temperatures to rise a little, and thus is a positive externality because it provides an improved habitat for manatees.

True

True or False: One underlying basis for the existence of government is to provide public goods when there is a market that exhibits non-rivalry and non-excludability.

True

True or False: Raptors, such as eagles and hawks, look downward for prey while flying and are often harmed ("terminated with prejudice") by the rotating blades of a wind power plant. This is an example of a negative externality.

True

True or False: When there is a positive externality, the marginal social benefit will be above the marginal private benefit and the market price received by sellers will be too low to maximize social welfare.

True

Which statement is true? When there are positive externalities, the marginal social benefit includes the marginal private benefit of consumption plus the benefits of positive externalities resulting from consuming that good When there are positive externalities, the marginal social benefit includes the marginal private cost of consumption plus the costs of positive externalities resulting from consuming that good When there are positive externalities, the marginal social benefit includes the marginal private benefit of production plus the benefits of positive externalities resulting from producing that good None of the above are true

When there are positive externalities, the marginal social benefit includes the marginal private benefit of consumption plus the benefits of positive externalities resulting from consuming that good

Which statement is true? When there is a negative externality, the marginal social cost will be below the marginal private cost and the market price will be too low to maximize social welfare. When there is a negative externality, the marginal private cost will be below the marginal social cost and the market price will be too low to maximize social welfare. When there is a negative externality, the marginal private cost will be equal to the marginal social cost and the market price will be too low to maximize social welfare. None of the above are true

When there is a negative externality, the marginal private cost will be below the marginal social cost and the market price will be too low to maximize social welfare.

Which is an example of a negative externality? Steve mows his neighbor's lawn and is paid $100 for performing this service. While mowing his neighbor's lawn, Steve's mower spews out nitrous oxides that are breathed by everyone in the neighborhood. By mowing his neighbor's lawn, Steve made the view from his own house more attractive. The neighbor's newly mowed lawn makes the entire neighborhood more attractive to potential home buyers.

While mowing his neighbor's lawn, Steve's mower spews out nitrous oxides that are breathed by everyone in the neighborhood.

Which statement is true? With a negative externality, marginal social cost is equal to the marginal private costs of production plus the cost of negative externalities associated with that production With a negative externality, marginal social cost is equal to the marginal private costs of production less the cost of negative externalities associated with that production With a negative externality, marginal social cost equals the marginal private costs of production None of the above are true

With a negative externality, marginal social cost is equal to the marginal private costs of production plus the cost of negative externalities associated with that production

Assume that a printshop has three printing machines with different fixed and variable costs. Based on this, the printshop would use the flexographic printer to print _____ jobs, the ink jet printer to print ______ jobs, and the hand stensils to print ______ jobs. very small, small to medium, large very small, large, small to medium large, small to medium, very small small to medium, large, very small

large, small to medium, very small

There are two cars. One is a POS car with low capital costs and high operating costs, and the other is a new car with high capital costs and low operating costs. You would expect the ______ to have _________ marginal costs. new car, lower new car, higher POS car, lower POS car, higher

new car, lower