ECON EXAM #2

A barista at a coffee shop can make 1 pour-over in 5 minutes and 1 latte in 2 minutes. Suppose that the barista is working for 3 hours before their break. Which of the following combinations lies on the barista's production possibilities curve? a. 10 pour-overs and 60 lattes b. 15 pour-overs and 52 lattes c. 20 pour-overs and 40 lattes d. 25 pour-overs and 35 lattes

C

To derive the market demand for a private good, ________. a. vertically sum individual demands b. vertically sum individual firm marginal cost curves c. horizontally sum individual demands d. horizontally sum individual firm marginal cost curves

C

What is the purpose of a Pigouvian tax/subsidy? a. To incentivize a firm to produce the socially optimal level of output b. To eliminate the difference between the private costs/benefits and social costs/benefits c. Both a and b d. None of the above

C

When a Pigouvian tax is imposed, ________. a. the demand curve shifts rightward to meet the supply curve b. the marginal social benefit curve shifts downward to meet the marginal social cost curve c. the marginal private cost curve shifts upward to meet the marginal social cost curve d. the marginal social cost curve shifts downward to meet the marginal private cost curve

C

If the production of a good involves negative externalities, ________. a. the average cost of production of the good in the long run is zero b. the variable cost of production of the good is zero c. the market price of the good is higher than its socially optimal price d. the market price of the good is lower than its socially optimal price

D

In a competitive market, there are a ________ number of buyers and a ________ number of sellers. a. small; small b. small; large c. large; small d. large; large

D

In a perfectly competitive market, an individual seller sells only a negligible fraction of the total amount of the good produced in the market. This is why ________. a. an individual seller always earns positive profits b. an individual seller can charge prices above the equilibrium price c. an individual seller can independently determine the market price d. a seller's individual choices do not affect market price

D

In a perfectly competitive market, sellers ________. a. each have the power to set the price b. are told the price to charge by the government c. sellers coordinate to set the market price d. are price takers

D

Which of the following is NOT a solution to the tragedy of the commons? a. Private ownership (defined by the government) b. Government regulation (e.g. limits on use) c. Tax on the use of a common pool resource good d. None of the above

D

Which of the following is NOT an element of a seller's decision-making process in a perfectly competitive market? a. The cost of inputs b. The price of output c. The relationship between inputs and output d. The number of buyers in the market

D

Which of the following is an example of specialization? a. The cost of production of a light bulb making factory decreasing as its capacity increased b. The output of workers in a chocolate factory doubling when a new manager was appointed c. The import of better technology and machinery from developed countries greatly increasing the number of laser printers manufactured by a company d. Different workers in a shoe factory being allotted different parts of shoe making instead of a worker making an entire shoe

D

Social surplus is equal to the consumer surplus ________ the producer surplus. a. plus b. minus c. multiplied by d. divided by

A

A firm produced 376 units with ten workers. When an eleventh worker was hired, the output increased to 398 units. The marginal product of the eleventh worker is ________. a. 22 units b. 36.18 units c. 37.6 units d. 398 units

A

A firm should shut down in the short run if the price of a good is less than its ________. a. average variable cost b. marginal cost c. average fixed cost d. average total cost

A

A free rider is a person who ________. a. receives the benefit of a good without paying for it b. only consumes products provided by the government c. purchases products available for discounts d. can produce a good at a very low cost

A

A world price for a good is ________. a. the prevailing price of the good in the global market b. the price prevailing in the country with the largest production of the good c. equal to the lowest opportunity cost of producing the good in any country in the world d. the lowest price at which the good is available in any country in the world

A

As the amount of inventory maintained by a firm increases, ________. a. the elasticity of supply of its product increases b. the elasticity of demand for its product decreases c. the elasticity of demand for its product increases d. the elasticity of supply of its product decreases

A

Club goods are ________. a. excludable but non-rival in consumption b. excludable and rival in consumption c. non-excludable but rival in consumption d. non-excludable and non-rival in consumption

