Econ Exam 3

B) $6

32. (Figure: Coal Externalities) Based on the figure, MPC represents the private supply curve of electricity made from coal. MSC includes the marginal social cost of toxicity borne by others. What is the amount of the Pigovian tax to bring electricity production to a socially optimal level? A) $10 B) $6 C) $4 D) $2

B) social cost exceeds the marginal private cost.

31. If a negative externality exists in a market, the marginal: A) private cost exceeds the marginal social cost. B) social cost exceeds the marginal private cost. C) private benefit exceeds the marginal social benefit. D) social benefit exceeds the marginal private benefit.

D.

There has been an increase in the demand for automobiles. Which graph would best reflect the impact on the demand for automobile workers?

C) Area A / Area A+B+C

(Figure: Lorenz Curve for Two Countries) The Gini coefficient for Country 1 would be equal to: A) Area B / Area A+B+C B) Area B+C / Area A+B+C C) Area A / Area A+B+C D) Area A+C / Area A+B+C

B) The income effect is stronger than the substitution effect at point B.

(Refer to the figure above) Which of the following statements is true? A) The income effect is stronger than the substitution effect at point A. B) The income effect is stronger than the substitution effect at point B. C) This graph represents the market supply of labor. D) An individual labor supply curve like that shown in the graph above could not occur in the real world.

C) 4 workers

(Table: Labor and Quantity of Output) The table shows the production function for a firm using a given amount of capital. If the price of the product is $15 each, how many workers would the firm employ if the wage per worker is $90? A) 6 workers B) 5 workers C) 4 workers D) 3 workers

D) right; increase

1. 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 _____. A) left; decrease B) left; increase C) right; decrease D) right; increase

C) four.

10. (Table 11.1) If the payment to labor per day is $100, this T-shirt manufacturer is maximizing profits if he will hire ________ employees. A) one. B) two. C) four. D) five.

B) reduce employment to 15 workers to increase profits.

11. (Figure 11.1) This firm is currently hiring 16 workers and paying a wage of $10. This firm should A) do nothing because it is maximizing profits. B) reduce employment to 15 workers to increase profits. C) reduce employment to 14 workers to increase profits. D) increase employment to 17 workers to increase profits.

C) The wage rate will increase and firms will decrease employment to the point where MRP equals the new wage rate.

12. If the supply of labor decreases, which of the following events will occur? A) The wage rate will fall and firms will increase employment up until the point where MRP equals the new wage rate. B) The wage rate will fall and firms will decrease employment to the point where MRP equals the new wage rate. C) The wage rate will increase and firms will decrease employment to the point where MRP equals the new wage rate. D) The wage rate will increase and firms will increase employment up until the point where MRP equals the new wage rate.

C) shift to the right.

13. An increase in technology will cause a marginal revenue product of labor curve to A) be unaffected because the productivity of labor has not changed. B) shift to the left. C) shift to the right. D) become more inelastic.

C) $100.

9. (Table 11.1) The marginal revenue product of the fourth worker is A) $5. B) $20. C) $100. D) $475.

A) A new computer program allowed people to complete graphic designs automatically, without the aid of a trained designer.

15. Suppose that the graph shown above depicts a change in the labor market for graphic designers. Which of the following events could have produced the change we see in this graph? A) A new computer program allowed people to complete graphic designs automatically, without the aid of a trained designer. B) Many new graphic designers graduated from a top training program. C) The wage offered for specialized graphic design services rose. D) The market for graphic designers expanded.

A) I only

17. Which statement(s) is(are) true? I. A major source of income inequality in the United States 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 United States. III. Differences in spending habits is a major factor in explaining income inequality. A) I only B) II only C) III only D) I and II only

C) I and III only

18. Which of these statements is(are) true? I. The official U.S. poverty threshold for an individual is an income of roughly $30 per day. II. The World Bank and other agencies define poverty as incomes of less than $20 per day. III. An individual in the United States with an income of $20 per day is defined to be in poverty by U.S. standards. A) I only B) II only C) I and III only D) I, II, and III

B) closer to; declines

19. If the income distribution becomes more equitable, the Lorenz curve moves _____ the line of equal distribution of income and the Gini coefficient _____. A) closer to; rises B) closer to; declines C) farther away from; rises D) farther away from; declines

A) decrease because each worker now has less capital and other resources to work with.

