Exam 2 Econ 2010

$0

Refer to the graph below. The graph shows an individual's demand curve for tea. If the price is $3.00, what is consumer surplus for the fourth cup of tea. $3.00 $2.00 $1.00 $0

A good that is rival but nonexclusive. ie forest land in a poor country

common resource

$43.33

Refer to the table below. What is the marginal cost of producing the 640th pizza? $43.33 $650.00 $4050.00 $4700.00

when a firm's long-run average cost remains unchanged as it increases output

constant returns to scale

argument that if transactions costs are low, private bargaining will result in an efficient solution to the problem of externalities.

Coase theorem

measures the difference between the highest price a consumer is willing to pay and the price the consumer actually pays.

Consumer Surplus

is the processes it uses to turn inputs into outputs of goods and services

Define Technology economically

exist when a firm's long-run average cost rises as it increases output. Diseconomies of scale may result when managers have difficulty coordinating the sheer amount of product

Diseconomies of scale

a market outcome in which the marginal benefit to consumers of the last unit produced is equal to its marginal cost of production and in which the sum of consumer surplus and producer surplus is at a maximum

Economic efficiency

a benefit or cost that affects someone who is not directly involved in the production or consumption of a good or service

Externality

too much

Fill in the blank. When a negative externality is present in producing a good or service, ______ of the good or service will be produced at market equilibrium. too much too little the optimal quantity none

low; efficient

Fill in the blanks. According to the Coase theorem, if transactions costs are__, private bargaining will result in an __solution to the problem of externalities. low; efficient low; inefficient high; efficient high; optimal

the variable input; output

Fill in the blanks. When graphing a conventional short-run production function, we place____ on the horizontal axis and ____on the vertical axis. output; the variable input the variable input; the fixed input the fixed input; the variable input the variable input; output

higher; is not

Fill in the blanks. When there are many people involved, the transactions costs are often___ than the net benefits from reducing an externality. In such cases, a private solution to an externality problem ___feasible. higher; is higher; is not lower; is lower; is not

$208 - $81 = $127

If the average price that cable subscribers are willing to pay for cable television is $208, but the actual price they pay is $81, how much is consumer surplus per subscriber? $208 + $81 = $289 $208 - $81 = $127 $81 + $127 = $208 $81

They are part of fixed cost.

If the number of people in a publishing company does not go up or down with the quantity of books it publishes, then how should we categorize the salaries and benefits paid to these employees? They are part of fixed cost. They are part of variable cost. They are an implicit cost. They are not considered a part of the cost of production.

a price ceiling.

In response to information regarding the salaries of executives at firms receiving bailout funds in the United States, some people have called for a limit on the salaries paid to executives. Such a limit on the compensation executives can receive is an example of: -a price floor. -a price ceiling. -an equilibrium price. -rent control.

8 cents per gallon

Refer to the graph below. A tax is imposed in this market that shifts the supply curve from S1 to S2. In this graph, how much of the gas tax do consumers pay? 2 cents per gallon 8 cents per gallon 10 cents per gallon $1.50 per gallon

the light gray area

Refer to the graph below. A tax is imposed in this market that shifts the supply curve from S1 to S2. What area corresponds to the excess burden (aka, deadweight loss) from the tax? the dark gray area the light gray area the sum of the dark gray and light gray areas an area not shown on this graph

the dark gray area

Refer to the graph below. A tax is imposed in this market that shifts the supply curve from S1 to S2. What area corresponds to the revenue collected by the government from the tax? the dark gray area the light gray area the sum of the dark gray and light gray areas an area not shown on this graph

$2.98

Refer to the graph below. A tax is imposed in this market that shifts the supply curve from S1 to S2. What price do producers receive after this tax is imposed? $1.98 $2.98 $3.08 None of the above

a surplus of workers.

Refer to the graph below. According to this graph, the existence of a minimum wage in the market for low-skilled workers results in: a shortage of workers. a surplus of workers. neither a shortage nor a surplus of workers. a scarcity of workers.

an increase in wages but lower employment.

Refer to the graph below. According to this graph, the existence of a minimum wage in the market for low-skilled workers results in: an increase in wages and employment. an increase in wages but lower employment. a decrease in wages but higher employment. a decrease in wages and employment.

Area A is consumer surplus transferred to producers.