A

Deadweight loss refers to the loss in ________. a. total surplus due to a market distortion, such as an externality b. total surplus due to a change in consumers' preferences c. producer surplus due to a fall in the market price of a good d. consumer surplus due to an increase in the market price of a good

A

Externalities essentially create ________. a. a difference between private costs/benefits and social costs/benefits b. rivalry in consumption c. non-excludability in consumption d. a free-rider problem and/or the tragedy of the commons

A

For a buyer, reservation value is the same as ________. a. willingness to pay b. willingness to accept (marginal cost) c. total benefit d. price

A

In a perfectly competitive market, ________. a. sellers produce identical goods b. each seller charges a different price for its product c. bargaining over prices is a common phenomenon d. there are restrictions on the entry of new firms

A

The concept of the invisible hand suggests that ________. a. individuals working for self-interest will eventually maximize the well-being of society b. government intervention is necessary to rectify market imperfections c. the price mechanism allocates resources only to the people with high income in the country d. equilibrium in a competitive market is determined independent of demand and supply

A

The invisible hand is mostly guided by ________. a. market prices b. the costs of production c. government intervention d. the quantity of goods and services sold

A

The long-run supply curve of a firm is ________. a. the portion of its marginal cost curve that lies above its average total cost curve b. its marginal cost curve c. its average total cost curve d. the portion of its marginal cost curve that lies below its average total cost curve

A

The net benefits of sellers are represented by their ________. a. profit b. inventory c. sales d. revenue

A

The size of the slope of the production possibility curve represents ________. a. the opportunity cost of producing one more unit of one good in terms of the forgone production of the other good b. combinations of two goods that are not attainable with existing technology c. the total cost of producing a given level of output d. the rate at which people in an economy would like to trade one good for another

A

The total revenue earned from the sale of a good is ________. a. the price of the good multiplied by the quantity of the good sold in the market b. the cost of production multiplied by the quantity of the good sold in the market c. the price at which the good is sold d. the difference between the price and the cost of production of the good

A

To derive the market demand for a public good, ________. a. vertically sum individual demands b. vertically sum individual firm marginal cost curves c. horizontally sum individual demands d. horizontally sum individual firm marginal cost curves

A

When analyzing the comparative advantage of two economic agents producing two goods, whoever has the lower ________ for a good should specialize in producing that good. a. opportunity cost b. average total cost c. economic profit d. accounting profit

A

When talking about goods, what does "excludability" refer to? a. Whether an economic agent can be prevented from benefitting from a good or service that they did not pay for b. Whether the consumption of a good or service prevents others from consuming it c. Whether a good or service is divisible d. Whether a good or service is transferrable between economic agents

A

A government regulation that bans the use of a certain polluting technology in the production of a good is an example of a ________ used to solve an externality. a. Coasian approach b. command-and-control approach c. market-based approach d. social enforcement mechanism

B

Another argument for free trade is that a. the markets in individual countries should not be left to make their own decisions b. the "winners" from trade can more than compensate the "losers" for their losses c. each economic agent is always going to produce at a point on their PPC d. when a country has absolute advantage in an industry, no other country can produce anything at all in that industry

B

Government intervention is required to solve externality problems if ________. a. the number of people affected by the externality is small b. the number of people affected by the externality is large c. property rights are clearly defined d. transaction costs associated with private negotiations are low

B

Imagine that the economy resembles a pie. In this analogy, ________ concerns with growing the size of the pie, while ________ concerns with how the pie is distributed among the people. a. equity; efficiency b. efficiency; equity c. efficiency; optimization d. equity; optimization

B

In Nevada, the opportunity cost of producing a chair is 1 table and in California, the opportunity cost of producing a chair is 2 tables. Which of the following statements is true? a. Nevada has an absolute advantage in producing tables. b. Nevada has a comparative advantage in producing chairs. c. California has an absolute advantage in producing tables. d. California has a comparative advantage in producing chairs.