2. We assume that when a firm hires additional workers, the marginal physical product of labor will: A) decrease because each worker now has less capital and other resources to work with. B) decrease because the new workers are likely to be less productive than the previously hired workers. C) increase because more workers can get more work done. D) increase because large firms are more efficient.

C) wealth distribution is less equal than income distribution.

20. In the United States: A) wealth distribution and income distribution are approximately equal. B) income distribution is less equal than wealth distribution. C) wealth distribution is less equal than income distribution. D) income distribution plus tax incentives are equal to wealth distribution.

D) individual investment in human capital

21. Which of these is the MOST significant determinant of income disparity in the United States? A) inheritance B) discrimination C) immigration status D) individual investment in human capital

B) an increase in the number of manufacturing jobs

22. Which of these is NOT a cause of income inequality? A) differences in human capital B) an increase in the number of manufacturing jobs C) economic discrimination D) number of earners per household

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

23. The income deficit: A) measures how far below the poverty threshold a household's income lies. B) measures the difference between a person's wealth and income. C) measures how far above the poverty threshold a household's income lies. D) measures how far below the median income a household's income lies.

C) physical disability

24. Which of these is a significant reason why an individual would demonstrate no upward income mobility? A) a high tax burden B) higher food prices C) physical disability D) rise in education costs

B) transfer payments.

25. All of these are classified as functional distributions of income, EXCEPT: A) proprietor's income (small business). B) transfer payments. C) rent. D) corporate profit.

D) unequal, because incomes differ by age

26. Suppose that all people within a given age group have the same earnings profile and that the percentage of the population in each age category is the same. The distribution of income at any point in time will be: A) equal, because incomes and wealth levels must then be the same. B) unequal, because other sources of income will differ. C) equal, because all have the same profile. D) unequal, because incomes differ by age.

C) 45‐degree line between 0 and 100%.

27. An equal distribution of income would yield a Lorenz curve that was a A) line lying directly on the horizontal axis. B) line lying directly on the vertical axis at 0%. C) 45‐degree line between 0 and 100%. D) line lying directly on the vertical axis at 100%.

B) had the effect of improving the lot of the very poor.

28. Any society bound by a contract calling for an income distribution that would maximize the well‐being of the worst‐off member of society would allow for inequality if that inequality A) was justified by differences in individualsʹ productivity. B) had the effect of improving the lot of the very poor. C) could not be reduced without making someone worse off. D) was justified by the needs of individuals.

C) wealth reflects the accumulated assets of a lifetime and income is what is earned in one year.

29. The basic difference between income and wealth is that A) wealth is distributed more equally than income. B) the rich have much wealth but little income, while the opposite is true for the poor. C) wealth reflects the accumulated assets of a lifetime and income is what is earned in one year. D) income grows faster than wealth.

A) marginal revenue product of labor.

3. A perfectly competitive firm will hire workers up to the quantity at which the wage rate equals the: A) marginal revenue product of labor. B) average physical product of labor. C) marginal factor cost of labor. D) price of the extra output produced.

D) were cut in half.

30. From 1960 to 1973, poverty rates in the United States: A) increased dramatically. B) increased greatly and then returned to the 1960 poverty rate. C) remained remarkably constant. D) were cut in half.

D) It states that efficient results will occur if both parties share the property rights equally.

33. Which statement does NOT explain the Coase theorem? A) It holds if transaction costs approach zero. B) It explains that benefits or income will be different for polluters and victims, depending on how property rights are assigned. C) It states that efficient results always occur regardless of who is given the property rights. D) It states that efficient results will occur if both parties share the property rights equally.