Refer to the graph below. After a price of $3.50 is imposed by the government in this market, what meaning do we give to area A? Area A is consumer surplus transferred to producers. Area A is additional consumer surplus that goes to existing consumers in the market. Area A is a deadweight loss. Area A is a surplus of wheat.

-deadweight loss

Refer to the graph below. After a price of $3.50 is imposed by the government in this market, what meaning do we give to area B + C? -producer surplus transferred to consumers -additional consumer surplus to existing consumers in the market -deadweight loss -a surplus of wheat

producer surplus transferred from landlords to renters.

Refer to the graph below. After rent control is imposed, area A represents: consumer surplus transferred from renters to landlords. producer surplus transferred from landlords to renters. a deadweight loss. a shortage of apartments.

B + C

Refer to the graph below. After rent control is imposed, which area represents a deadweight loss? A A + B + C B + C an area other than A, B, or C

Point A

Refer to the graph below. After the negative externality has been internalized, which point would best represent the efficient equilibrium? Point A Point B Point C none of the above

deadweight loss

Refer to the graph below. Assume this is a competitive market. Which of the following does not exist when the price is $2.00? economic efficiency economic surplus deadweight loss competitive equilibrium

Curve 4

Refer to the graph below. At any level of output, what is the vertical distance between Curve 2 and Curve 3 equal to? Curve 1 Curve 4 total cost marginal cost

Curve 2

Refer to the graph below. Based on the relationship between average total cost and marginal cost, which of the curves below appears to be average total cost? Curve 1 Curve 2 Both curves appear to be average cost curves. neither curve

Curve 2

Refer to the graph below. Based on the relationship between marginal product and average product, which curve appears to be average product? Curve 1 Curve 2 Both curves appear to be average product curves. neither curve

area E

Refer to the graph below. Compared to the competitive equilibrium, how much producer surplus is lost when the price is $2.20? area E area C + E area D area B + D

the output range greater than about 525 pizzas per day

Refer to the graph below. For a certain output range (or quantity of pizzas produced per day), marginal cost is greater than average cost. What is this output range? from zero to about 525 pizzas per day the output range greater than about 525 pizzas per day the entire output range, from zero to about 640 pizzas per day exactly 640 pizzas per day

output increases at an increasing rate.

Refer to the graph below. From the origin up until point A, output increases at an increasing rate. output increases at a decreasing rate. output increases at a constant rate. the effect of diminishing returns is greater than the effect of specialization.

$2.00

Refer to the graph below. How much is the marginal cost of producing the 50th cup? $100.00 $0.20 $2.00 None of the above; there is insufficient information to answer the question.

$2,400

Refer to the graph below. How much is the value of total fixed cost? $2,400 $3,400 $5,800 None of the above; total fixed cost cannot be computed using this graph.

C + E

Refer to the graph below. If 14,000 cups of tea are produced, what area corresponds to deadweight loss? A + B + C B + C C C + E

diminishing returns

Refer to the graph below. In moving along the curve from point A to point B, which of the following is more likely to occur? specialization diminishing returns division of labor none of the above

an external benefit

Refer to the graph below. The arrow in the graph refers to the difference between D1 and D2. What does this difference represent? an external benefit an external cost private cost social cost

The marginal benefit of consuming the fifth cup is $2.00.

Refer to the graph below. The graph shows an individual's demand curve for tea. At a price of $2.00, the consumer is willing to buy five cups of tea per week. More precisely, what does this mean? Marginal benefit equals marginal cost when five cups are consumed. The total cost of consuming five cups is $2.00. The marginal cost of producing five cups is $2.00. The marginal benefit of consuming the fifth cup is $2.00

$1.00

Refer to the graph below. The graph shows an individual's demand curve for tea. If the price is $2.00, what is consumer surplus for the fourth cup of tea. $3.00 $2.00 $1.00 $0

those willing to pay more than $81

Refer to the graph below. The graph shows the market demand for satellite TV service. If the market price is $81, which consumers receive consumer surplus in this market? those willing to pay something less than $81 those willing to pay exactly $81 those willing to pay more than $81 all of the above

15,000.

Refer to the graph below. To achieve economic efficiency, the level of output should be reduced when the quantity of cups produced equals 14,000. 15,000. 16,000. the quantity of cups demanded.