B

In the long run, ________. a. all factors of production are fixed b. all factors of production can be changed c. only some inputs of a firm can be changed d. all firms earn positive economic profits

B

Private goods are ________. a. excludable but non-rival in consumption b. excludable and rival in consumption c. non-excludable but rival in consumption d. non-excludable and non-rival in consumption

B

Producer surplus for a perfectly competitive firm is ________. a. the same as profit b. the area under the market price and above the firm's marginal cost curve c. the area under firm's total cost curve and above marginal cost d. Always zero

B

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 to be $30. If they trade, the social surplus will be ________. a. $15 b. $35 c. $45 d. $65

B

The Coase Theorem relies on internalizing externalities through ________. a. the provision of corrective subsidies b. negotiations between the parties involved c. the imposition of corrective taxes d. social enforcement mechanisms

B

The price elasticity of supply is the ________. a. price associated with a particular quantity supplied b. percentage change in quantity supplied due to a percentage change in price c. change in price due to a change in quantity supplied d. percentage change in price due to a change in quantity supplied

B

The primary goal of a seller is to ________. a. maximize opportunity cost b. maximize profits c. minimize consumer surplus d. minimize deadweight loss

B

The reservation value of a seller reflects ________. a. total cost b. marginal cost c. marginal revenue d. willingness to pay for using a resource

B

The tragedy of the commons occurs because some goods are ________ in consumption. a. excludable b. non-excludable but rival c. non-rival d. non-rival and non-excludable

B

Why is the slope of the production possibility curve (PPC) negative? a. If the slope of the PPC was positive instead, then wages would be negative. b. Since there is a fixed amount of resources, the negative slope of the PPC represents the existence of a trade-off between the production of different goods using those resources. c. It is always possible to produce more of both goods that the PPC represents. d. None of these.

B

_______ relates to the distribution of resources across society. a. Utility b. Equity c. Efficiency d. Social surplus

B

An outcome is Pareto efficient if ________. a. the benefits of the outcome are equally distributed among all participants b. the costs of the outcome are equally shared by all participants c. no individual can be made better off without making someone else worse off d. an individual can be made better off without making someone else worse off

C

Common pool resource goods are ________. a. excludable but non-rival in consumption b. excludable and rival in consumption c. non-excludable but rival in consumption d. non-excludable and non-rival in consumption

C

For social surplus to be maximized, the ________ buyers are actually making a purchase and the ________ sellers are selling the products. a. lowest-value; lowest-value b. lowest-value; highest-cost c. highest-value; lowest-cost d. highest-value; highest-cost

C

How can a government help prevent the free rider problem for a good or service? a. By paying for the good or service itself b. By making other countries pay for the good or service c. By making everyone in a country pay for the good or service d. None of the above

C

Jack takes 4 hours to complete a painting and 3 hours to create a sculpture. He has 30 hours of time to spend on both activities. Which of the following combinations will lie above Jack's production possibilities curve? a. 5 paintings and 3 sculptures b. 6 paintings and 2 sculptures c. 10 paintings only d. 10 sculptures only

C

Marginal cost is the ________. a. total cost of producing a given level of output b. average cost of producing a given level of output c. change in total cost associated with producing one more unit of output d. cost(s) a firm must pay even if it produces nothing

C

Marginal revenue is ________. a. always greater than total revenue b. the product of the price of a good and its quantity sold minus the cost of production c. the change in total revenue associated with producing one more unit of output d. always equal to price

C

The ability of an individual, firm, or country to produce a certain good at a lower opportunity cost than other producers is referred to as ________ advantage. a. absolute b. cardinal c. comparative d. marginal

C

The change in the total output of a firm associated with using one more unit of an input is referred to as the ________. a. average product of the input b. total product c. marginal product of the input d. variable product of the input

C

The presence of a positive externality in a market leads to a(n) ________. a. gain in producer surplus b. overproduction of a good c. underproduction of a good d. fall in consumer surplus

C

Which of the following statements best describes absolute advantage? a. The party who has the higher opportunity cost of producing the good b. The party who can produce less of the good c. The party who can produce more of the good d. The party who has the lower opportunity cost of producing the good

C

Which of the following statements is true in the short run? a. All factors of production are fixed. b. All factors of production can be changed. c. Only some of a firm's input can be varied. d. All firms earn zero economic profits.

