ECON Midterm 2
The Coase Theorem suggests that private solutions to an externality problem
will usually allocate resources efficiently if private parties can bargain without cost
if the price a consumer pays for a product is equal to a consumer's willingness to pay, then the consumer surplus relevant to that purchas is
zero
Industrial organization is the study of
how firms' decisions regarding prices and quantities depend on the market conditions they face
Welfare economics is the study of
how the allocation of resources affects economic well-being
Market power and externalities are examples of
market failure
Which of the following policies is an example of a command-and-control policy?
maximum levels of pollution that factories may emit
In a market economy, government intervention
may improve market outcomes in the presence of externalities
National defense is an example of a good that is
non-excludable and non-rival
The reason the marginal cost curve eventually increases as output increases because:
of the diminishing returns
Which would be an implicit cost for a firm? The cost
of wages foregone by the owner of the firm when he decided to start his own business
Which of the following policies is the government most inclined to use when faced with a positive externality?
subsidies
A production function describes
how a firm turns inputs into output
Formula for average total cost
ATC=TC/Q
Formula for total cost
FC+VC=TC
Formula for Profit
P+TR-TC
People can be prevented from using a good if the good is
a private good or a club good
Suppose a tax is imposed on the sellers of fast-food french fries. The burden of the tax will
be shared by the buyers and sellers of fast-food french fries but not necessarily equally
Consider a good to which a per-unit tax applies.The greater the price elasticities of demand and supply for the good, the
greater the deadweight loss from the tax
Formula for marginal cost
changes in TC divided by Quantity
The parable called the Tragedy of the Commons applies to goods such as
clean air and clean water
Economists assume that a firm's objective is to maximize its:
economic profit
If an aluminum manufacturer does not bear the entire cost of the smoke it emits, it will
emit a higher level of smoke than is socially efficient
If policymakers use a pollution tax (imposed on producers) to control pollution and bring about an efficient level of output, the tax per unit of pollution should be set:
equal to the external cost of production
A firms' opportunity costs of production are equal to its
explicit costs + Implicit costs
When a good is taxed, the burden of the tax
falls more heavily on the side of the market that is more inelastic
If the use of a common resource is not regulated,
it will be overused
When the government imposes taxes on buyers or sellers of a good, society
loses some of the benefits of market efficiency
Because of the free-rider problem,
private markets tend to undersupply public goods
The phenomenon of free riding is most closely associated with which type of good?
public goods
Consumer surplus is
the amount a buyer is willing to pay for a good minus the amount the buyer actually pays
Economists disagree on whether labor taxes cause small or large deadweight losses. This disagreement arises primarily because economists hold different views about
the elasticity of labor supply
Which of these assumptions is often realistic for a firm in the short run?
the firm can vary the number of workers it employs but not the size of its factory
Deadweight loss is:
the reduction in economic surplus resulting from a market not being in competitive equilibrium
Efficiency in a market is achieved when
the sum of producer and consumer surplus is maximized
The laffer curve relates
the tax rate to tax revenue raised by the tax