15,000 cups per month, because at this level of output, marginal benefit is equal to marginal cost.

Refer to the graph below. To achieve economic efficiency, which output level should be produced? 14,000 cups per month, because at this level of output, marginal benefit is greater than marginal cost. 15,000 cups per month, because at this level of output, marginal benefit is equal to marginal cost. 16,000 cups per month, because at this level of output, marginal benefit is less than marginal cost. All of the output levels above are efficient.

$50

Refer to the graph below. What Pigovian tax would push the market to efficiency? $25 $50 $100 $125

average fixed cost

Refer to the graph below. What does Curve 4 represent? average variable cost average total cost average fixed cost marginal cost

15 units

Refer to the graph below. What is the optimal quantity of this public good? 12 units 15 units 18 units none of the above

the marginal benefit curve

Refer to the graph below. What name other than demand curve can you give this curve? the marginal cost curve the marginal benefit curve consumer surplus the price-equilibrium curve

$2.20; $1.80; below the efficient level

Refer to the graph below. When 14,000 cups of tea are produced per month, the marginal benefit of the 14,000th cup of tea is___, the marginal cost of the 14,000th cup of tea is¬¬____, and output is____. $2; $2; at the efficient level $2.20; $1.80; above the efficient level $2.20; $1.80; below the efficient level $1.80; $2.20; below the efficient level

All of the above are true.

Refer to the graph below. When 15,000 cups of tea are produced and consumed per month, which of the following is true? -The sum of consumer and producer surplus is maximized. -The level of output is economically efficient. -The marginal benefit to buyers of the last cup of tea is equal to the marginal cost of producing the last cup of tea. -All of the above are true.

P1, Q1

Refer to the graph below. When an externality is present, which combination of price and quantity does the market yield without government intervention? P0, Q0 P1, Q1 P0, Q1 P1, Q0

$0.20

Refer to the graph below. When market price is $2.00, what is producer surplus from selling the 40th cup? $72.00 $1.80 $0.20 $36.00

area A + B + C

Refer to the graph below. Which area equals consumer surplus when price is $2.00? area A area B + C area A + B + C area B + C + D

area A

Refer to the graph below. Which area equals consumer surplus when price is $2.20? area A area B area C area D

area B + D

Refer to the graph below. Which area equals producer surplus when price is $2.20? area E area C + E area D + E area B + D

the vertical distance between S1 and S2

Refer to the graph below. Which of the following best represents a tax equal to the value of the negative externality? S1 S2 the vertical distance between S1 and S2 P2 - P1

in neither case

Refer to the graphs below. In each of the graphs, a curve has shifted as a result of a new social security tax. In which graph do the workers pay the entire social security tax? in the graph on the left in the graph on the right in both cases in neither case

in neither case

Refer to the graphs below. In each of the graphs, a curve has shifted as a result of a new social security tax. In which graph does the employer pay the entire social security tax? in the graph on the left in the graph on the right in both cases in neither case

in both cases the tax incidence is the same

Refer to the graphs below. In each of the graphs, a curve has shifted as a result of a new social security tax. In which graph is the tax incidence larger on workers? in the graph on the left in the graph on the right in neither case because the workers are not affected by the tax in both cases the tax incidence is the same

in Market A

Refer to the graphs below. In which of the markets is the quantity Q1 less than the economically efficient quantity? in Market A in Market B in both markets in neither of the two markets

in both Market A and Market B

Refer to the graphs below. In which of these markets is an externality present? in Market A in Market B in both Market A and Market B Neither market exhibits an externality.

the construction of market demand for a public good

Refer to the graphs below. What procedure does this series of graphs show? the construction of market demand for a private good the construction of market demand for a public good the construction of market demand for a rival good the construction of market demand for an excludable good

B

Refer to the graphs below. Which graph is representative of a typical average total cost curve? A B C D

Market B exhibits a negative externality because the marginal social cost exceeds the marginal private cost.

Refer to the graphs below. Which of the following statements is correct? Market A exhibits a negative externality because the marginal private benefit exceeds the marginal social benefit. Market B exhibits a negative externality because the marginal social cost exceeds the marginal private cost. Market A exhibits a negative externality because the marginal social benefit exceeds the marginal private benefit. Market B exhibits a positive externality because the marginal private cost exceeds the marginal social cost.

