micro final

What is an in‑kind transfer?

a transfer of resources in the form of goods and services rather than cash

Tom is a junk remover who occasionally finds rare antiques to sell. He uses an online auction site to sell each antique at the highest possible price customers are willing to pay. Tom is engaging in _____, which leads to _____ consumer surplus.

perfect price discrimination; zero

Generally, the amount of public goods available in a society is _____ what is actually desired.

less than

The private consumption of services that generate positive externalities, such as getting a college education, is usually _____ the socially optimal level of consumption.

less than

The value of deadweight loss for a perfect price discriminator is _____ an imperfect price discriminator.

less than

Suppose a monopoly is producing at the profit-maximizing level of output. At that level of output:

marginal revenue equals marginal cost.

The movie theater in your neighborhood charges lower ticket prices to senior citizens than to other patrons. Assuming that this pricing strategy increases the profits of the movie theater, we can conclude that senior citizens must have ________ for movie tickets than other patrons.

more elastic demand

Television programs are nonrival because:

more than one person can consume the same unit of the good at the same time.

When Joe watched a television movie, his viewing was _____ in consumption because other people _____ able to view the movie at the same time Joe did.

nonrival; were

Dolly's Backyard BBQ is the only BBQ restaurant in town. Her profit maximizing price is $10 and serves 50 customers per day. At this quantity, her average total cost is $7 per customer. How much profit does Dolly earn per day?

$150

Sean is a monopolist who operates a business rigging tablets to run twice as fast as the original specifications. If Sean charges $40, he would have 10 customers, but if he lowers the price to $37, he would have 11 customers. What is the marginal revenue of the 11th customer?

$7

Sean owns the only pool-cleaning service in his town. If he charges $50 per cleaning, he has 10 weekly customers. If he wants to add an 11th customer, he needs to reduce his price to $45. What is Sean's marginal revenue for the 11th customer?

-$5

Which of the following is an example of a free rider?

A person without health insurance visits an emergency room, since people cannot be turned away.

Which of the following best represents a tragedy of the commons?

A severe traffic jam on the freeway.

Which statement describes a monopoly?

A single firm produces a product with no close substitutes and control over the market price.

Which of the following is an example of an externality:

A student voluntarily asks a question during class.

Which of the following is not a common method by which the government controls pollution?

Advertising the harmful effects of pollution to encourage firms to pollute less.

Diamond rings are relatively scarce because:

DeBeers limits the quantity of diamonds supplied to the market.

Economists and environmentalists agree that pollution is undesirable and that government policy should aim to achieve a zero-pollution society.

False

Externalities exist when individuals impose costs or benefits on others, but don't have an incentive to take those costs or benefits into account.

False

Which best describes a negative income tax?

Households where the combined income is greater than $25,000 pay an income tax, whereas households earning less than that are paid a tax rebate.

The following are four differences between monopoly and perfect competition. Which of these is incorrect?

If unchecked, monopoly profits can continue to exist in the long run, because the monopoly produces more and charges a higher price than a comparable perfectly competitive industry.

One of the following statements about monopoly equilibrium and perfectly competitive equilibrium is incorrect. Which is the incorrect statement?

In the long run, economic profits are driven to zero in both a monopoly and a perfect competitive market.

Jose owns a dog whose barking annoys Jose's neighbor Amy. Suppose that the net benefit of owning the dog is worth $400 to Jose and that Amy bears a cost of $200 from the barking. Assuming Amy has the legal right to keep Jose from having a dog, a possible private solution to this problem is that:

Jose pays Amy $350 for her inconvenience, and keeps the dog.

Which of the following is an example of a positive externality?

Making improvements to your house.

Which is an example of an in‑kind transfer?

Medicare housing vouchers food stamps

Which firm is most likely to be a natural monopoly?

Municipal Power Light, the local supplier of electricity

Josefina is the only seller of sopapillas in town. Last week, she sold 200 sopapillas, and the marginal revenue of the 200th sopapilla was $1.50 and the marginal cost was $1.75. Is Josefina maximizing her profit?

No, Josefina is producing more than the optimal quantity.

Suppose the production of roses generates a positive externality in that travelers enjoy the scenic rural vistas. Then an appropriate government policy yielding the efficient outcome would be a:

Pigouvian subsidy.

As new ride-sharing companies compete against taxi companies, which had previously enjoyed monopoly power, what will happen to the price and quantity of transportation services?

