econ midterm 3

Suppose the government imposes a tax of 10 percent on the first $40,000 of income and 20 percent on all income above $40,000. What are the tax liability and the marginal tax rate for a person whose income is $50,000? a. $6,000 and 20 percent, respectively b. 12 percent and 20 percent, respectively c. 12 percent and $50,000, respectively d. $6,000 and 12 percent, respectively

a. $6,000 and 20 percent, respectively

Suppose the government imposes a tax of 10 percent on the first $40,000 of income and 20 percent on all income above $40,000. What is the average tax rate when income is $50,000? a. 12 percent b. 15 percent c. 20 percent d. 10 percent

a. 12 percent

Suppose that coal producers create a negative externality equal to $5 per ton of coal. What is the relationship between the equilibrium quantity of coal and the socially optimal quantity of coal? a. The equilibrium quantity is greater than the socially optimal quantity. b. The equilibrium quantity is less than the socially optimal quantity. c. There is not enough information to answer the question. d. They are equal

a. The equilibrium quantity is greater than the socially optimal quantity.

When Monique drives to work every morning, she drives on a congested highway. What Monique does not realize is that when she enters the highway each morning she increases the travel time of all other drivers on the highway. In this case, the external cost of Monique's highway trip a. increases the social cost above the private cost. b. lowers the social cost below the private cost. c. increases the social value above the private benefit. d. decreases the social value below the private benefit.

a. increases the social cost above the private cost.

A taxpayer faces the following tax rates on her income: 20 percent of the first $40,000 of her income;30 percent of all her income above $40,000. The taxpayer faces a. an average tax rate of 22.5 percent when her income is $30,000. b. an average tax rate of 22.0 percent when her income is $50,000. c. a marginal tax rate of 50 percent when her income rises from $60,000 to $60,001. d. a marginal tax rate of 10 percent when her income rises from $40,000 to $40,001.

b. an average tax rate of 22.0 percent when her income is $50,000.

An industry that generates external benefits produces a quantity of output that is: a. socially optimal if a subsidy is given to buyers. b. less than the socially optimal quantity. c. socially optimal. d. greater than the socially optimal quantity.

b. less than the socially optimal quantity.

Because public goods are a. not excludable, people do not have an incentive to be free riders. b. not excludable, people have an incentive to be free riders. c. excludable, people do not have an incentive to be free riders. d. excludable, people have an incentive to be free riders.

b. not excludable, people have an incentive to be free riders.

A person's marginal tax rate equals a. the increase in taxes if her average tax rate were to rise by 1percent. b. the increase in taxes she would pay as a percentage of the rise in her income. c. her tax obligation divided by her income. d. her tax obligation divided by her average tax rate.

b. the increase in taxes she would pay as a percentage of the rise in her income.

Which of the following explains why long-run average total cost at first decreases as output increases? a. Diseconomies of scale b. Less-efficient use of inputs c. Fixed costs becoming spread out over more units of output d. Gains from specialization of inputs

c. Fixed costs becoming spread out over more units of output

In economics, the short run is defined as: a. between one and three years. b. a period that is specific to the type of good under consideration. c. a period, not exceeding one year, in which some inputs are fixed. d. a period in which at least one input is fixed.

c. a period, not exceeding one year, in which some inputs are fixed

Average total cost is very high when a small amount of output is produced because a. average variable cost is high. b. marginal product is high. c. average fixed cost is high. d. marginal cost is high.

c. average fixed cost is high

Goods that are rival in consumption include both a. public goods and common resources. b. club goods and public goods. c. common resources and private goods. d. private goods and club goods

c. common resources and private goods.

In the United States, the marginal tax rate on individual federal income tax: a. is constant at all income levels. b. applies only to payroll taxes. c. increases as income increases. d. decreases as income increases.

c. increases as income increases.

Both public goods and common resources are a. rival in consumption. b. excludable. c. nonexcludable. d. nonrival in consumption.

c. nonexcludable.

A good is excludable if a. it is not a normal good. b. the government can regulate its availability. c. people can be prevented from using it. d. one person's use of the good diminishes another person's enjoyment of it.

c. people can be prevented from using it.

Because of the free-rider problem, a. firework displays provided by private markets have become increasingly popular. b. the federal government spends too many resources on national defense and not enough resources on medical research. c. private markets tend to undersupply public goods. d. poverty can easily be eliminated through private charity.

c. private markets tend to undersupply public goods

If a firm uses labor to produce output, the firm's production function depicts the relationship between a. marginal product and marginal cost. b. fixed inputs and variable inputs in the short run. c. the number of workers and the quantity of output. d. the maximum quantity that the firm can produce as it adds more capital to a fixed quantity of labor.

c. the number of workers and the quantity of output.

It is commonly argued that national defense is a public good. Nevertheless, the weapons used by the U.S. military are produced by private firms. We can conclude that a. national defense is rival in consumption and excludable, but weapons are not rival in consumption and not excludable. b. resources would be used more efficiently if the government produced the weapons. c. weapons are rival in consumption and excludable, but national defense is not rival in consumption and not excludable. d. resources would be used more efficiently if private firms provided national defense.

c. weapons are rival in consumption and excludable, but national defense is not rival in consumption and not excludable.

Tom's Tent Company has total fixed costs of $300,000 per year. The firm's average variable cost is $80 for 10,000 tents. At that level of output, the firm's average total costs equal a. $90 b. $100 c. $80 d. $110

d. $110

In the long run a company that produces and sells popcorn incurs total costs of $1,050 when output is 90 canisters and $1,200 when output is 120 canisters. The popcorn company exhibits a. economies of scale because average total cost is falling as output rises. b. diseconomies of scale because average total cost is rising as output rises. c. diseconomies of scale because total cost is rising as output rises. d. economies of scale because total cost is rising as output rises

d. economies of scale because total cost is rising as output rises.

A difference between explicit and implicit costs is that: a. explicit costs do not require a direct monetary outlay by the firm, whereas implicit costs do. b. implicit costs must be greater than explicit costs. c. explicit costs must be greater than implicit costs. d. implicit costs do not require a direct monetary outlay by the firm, whereas explicit costs do

d. implicit costs do not require a direct monetary outlay by the firm, whereas explicit costs do.

Markets fail to allocate resources efficiently when a. goods are rival in consumption and excludable. b. demanders and suppliers cannot agree on a price. c. too many buyers and sellers exist in the same market. d. property rights are not well established.

d. property rights are not well established.

If a product that generates a negative externality is priced so as to internalize the externality, its price will likely: a.fall, and output will likely rise. b.not change, but output will likely fall. c.rise, but output will likely stay the same. d.rise, and output will likely fall.

d. rise, and output will likely fall.

In some cases, tradable pollution permits may be better than a corrective tax because a. pollution permits allow for a market solution while a corrective tax does not. b. pollution permits generate more revenue for the government than a corrective tax. c. pollution permits are never preferred over a corrective tax. d. the government can set a maximum level of pollution using permits.

d. the government can set a maximum level of pollution using permits.