C

Which of the following statements is true of a perfectly competitive market? a. Sellers in the market produce differentiated goods. b. There are only a few buyers and sellers in the market. c. There is free entry and exit in the market. d. Sellers and buyers both set prices to compete in the market

C

______ occurs when an individual has no incentive to pay for a good because failure to pay does not prevent consumption. a. The paradox of plenty b. A tragedy of the commons c. A free-rider problem d. The paradox of thrift

C

A machine can manufacture 1 unit of Good X in 2 hours and 1 unit of Good Y in 1 hour. Assuming that the machine is used for 10 hours, which of the following combinations will lie below the production possibilities curve? a. 5 units of Good X and 2 units of Good Y b. 3 units of Good X and 4 units of Good Y c. 6 units of Good X only d. 2 units of Good X and 2 units of Good Y

D

A(n) ________ is any good that is produced abroad but sold domestically,, and a(n) ________ is any good that is produced domestically but sold abroad. a. private good; public good b. public good; private good c. export; import d. import; export

D

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 that economic activity

D

For a perfectly competitive firm, profit maximization requires producing ________. a. at a level of output where marginal revenue is greater than marginal cost b. at the level of output where marginal revenue is zero c. at a level of output where marginal revenue is greater than price d. the level of output where marginal revenue equals marginal cost

D

Increases in the marginal product of labor can be attributed to ________. a. the depreciation of capital b. better use of work space c. diminishing returns to workers d. the specialization of workers

D

Public goods are ________. a. excludable but non-rival in consumption b. excludable and rival in consumption c. non-excludable but rival in consumption d. non-excludable and non-rival in consumption

D

The decrease in social surplus from a market distortion is referred to as ________. a. Pareto loss b. market loss c. revenue loss d. deadweight loss

D

What does the production possibilities curve (PPC) show? a. The total amount of goods an economy can produce b. The rate at which an economy can trade production of one good for another c. How much of one good an economy can produce if they forgo production of another good d. The relationship between the maximum production of one good for a given level of production of another good

D

When the production of a good generates negative externalities, ________. a. the private cost of production exceeds the social cost of production b. the fixed cost of production is zero c. the variable cost of production is zero d. the social cost of production exceeds the private cost of production

D

Which of the costs below is an example of a fixed cost in the short run? a. Fuel costs to a taxicab service b. The cost of paper to a copy shop c. The wages paid to workers at a landscaping firm d. A 3-year lease on retail space at the local mall for a clothing retailer

D

Which of the following is an example of a public good? a. A park in a residential area b. A library system c. National defense d. All of the above

D

One of the arguments for free trade is that a. social surplus is increased past the level that the closed economy can achieve on its own b. producer surplus is increased past the level that the open economy can achieve on its own c. consumer surplus is increased past the level that the open economy can achieve on its own d. marginal cost is increased past the level that the open economy can achieve on its own

A

Which of the following statements is true? a. Trade between nations allows each nation to specialize in the production of goods for which it has comparative advantage. b. Trade between two nations is most beneficial when neither has a comparative advantage in the production of any goods and services. c. When two nations specialize and trade, there is a loss of efficiency and both the nations are made worse off. d. Trade between two nations is possible only when the opportunity costs of producing goods and services in both nations are identical.

A

Why would a firm decide to produce a positive quantity of an output even though it makes negative profits by doing so? (in the short run) a. Because the price is high enough to cover the average variable cost. b. Because the price is high enough to cover the average fixed cost. c. Because the price is high enough to cover the average total cost. d. A firm would never produce when profit is negative.