B) Nonrivalry

34. _____ is when the consumption of a good or service by one person does not reduce the utility of that good or service to others. A) Rivalry B) Nonrivalry C) Excludability D) Nonexcludability

B) II only

35. 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 a new driver fails to consider the external costs of his using the road. III. The tragedy of the commons is NOT an example of market failure. A) I only B) II only C) I and II only D) II and III only

B) society would be better off if emissions were increased.

36. If the marginal damage caused by a certain type of pollution is $100 billion and the marginal cost of abatement is $180 billion, then: A) society would be better off with zero pollution. B) society would be better off if emissions were increased. C) command and control policies should always be used. D) society would be better off if emissions were reduced.

C) command and control policies.

37. Government requirements that automobile companies improve gasoline mileage every year is an example of: A) market-based policies. B) tradable permits. C) command and control policies. D) communism.

A) the incentives of government policymakers are not aligned with the public interest.

38. Government failure occurs when: A) the incentives of government policymakers are not aligned with the public interest. B) public policies bring about an optimal allocation of resources. C) government regulation increases positive externalities. D) property rights can be enforced with minimum transaction costs.

A) abatement cost.

39. The price of reducing emissions is called the: A) abatement cost. B) Pigouvian tax. C) aesthetic loss. D) emissions tax.

B) Less than their marginal revenue product

4. Most major league baseball players tend to earn wages: A) More than their marginal revenue product B) Less than their marginal revenue product C) Equal to their marginal revenue product D) Twice their marginal revenue product

B) society is better off if emissions are increased.

40. If the marginal abatement costs outweigh the marginal benefits of the pollution abatement: A) society is better off if emissions are reduced. B) society is better off if emissions are increased. C) no environmental cleanup should be undertaken. D) emissions should be cut to zero.

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

41. Public goods represent a market failure because A) they are provided by firms with market power. B) positive externalities are created through their production. C) by their very nature they are nonexcludable and nonrival which makes it difficult for the private sector to supply them profitably. D) their is incomplete information regarding their quality.

A) fewer healthy people will be insured

42. As a result, of adverse selection problems in the health insurance market, it is likely that over time ________ . A) fewer healthy people will be insured B) fewer unhealthy people will be insured C) fewer healthy and unhealthy people will be insured D) more healthy people will be insured

B) The activity that leads to the tragedy of the commons is individually rational but collectively inefficient.

43. Which of the following is true regarding the tragedy of the commons? A) The activity that leads to the tragedy of the commons is individually irrational but collectively inefficient. B) The activity that leads to the tragedy of the commons is individually rational but collectively inefficient. C) The activity that leads to the tragedy of the commons is both individually rational and collectively efficient. D) The tragedy of the commons does not impact surplus in society.

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

44. 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? A) Reducing the chances that the person vaccinated will catch the disease is a private cost while reducing the probability of an influenza epidemic is a social benefit. B) Vaccinating people against communicable diseases yields private benefits in excess of social benefits. C) Reducing the chances that the person vaccinated will catch the disease is a private benefit while reducing the probability of an influenza epidemic is a social benefit. D) The benefits of the influenza vaccination outweigh the costs.

D) reduce; increases

45. If the proceeds from a Pigouvian tax are used to income tax rates, then efficiency in both markets. A) increase; increases B) reduce; reduces C) increase; reduces D) reduce; increases

C) a decrease in the demand for male-dominated jobs and an increase in the demand for female- dominated jobs.

8. Everything else held constant, there has been a decrease in the wage differential between men and women. A possible explanation for this could be: A) an increase in the demand for male-dominated jobs. B) a decrease in the demand for female-dominated jobs. C) a decrease in the demand for male-dominated jobs and an increase in the demand for female- dominated jobs. D) a decrease in the demand for male-dominated jobs and a decrease in the demand for female- dominated jobs.

A) more elastic

The elasticity of demand for cucumbers is -3 while the elasticity of demand for salt is -0.2. Thus, ceteris paribus, the demand for labor to pick cucumbers will be _____ compared to the demand for labor to mine salt. A) more elastic B) less elastic C) equally elastic D) more inelastic