Prices will fall, and quantity will rise

The Environmental Protection Agency is attempting to rule on whether pollution from greenhouse gas emissions endangers public safety. Among the many greenhouse gas polluters are cows emitting methane. Economists have devised a theory to help address this issue. Identify the statement that is true according to economic theory.

The efficient level of pollution removal occurs where the marginal benefit of pollution removal equals the marginal cost of pollution removal; i.e., some pollution could be allowed.

Freeway 405 in Los Angeles is constantly congested, causing traffic to move very slowly. Why would this freeway be considered a Tragedy of the Commons?

The inability to exclude drivers from using the freeway causes it to be overused.

A monopoly increases price by limiting the quantity supplied to a market.

True

A producer is a monopoly if it is the sole supplier of a good that has no close substitutes.

True

Emissions taxes and tradable emissions permits both ensure that any given reduction in total pollution is achieved at the lowest possible cost. This is not the case for environmental standards, since they fail to ensure that those who can reduce pollution most cheaply are in fact the ones to do so.

True

If a firm has market power, the marginal revenue curve always lies below the demand curve.

True

If externalities are fully internalized, an outcome is efficient even without government intervention.

True

If unchecked, a monopoly continues to make economic profits in the long run due to barriers to entry.

True

The marginal revenue curve for a monopolist is always less than the price.

True

To maintain profits in the long run, a monopoly must be protected by barriers to the entry of other firms into the industry.

True

Select the best definition of a public good.

a good that is nonexcludable and nonrival in consumption

What is a natural monopoly?

a monopoly that results when one firm is able to produce at a lower cost than multiple firms, giving large firms with higher levels of output an advantage over smaller competitors

What is the individual mandate component of the Patient Protection and Affordable Care Act?

a rule that requires, with limited exceptions, that every resident of the country must enroll in a health insurance plan or pay a fine

The free-rider problem refers to

a situation in which consumers have no incentive to pay for a good when the supplier cannot prevent them from using without paying.

Which of the following goods best fit the characteristics of a private good?

an ice cream cone

people with low incomes should pay a smaller fraction of their income in taxes than people with higher incomes

ability to pay principles

If her roommate hates loud music and the smell of donuts makes her sick, she will reject both apartments due to what she sees as

an external cost

Compared to a perfectly competitive industry, a monopolist:

charges a higher price

Suppose Prof. Dumbledorr's magic hat monopoly is broken up and the magic hat industry becomes perfectly competitive. We would expect the _______ to increase from the breakup and _______ to decrease from the breakup

consumer surplus and total surplus; producer surplus

One of the major differences between a monopolist and a purely competitive firm is that the monopolist has a _______ demand curve, while the purely competitive firm has a _______ demand curve. Correct!

downward-sloping; horizontal

Prof. Dumbledorr has a monopoly on magic hats. The large barriers to entry in the magic hat industry is the reason why Dumbledorr's monopoly:

earns an economic profit in the long run.

Laws that require vehicles to have catalytic converters, that restrict or prohibit leaf burning, etc., are all examples of:

environmental standards.

If she likes to stay up late and loves listening to all kinds of music, she will view the bands practicing as a(n)

external benefit

When Lin receives a flu vaccination, it reduces the chance of him catching the flu as well as the chance that his sister will get sick as well. His flu vaccination creates a(n):

external benefit

If she is a morning person and loves the smell of donuts, she will view the donut shop as a(n)

external benefit.

Jase always texts while he drives. He is generating _______ to others.

external cost

Pigouvian taxes are taxes designed to reduce:

external costs.

Monopolies produce differentiated products.

false

Monopolistic competition is a market structure that consists of a small number of producers.

false

Perfect (pure) competition is characterized by product differentiation.

false

Since the 1960s, power plants have taken actions, such as switching to low-sulfur coal and installing scrubbers in their smokestacks, which have significantly reduced the problem of acid rain. Power plants took these actions because

government policies provided power companies with incentives to take these actions.

At the wholesale club, one can buy toothpaste at a lower unit price if one buys six tubes of toothpaste at once. This is an example of ____, which ____ producer surplus.

imperfect price discrimination; increases

If the government only allowed one airline to serve the entire U.S. market, there would be _______ efficiency in the airline industry.

increased

An externality is said to exist when

individuals impose costs or benefits on others, but have no incentive to take these costs and benefits into account.

Suppose the production of roses generates a positive externality in that travelers enjoy the scenic rural vistas. Then the market price of roses:

is less than the marginal social benefit of roses.

