Practice Questions Exam 3

Formula for Gini Coefficient

Area A / Area A + Area B

which statements are true? I. a major source of income inequality in the US stems from differences in education levels. II. Differences in the number of earners in a household is not a source of income inequality in the US. III.Differences in spending habits is a major factor in explaining income inequality.

I only

which of these is(are) true? I. the tragedy of the commons is most associated with pure private goods II. highway congestion is an example of the tragedy of the commons because new drivers fail to consider the external costs of his using the road III. the tragedy of the commons is NOT an example of market failure

II only

If the marginal damage caused by a certain type of pollution is $100 billion and the marginal cost of abatement is $180 billion, then:

society would be better off if emissions were increased

as wages rise, if an employee works the same number of hours as before, then the:

substitution effect and income effect are of equal magnitude

which of the follow is true regarding the tragedy of the commons?

the activity that leads to the tragedy of the commons is individually rational, the collectively inefficient

If the market supply of labor decreases, which of the following events will occur?

the wage rate will increase and firms will decrease employment to the point where MRP equals the new wage rate

in the United States: - wealth distribution and income distribution are approximately equal - income distribution is less equal than wealth distribution - wealth distribution is less equal than income distribution - income distribution plus tax incentives are equal to wealth distribution

wealth distribution is less equal than income distribution

Basic difference between income and wealth

wealth reflects the accumulates assets of a lifetime and income is what is earned in one year

Public goods represent a market failure because

by their very nature they are nonexcludable and nonrival which makes it difficult for the private sector to supply them profitably.

If the income distribution becomes more equitable, the Lorenz curve moves ____ the distribution of income and the Gini coefficient____.

closer to; declines

government requirements that automobile companies improve gasoline mileage every year is an example of:

command and control policies

pigovian tax

highest minus lowest

Which of these is the MOST significant determinant to income disparity in the US? - inheritance - discrimination - immigration status - individual investment in human capital

individual investment in human capital

Vaccinating people against a communicable disease such as influenza not only reduces the chances that the person vaccinated will catch the disease but also reduces the probability that an epidemic of the disease will occur. Which of the following statements is true?

reducing the chances that a person vaccinated will catch the disease is a private benefit while reducing the probability of an influenza epidemic is a social benefit

____ is when the consumption of a good or service by one person does not reduce the utility of that good or service to others

nonrivalry

the be effective, an environmental policy must do all of the following except: - be enforceable - be efficient - provide incentives for improvement in the environment - reduce pollution to zero

reduce pollution to zero

if a negative externality exits in a market, the marginal

social costs exceeds the marginal private costs

the point at which demand and MSC supply social meet is called:

socially optimal level of production

if the marginal abatement costs outweigh the marginal benefits of pollution abatement:

society is better off if emissions are increased

an equal distribution of income would yield a lorenz curve that was a:

45-degree line between 0 and 100%

We assume that when a firm hires additional workers, the marginal physical product of labor will:

Decrease because each worker now has less capital and other resources to work with

Suppose that a law passes that causes working conditions throughout the economy to improve. The labor supply curve should shift _____ and the number of workers available at any given wage rate will ____.

Right; increase

all of the following are considered private goods except: - streetlights - an ice cream cone - a car - a house

a streetlight

the price of reducing emissions is called the:

abatement cost

Which of these is NOT a cause of income inequality? - differences in human capital - an increase in the number of manufacturing jobs - economic discrimination - numbers of earners per household

an increase in the number of manufacturing jobs

which statement does not explain the Coase theorem? - it holds if transaction costs approach zero - it explains that benefits or income will be different for polluters and victims, depending on how property rights are assigned - it states that efficient results always occur regardless of who is given the property rights - it states that efficient results will occur is both parties share the property rights equally

it states that efficient results will occur if both parties share the property rights equally

academic studies have found that the economic returns to education are:

large and positive

most major league baseball players tent. to earn wages

less than their marginal revenue product

A perfectly competitive firm will hire workers up to the quantity at which the wage rate equals the:

marginal revenue product of labor

income deficit

measures how far below the poverty threshold a household's income lies