Econ 202 test 2

Katherine gives piano lessons for $15 per hour. She also grows flowers, which she arranges and sells at the local farmer's market. One day she spends 5 hours planting $50 worth of seeds in her garden. Once the seeds have grown into flowers, she can sell them for $150 at the farmer's market. Katherine's accounting profits are

$100, and her economic profits are $25.

At low levels of production, the firm

-benefits from increased size because it can take advantage of greater specialization. -has the potential for economies of scale. -is unlikely to experiences acute problems with coordination.

when a tax levied on a good

-government collects revenues which might justify the loss in total welfare. -there is a decrease in the quantity of the good bought and sold in the market. -a wedge is placed between the price buyers pay and the price sellers effectively receive.

13. Most economists prefer corrective taxes to regulation as a way to correct the problem of pollution because

-the market-based solution is less costly to society. -the market-based solution can result in a greater reduction in pollution. -the market-based solution raises revenue for the government.

Implicit costs

Do not require a cash outlay E.g., the opportunity cost of the owner's time.

Who among the following is a free rider?

Ernie listens to National Public Radio, but does not contribute to any fundraising efforts.

Private goods

Excludable & Rival in consumption (food)

. Denmark is an importer of computer chips, taking the world price of $12 per chip as given. Suppose Denmark imposes a $5 tariff on chips. Which of the following outcomes is possible?

More Danish-produced chips are sold in Denmark.

Public goods

Not excludable & Not rival in consumption (national defense)

Excludability

Property of a good whereby a person can be prevented from using it. wirless internet access

Rivalry in consumption

Property of a good whereby one person's use diminishes other people's use. fish taco

Explicit costs

Require an outlay of money E.g., paying wages to workers.

Chile is an importer of computer chips, taking the world price of $12 per chip as given. Suppose Chile imposes a $7 tariff on chips. Which of the following outcomes is possible?

The price of chips in Chile increases to $19; the quantity of Chilean-produced chips increases; and the quantity of chips imported by Chile decreases.

walter used to work as a high school teacher for $40,000 per year but quit in order to start his own painting business. To invest in his painting business, he withdrew $20,000 from his savings, which paid 3 percent interest, and borrowed $30,000 from his uncle, whom he pays 3 percent interest per year. Last year Walter paid $25,000 for supplies and had revenue of $60,000. Walter asked Tyler the accountant and Greg the economist to calculate his painting business's costs.

Tyler says his costs are $25,900, and Greg says his costs are $66,500.

According to Arthur Laffer, the graph that represents the amount of tax revenue (measured on the vertical axis) as a function of the size of the tax (measured on the horizontal axis) looks like

an upside-down U.

The idea that "externalities arise because something of value has no price attached to it" is associated with

both public goods and common resources.

Pay-per-view broadcasts are

club goods.

When a country allows trade and becomes an exporter of a good,

consumer surplus decreases and producer surplus increases.

The difference between social cost and private cost is a measure of the

cost of an externality.

The fundamental reason that marginal cost eventually rises as output increases is because of

diminishing marginal product.

Fixed costs

do not vary with the quantity of output produced For Farmer Jack, FC = $1000 for his land Other examples: cost of equipment, loan payments, rent

One economically efficient way to eliminate the Tragedy of the Commons is to

establish private ownership of the resource.

Both private goods and club goods are

excludable.

The long-run average total cost curve is always

flatter than the short-run average total cost curve, but not necessarily horizontal.

For the purpose of analyzing the gains and losses from a tax on a good, we use tax revenue as a direct measure of the

government's benefit from the tax.

Economies of scale occur when a firm's

long-run average total costs are decreasing as output increases.

Diseconomies of scale occur when a firm's

long-run average total costs are increasing as output increases.

A television broadcast is an example of a good that is

not rival in consumption.

The Coase theorem asserts that, in the presence of externalities,

private economic actors sometimes can reach a bargain that produces an efficient outcome.

When a country abandons a no-trade policy, adopts a free-trade policy, and becomes an importer of a particular good,

producer surplus decreases and total surplus increases in the market for that good.

If the tax on a good is doubled, the deadweight loss of the tax

quadruples.

Each of the following would be considered a common resource except a

streetlight.

Buyers of a product will bear the larger part of the tax burden, and sellers will bear a smaller part of the tax burden, when the

supply of the product is more elastic than the demand for the product.

Which of the following pairs of goods includes a good that is excludable and rival in consumption as well as a good that is not excludable and not rival in consumption?

tablet computer, national defense

A tariff is a

tax on an imported good.

The Laffer curve illustrates that

tax revenue first rises, then falls as a tax increases.

If a country allows trade and, for a certain good, the domestic price without trade is higher than the world price,

the country will be an importer of the good

A rain barrel is a container that captures and stores rainwater for landscape and garden use during dry periods. As a result, rain barrels benefit the community through water conservation. If homeowners do not consider this external benefit of rain barrels, then

the socially optimal quantity of rain barrels will be larger than the equilibrium quantity of rain barrels.

If a country is an exporter of a good, then it must be the case that

the world price is greater than its domestic price.

Variable costs

vary with the quantity of output produced For Farmer Jack, VC = wages he pays workers Other example: cost of materials

In the short run, a firm incurs fixed costs

whether it produces output or not.