A

_______ occur when average total cost falls as the quantity produced increases. a. Economies of scale b. Diseconomies of scale c. Decreasing marginal returns d. Increasing marginal returns

A

Which of the following happens when a Pigouvian subsidy is provided? a. The marginal private cost curve shifts downward to meet the marginal social cost curve b. The marginal private benefit curve shifts upward to meet the marginal social benefit curve c. The marginal social benefit curve shifts downward to meet the marginal social cost curve d. The marginal social cost curve shifts upward to meet the marginal social benefit curve

B

The short-run supply curve of a competitive firm is ________. a. the portion of its marginal cost curve that lies below its average cost curve b. the portion of its marginal cost curve that lies above its average variable cost curve c. the portion of its average cost curve that lies above its marginal cost curve d. the portion of its average cost curve that lies below its marginal cost curve

B

What a firm must pay for its inputs is referred to as its ________. a. loss in production b. cost of production c. production value d. opportunity cost

B

When an outcome is Pareto efficient, ________. a. social surplus is minimized b. social surplus is maximized c. producer surplus is more than consumer surplus d. producer surplus is less than consumer surplus

B

When buyers and sellers optimize in a perfectly competitive market, ________. a. social surplus is minimized b. social surplus is maximized c. only consumer surplus is minimized d. only consumer surplus is maximized

B

When talking about goods, what does "rivalry" refer to? a. Whether an economic agent can be prevented from benefitting from a good or service that they did not pay for b. Whether the consumption of a good or service prevents others from consuming it c. Whether a good or service is divisible d. Whether a good or service is transferrable between economic agents

B

Which of the following examples best describes the concept of free entry? a. Budweiser wanting to expand its production and therefore doubling its annual recruitment b. Evie making a Craigslist post to sell their old cell phone c. The government joining the gasoline market to correct for shortages or surpluses in the market d. General Motors deciding to charge lower than the market price to get a higher percentage of buyers

B

Which of the following is false regarding externalities? a. Externalities are imposed on agents other than the parties to an economic exchange. b. Externalities have no effect on market efficiency. c. Externalities can be either positive or negative. d. Externalities can occur in either consumption or production.

B

Which of the following is the difference between variable costs and fixed costs? a. Variable costs are incurred by a firm only in the long run, whereas the firm incurs some fixed costs in both the short run and the long run. b. Variable costs of a firm are zero after a firm shuts down, whereas the firm continues to incur the fixed costs of production in the short run. c. Variable costs are the costs incurred on variable factors of production, whereas fixed costs are the costs incurred on all factors of production. d. Variable costs exist even when production is zero, whereas fixed costs exist only when there is some positive level of production.

B

When deciding whether to trade, economic agents must consider their ________ advantage. a. marginal cost b. marginal revenue c. comparative advantage d. absolute advantage

C

Which of the following best describes a command economy? a. An economy in which there are a few privately owned firms b. An economy in which resources are allocated through the price mechanism c. An economy where strong controls are imposed by the ruling authority d. An economy that is characterized by a barter trade of goods and services

C

How is marginal cost calculated? a. Divide the total cost by the total output b. Divide change in the total cost by the total output c. Divide the total cost by the change in the total output d. Divide the change in the total cost by the change in the total output

D

If an economy is producing on the production possibilities curve, then that economy ________. a. is not making full use of its resources b. must have the government allocating resources c. is maximizing profits d. is making full use of its resources

D

If positive externalities are present in a free market, ________ at any output level. a. the marginal cost of production equals the average cost of production b. the marginal social cost of production exceeds the marginal private cost c. the marginal private benefit from production equals the marginal social benefit d. the marginal social benefit of production exceeds the marginal private benefit

D

Which of the following statements is true? a. The firm that faces a lower opportunity cost of producing a good is said to have an absolute disadvantage in the production of that good. b. The firm that has a lower opportunity cost of producing a good is said to have a comparative disadvantage in the production of that good. c. When two firms have the same opportunity cost of producing two goods, each firm will always have a comparative advantage in the production of both goods. d. When two firms have different opportunity costs of producing two goods, each firm will always have a comparative advantage in the production of one of the goods.

D