$5.00

Refer to the table below. What is the average total cost of producing 550 pizzas? $5.00 $6.48 $13.00 $26.00

$3.25

Refer to the table below. What is the marginal cost of producing the 200th pizza? $0.00 $2.60 $3.25 $650.00

when the third worker is hired

Refer to the table below. When do diminishing returns in the production of pizzas start? when the second worker is hired when the third worker is hired when the fourth worker is hired when the fifth worker is hired

the foregone salary and interest

Refer to the table below. Which of the following costs are implicit costs? the foregone salary and interest the lease payments the payments for paper, wages, and electricity all of the above

a price ceiling.

Some people believe there should be a legally determined maximum price in the gasoline market. Such a limit on the price of gasoline would be an example of term-4 a price floor. a price ceiling. an equilibrium price. rent control.

The actual division of the burden of a tax between buyers and sellers in a market is called

Tax incidence

average fixed cost

The following cost measures reach their minimum points when they are equal to the value of marginal cost, except one. Which cost measure is the exception? -average variable cost -average total cost -average fixed cost -There is no exception; all three measures above reach their minimum values when they are equal to the value of marginal cost.

marginal product of labor

What is the additional output that a firm produces as a result of hiring one more worker called? the production function average total cost marginal product of labor average product of labor

technology

The processes a firm uses to turn inputs into outputs of goods and services is. technology technological change the short run the production function

the actual division of the burden of a tax.

The term tax incidence refers to -the type of product the tax is levied on. -the amount of revenue collected by the government from a tax. -the actual division of the burden of a tax. -the actual versus the desired impact of a tax burden.

technological change

The term used to describe a change in the ability of a firm to produce a given level of output with a given level of inputs is called___. technology technological change the long run the production function

private benefit

What is the benefit received by the consumer of a good or service called? private benefit social benefit private cost a positive externality

an externality

What is the cost that affects someone who is not directly involved in the production or consumption of a good called? private cost indirect cost an externality all of the above

costs that remain constant as output changes

What are fixed costs

both a. and b.

What are the sources of externalities and market failure? incomplete property rights the difficulty of enforcing property rights in certain situations both a. and b. lack of understanding of the market system

costs that change as output change

What are variable costs

average fixed cost

What do we obtain by dividing the fixed cost by the quantity of output produced? total variable cost average fixed cost total cost average variable cost

the net benefit to consumers from participating in a market. =total benefit minus the total amount paid

What does consumer surplus measure and what is the equation

benefit received by producers from participating in the market. =total amount received from consumers - cost of production

What does producer surplus measure and what is the equation?

economic surplus

What does the sum of consumer surplus and producer surplus equal? economic efficiency economic surplus deadweight loss competitive equilibrium

reducing average fixed cost by selling more output

What does the term "spreading the overhead" refer to? reducing average fixed cost by selling more output reducing average total cost by selling more output. reducing average variable cost by selling more output reducing total cost by selling more output

the idea that someone can benefit from a good without paying for it

What does the term free riding refer to? -a situation in which one person's consumption of a good means that no one else can consume it -the fact that anyone who does not pay for a good cannot consume it -the idea that someone can benefit from a good without paying for it -the possibility that public goods may become private goods

a situation in which one person's consumption of a good means that no one else can consume it

What does the term rivalry refer to? a situation in which one person's consumption of a good means that no one else can consume it the fact that anyone who does not pay for a good cannot consume it the idea that someone can benefit from a good without paying for it the possibility that public goods may become private goods

the difference decreases

What happens to the difference between average variable cost and average total cost as the level of output increases? the difference increases the difference decreases the difference remains the same the difference first increases then decreases

less of that good or service will be produced and consumed

What happens when the government taxes a good or service?

market with many buyers and sellers

What is a competitive market?

to produce more output using the same inputs, or the same output using fewer inputs

What is a technological change

Total cost/quantity

What is average total cost

the reduction in economic surplus resulting from a market not being in competitive equilibrium

What is deadweight loss?

highest-valued alternative that must be given up to engage in that activity

What is opportunity cost

an external benefit

What is the difference between private benefit and social benefit? an external benefit private cost social cost a negative externality

imposing quantitative limits on the amount of pollution firms are allowed to generate