Suppose the production of roses generates a positive externality in that travelers enjoy the scenic rural vistas. Then the market quantity of roses produced and consumed:

is less than the socially optimal quantity

In an industry characterized by extensive economies of scale:

large companies are more profitable than small companies

Compared to a monopolist that does not price discriminate, a price discriminator will produce an output that is _____, capture _____ consumer surplus, and generate _____ deadweight loss in the market.

larger; more; less

One of the reasons community colleges receive government subsidies is that it is believed that education creates _______, and therefore without subsidies the quantity produced would be _______ the socially optimal quantity.

positive externalities; less than

a government program designed to help the poor

poverty program

the annual income amount where those beneath the cutoff are considered poor

poverty threshold

Many hotel chains offer discounts for senior citizens. This is an example of _______ that is _______ in the United States.

price discrimination; legal

Assume there are external benefits associated with the production of higher education. Without government regulation, the market will

price higher education less than the marginal social benefit.

The goal of price discrimination is to increase _____ by charging more to those who have _____ demand.

producer surplus; less elastic

One government policy for dealing with a natural monopoly is to:

set a regulated price to eliminate any economic profit.

a government program created to aid individuals who undergo unforeseen financial issues

social insurance program

The principal government agency in the United States responsible for enforcing national environmental policies is:

the Environmental Protection Agency.

After the first unit sold, the marginal revenue a monopolist receives from selling one more unit of a good is less than the price at which that unit is sold, because of:

the firm's downward sloping demand curve

Suppose a monopoly can separate its customers into two groups. If the monopoly practices price discrimination, it will charge the lower price to the group with:

the higher price elasticity of demand.

n the accompanying figure, a perfect competitor will produce at:

the intersection of demand and marginal cost.

Given that there is general agreement that pollution is undesirable and social welfare is increased by reducing pollution, the optimal level of pollution in a society is:

the level of pollution at which the marginal social cost of pollution is equal to the marginal social benefit of pollution

Consider the market for pigs and assume there is a marginal external cost associated with raising pigs because of the smell. Without government regulation, at the market equilibrium price and quantity of pigs:

the price will be less than the marginal social cost.

Clean water in a river is nonexcludable in that:

the supplier cannot prevent consumption by people who do not pay for it.

With tradable emissions permits, the price of the permit is determined by

the supply and demand of permits.

Oligopolies exist in a market that has a small number of producers that may or may not exhibit product differentiation.

true

the collection of government sponsored programs created to ease economic difficulties for effected people

welfare state

The efficient way to reduce pollution is to impose strict environmental standards on all polluters.

False

The external cost of air pollution in Tennessee will show up in the final price of goods in Tennessee, assuming that the government does not intervene in the marketplace.

False

Which of the following is the best example of a free rider problem common among public goods?

Karen never received the measles vaccine and does not get the disease because everyone else around her is vaccinated.

In the town of Linsberg, Chuck is the only craft brewer. In the neighboring town of Krugerville, Justin and Tom each run a craft brewery and compete for customers. Which town is likely to have higher prices and greater deadweight loss?

Linsberg will have higher prices and greater deadweight loss.

Which of the following is the best example of a public good with exclusion?

Satellite radio service

Which of the following would be the best example of a public good?

Snowplowing the streets.

Which of the following is not an example of imperfect price discrimination?

Sotheby's Auction House manages to sell paintings at a price equal to its customers' willingness to pay.

If left totally to the free market, the amount of police protection provided in a city would be _____ than it is now, and free-riders would pay _____ for police protection.

less; nothing

Suppose you own the patent for a new type of bicycle light, giving you a monopoly in the industry. If you lower the price of the light from $10 to $9, then we know for sure that at the new price,

marginal revenue is less than $9.

Suppose government officials have set an emissions tax to reduce pollution. Assume the optimal tax would be $500, but government officials have set the tax equal to $900. Then, we can conclude that at equilibrium:

there will be too little pollution considering the opportunity cost involved.

Suppose government officials have set an emissions tax to reduce pollution. Assume the optimal tax would be $1,500, but government officials have set the tax equal to $500. Then, we can conclude that at equilibrium:

there will be too much pollution

What is the primary reason for the individual mandate?

to make sure healthy people do not opt out and reduce the risk pool for insurance companies

Consider the market for pigs and assume there is a marginal external cost associated with raising pigs because of the smell. If the marginal external cost is $100 per pig and the government imposes a tax of $200 per pig, then at the equilibrium price and quantity of pigs:

too few pigs will be raised.

A market economy, without any government regulation, will produce:

too much pollution.