What is the focus of a command-and-control approach to reducing pollution? imposing taxes intended to bring about an efficient level of output in the presence of externalities offering subsidies intended to bring about an efficient level of output in the presence of externalities imposing quantitative limits on the amount of pollution firms are allowed to generate trading emissions allowances to pollute for cash payments

period of time long enough to allow a firm to vary all of its inputs, to adopt new technology, and to increase or decrease the size of its physical plant

What is the long run

a price ceiling

What is the name of a legally determined maximum price that sellers may charge? a price ceiling a price floor marginal benefit consumer surplus

a price floor

What is the name of a legally determined minimum price that sellers may receive? a price ceiling a price floor marginal benefit consumer surplus

The relationship between the inputs employed by the firm and the maximum output it can produce with those inputs

What is the production function

the relationship between the inputs employed by a firm and the maximum output it can produce with those inputs

What is the production function? the representation of the firm's costs the relationship between the inputs employed by a firm and the maximum output it can produce with those inputs the total cost divided by the quantity of output produced all of the above

period of time during which at least one of the firm's inputs is fixed

What is the short run

a period of time during which at least one of the firm's inputs is fixed

What is the short run? a period of time during which a firm can vary all of its inputs a period of time during which a firm can adopt a new technology a period of time during which a firm can increase or decrease the size of its physical plant a period of time during which at least one of the firm's inputs is fixed

social cost

What is the term used to describe the total cost of producing a good which includes both private and external costs? private cost social cost externality all of the above

The tragedy of the commons refers to the tendency for a common resource to be overused.

What is the tragedy of the commons? The tragedy of the commons refers to the fact that some people benefit from a good without paying for it. The tragedy of the commons is the tendency for some goods to be excluded from public consumption. The tragedy of the commons refers to the fact that a good can be rival and excludable. The tragedy of the commons refers to the tendency for a common resource to be overused.

cost of all the inputs a firm uses in production. Total cost (TC) = Fixed Cost (FC) + Variable Cost (VC).

What is total cost

a private solution to externalities

What type of solution to externalities is the Coase theorem? a private solution to externalities a public solution to externalities the only solution to externalities the least preferred solution

the output level where marginal cost is equal to marginal benefit

When a competitive market is in equilibrium, what is the economically efficient level of output? any output level where marginal benefit is greater than marginal cost any output level where marginal cost is greater than marginal benefit the output level where marginal cost is equal to marginal benefit all of the above

when marginal benefit is greater than marginal cost

When is output inefficiently low? when marginal benefit is greater than marginal cost when marginal cost is greater than marginal benefit when marginal cost is equal to marginal benefit All of the above; any output level can be inefficiently low.

All of the above occur.

When the government imposes price floors or price ceilings, which of the following occurs? Some people win. Some people lose. There is a loss of economic efficiency. All of the above occur.

the rights of individuals to have exclusive use of their property

When we talk about property rights in the discussion of externalities, which rights do we refer to? the rights of individuals to pollute the rights of individuals to have exclusive use of their property the rights of individuals to buy but not sell their property all of the above

variable costs

Which costs are affected by the level of output produced? fixed costs variable costs all costs sunk costs

explicit costs

Which of the following are sometimes called accounting costs? economic costs implicit costs explicit costs total variable costs

opportunity cost

Which of the following is known as the highest-valued alternative that must be given up in order to engage in an activity? opportunity cost explicit cost total cost variable cost

the difference between the highest price a consumer is willing to pay and the price the consumer actually pays

Which of the following is the definition of consumer surplus? the additional benefit to a consumer from consuming one more unit of a good or service the additional cost to a firm of producing one more unit of a good or service the difference between the highest price a consumer is willing to pay and the price the consumer actually pays the difference between the lowest price a firm would have been willing to accept and the price it actually receives

the additional benefit to a consumer from consuming one more unit of a good or service

Which of the following is the definition of marginal benefit? -the additional benefit to a consumer from consuming one more unit of a good or service -the additional cost to a firm of producing one more unit of a good or service -the difference between the highest price a consumer is willing to pay and the price the consumer actually pays -the difference between the lowest price a firm would have been willing to accept and the price it actually receives

the additional cost to a firm of producing one more unit of a good or service

Which of the following is the definition of marginal cost? -the additional benefit to a consumer from consuming one more unit of a good or service -the difference between the highest price a consumer is willing to pay and the price the consumer actually pays -the additional cost to a firm of producing one more unit of a good or service -the difference between the lowest price a firm would have been willing to accept and the price it actually receives

the difference between the lowest price a firm would have been willing to accept and the price it actually receives

Which of the following is the definition of producer surplus? -the additional benefit to a consumer from consuming one more unit of a good or service -the additional cost to a firm of producing one more unit of a good or service -the difference between the highest price a consumer is willing to pay and the price the consumer actually pays -the difference between the lowest price a firm would have been willing to accept and the price it actually receives

i, ii, and iii

Which of the following is true? i.Total cost = fixed cost + variable cost ii.Total cost = explicit costs + implicit costs iii.Economic cost = accounting cost + implicit costs i only ii only i and ii only i, ii, and iii

average product of labor

Which of the following refers to the total output produced by a firm divided by the quantity of workers? average total cost marginal cost average product of labor marginal product of labor

Whenever the marginal product of labor is greater than the average product of labor, the average product of labor must be increasing.

Which of the following statements about the relationship between marginal product of labor and average product of labor is correct? -Whenever the marginal product of labor is less than the average product of labor, the average product of labor must be increasing. -Whenever the marginal product of labor is greater than the average product of labor, the average product of labor must be increasing. -Whenever the marginal product of labor is greater than the average product of labor, the marginal product of labor must be decreasing. -Whenever the marginal product of labor is less than the average product of labor, the marginal product of labor must be decreasing.

In some situations, a private solution to the problem of externalities can be found.

Which of the following statements is correct according to Ronald Coase's argument for dealing with externalities and market failure? In some situations, a private solution to the problem of externalities can be found. Only public solutions exist for solving externalities. Completely eliminating an externality is almost always the most efficient solution. The only cure to externalities is taxation.

There is no shortage of most scarce goods.

Which of the following statements is correct? There is a shortage of every good that is scarce. There is no shortage of most scarce goods. Scarcity and shortage mean the same thing to economists. None of the above statements is correct.

In the long run, all costs are variable.

Which of the following statements is correct? In the long run, all costs are variable. In the long run, all costs are fixed. In the long run, there are no fixed or variable costs. In the long run, at least one input remains fixed.

Fixed cost/quantity

average fixed cost

total output produced by a firm divided by the quantity of workers.

average product of labor

Variable cost/quantity

average variable cost formula

government imposing quantitative limits on the amount of pollution firms are allowed to emit or installing specific pollution control devices

command and control approach

exist when a firm's long-run average costs fall as it increases output

economies of scale

situation in which anyone who does not pay for a good cannot consume it

excludability

marginal cost is change in firms cost/output

explain this equation

cost that involves spending money.

explicit cost

benefiting from a good without paying for it

free riding

nonmonetary opportunity cost

implicit cost

principle that, at some point, adding more of a variable input, such as labor, to the same amount of a fixed input, such as capital, will cause the marginal product of the variable input to decline.

law of diminishing returns

shows the lowest cost at which the firm is able to produce a given quantity of output in the long run, when no inputs are fixed

long run average cost curve

additional benefit to a consumer from consuming one more unit of a good or service

marginal benifit

additional output a firm produces as a result of hiring one more worker.

marginal product of labor

refers to a situation in which the market fails to produce the efficient level of output.

market failure

The level at which all economies of scale have been achieved

minimum efficient scale

government taxes and subsidies intended to bring about an efficient level of output

pigovian taxes and subsidies

benefit recieved by the consumer of a good or service

private benefit

The cost borne by the producer of a good or service

private cost

both rival and excludable. i.e food or clothing

private good

difference between the lowest price a firm would have been willing to accept and the price it actually recieves

producer surplus

the rights individuals or firms have to the exclusive use of their property, including the right to buy or sell it

property rights

both nonrivalrous and nonexcludable. supplied by the government

public good

situation that occurs when one person consuming a unit of a good means no one else can consume it.

rivalry

the total benefit from consuming a good or service, including both the private benefit and any external benefit

social benefit

total of production a good, including both private and external cost

social cost

tendency for a common resource to be overused

tragedy of the commons

costs in time and other resources that parties incur in the process of agreeing to and carrying out an exchange of goods or services.

transactions costs

total cost divided by the quantity of output produced. In a graph, the ATC curve is U-shaped.

what is average total cost