Exam 3

Which of the following is an assumption of the decision-making process followed by consumers to maximize utility? The consumer considers the prices of the products. The consumer oftentimes is not sure about her preferences. The consumer's income increases as prices of goods increase. Marginal utility always increases as more units of a good are consumed.

The consumer considers the prices of the products.

Which of the following costs is an explicit cost for you? -You hire a worker who could have received the same wage working for your competitor. -You decide to use an extra room for your business that you could have rented out to your neighbor. -You raise cattle on your family-owned farm even though you could sell your land to a developer. -You spend your time running your own business even though a large corporation offered you a generous contract.

You hire a worker who could have received the same wage working for your competitor.

Variable costs are -costs that change every day. -the change in total cost associated with the production of an additional unit of output. -sunk costs. -costs that change with the amount of output a firm produces.

costs that change with the amount of output a firm produces.

Assume that Alex would like to purchase a combination of product A and product B such that, after he is done spending his limited income, the MUa / Pa = 8 and MUb / Pb = 4. To maximize utility without spending more money, Alex should -purchase more of product A and less of product B. -purchase more of both product A and product B. -purchase less of product A and more of product B. -make no change in purchases of products A and B.

purchase more of product A and less of product B.

If some activity creates external benefits as well as private benefits, then economic theory suggests that the activity ought to be prohibited. taxed. left alone. subsidized.

subsidized

What are the two characteristics that differentiate private goods from public goods? ownership and usage rivalry and excludability marginal cost and marginal benefit negative externality and positive externality

rivalry and excludability

Assume that Clara purchases a combination of products Y and Z such that, after she is done spending her limited income, MUy/Py = 25 and MUz/Pz= 15. Based on the equal marginal principle, Clara should have purchased more Y and less Z. is maximizing her total utility. should have purchased less Y and less Z. should have purchased less Y and more Z.

should have purchased more Y and less Z.

Education benefits both students and the community. Suppose that those students who purchase education consider only their own benefits when determining how much education to obtain while schools consider only the cost of producing education when determining how much education to supply. In this situation, the social benefit will be _______ the private benefit and the amount of education produced will be_______ the socially efficient amount. -greater than, less than -above, below

greater than; below

Fixed costs are those costs that are -dependent of the amount of output a firm produces in the short run. -zero if the firm produces no output in the short run. -unchanging through time. -independent of the amount of output a firm produces in the short run.

independent of the amount of output a firm produces in the short run.

Suppose that you could either prepare your own tax return in 15 hours or hire a tax specialist to prepare it for you in 2 hours. You value your time at $11 an hour; the tax specialist will charge you $55 an hour. The opportunity cost of preparing your own tax return is $110. $165. $40. $55.

$165.

Alex has allocated his income in such a way that the marginal utility of the last unit of product X he consumes is 40 utils and that of the last unit of Y is 16 utils. If the unit price of X is $5, then the price of Y must be $4 per unit. $3 per unit. $1 per unit. $2 per unit.

$2 per unit.

Lucinda prefers chrysanthemums to gardenias. Chrysanthemums are priced lower than gardenias. Lucinda chooses not to buy the chrysanthemums. Which of the following reasons for Lucinda's choice is consistent with rational consumer choice? -Lucinda would rather spend her income on other goods. -Lucinda does not know what is in her own best interest. -Lucinda is not sure of her preferences. -Lucinda does not know the relative prices of the flowers.

-Lucinda would rather spend her income on other goods.

How much pollution should we emit? -A fair amount of pollution -Zero -To a level where MB is greater than or equal to the MC -To a level where MC is greater than the MB

-To a level where MB is greater than or equal to the MC

If the marginal cost curve is below the average variable cost curve -both average total cost and average variable cost are decreasing -average total cost is increasing but average variable cost is decreasing. -both average total cost and average variable cost are increasing. -average variable cost is less than average fixed cost.

-both average total cost and average variable cost are decreasing

A public good -cannot be provided to one person without making it available to others as well. -can never be provided by a nongovernmental organization. -costs essentially nothing to produce and is thus provided by the government at a zero price. -generally results in substantial negative externalities.

-cannot be provided to one person without making it available to others as well.

Economic profit is -the sum of accounting profit and implicit costs. -equal to the difference between total revenue and implicit costs. -always larger than accounting profit. -equal to the difference between accounting profit and implicit costs.

-equal to the difference between accounting profit and implicit costs.

The two main characteristics of a public good are -nonrivalry and large negative externalities. -nonrivalry and nonexcludability. -nonexcludability and production at rising marginal cost. -production at constant marginal cost and rising demand.

-nonrivalry and nonexcludability.

If the consumption of a product or service involves external benefits, then the government can improve efficiency in the market by -providing a subsidy to correct for an overallocation of resources. -providing a subsidy to correct for an underallocation of resources. -imposing a corrective tax to correct for an overallocation of resources. imposing a corrective tax to correct for an underallocation of resources.

-providing a subsidy to correct for an underallocation of resources.

Economic profit is equal to -total revenue minus total fixed cost. -total revenue minus the explicit and implicit costs of production. -accounting profit plus the explicit and implicit costs of production. -total revenue minus the cost of raw materials.

-total revenue minus the explicit and implicit costs of production.

You're buying snacks for an Econ Club meeting. You've been given $100 to spend on chips and soda. If bags of chips cost $3 each and Soda costs $1 each, how much of each can you buy? -30 bags of chips and 15 sodas -40 bags of chips and 10 sodas -10 bags of chips and 75 sodas -25 bags of chips and 25 sodas

25 bags of chips and 25 sodas

You're buying snacks for an Econ Club meeting. You've been given $100 to spend on chips and soda. If bags of chips cost $3 each and soda costs $1 each and you spend as much of your money as possible on chips, how many chips and sodas will you have for the meeting? -33 bags of chips, 1 soda -34 bags of chips, 1 soda -33 bags of chips, 0 soda -34 bags of chips, 2 sodas

33 bags of chips, 1 soda

Economist call a person who does not pay for a good or service they consume A free loader A free rider An opportunist Selfish

A free rider

Which of the following goods is nonrival? A visit to the doctor at her office A pizza at a pizza parlor A soccer match in a stadium A tuna in the ocean

A soccer match in a stadium

Combinations to the left of the budget line are: Attainable and inefficient Unavailable and inefficient Unattainable and efficient Attainable and efficient

Attainable and inefficient

Which of the following is an example of a free rider? -Completing work for a group project. -Listening to NPR without donating at their annual fundraiser. -Walking through a public park. -Sitting inside of the gate with a ticket to watch an outdoor concert.

Listening to NPR without donating at their annual fundraiser

Which of the following is a consequence of free riders? -Consumers are better off by not having the good or service be produced. -The government always steps in to produce the good or service. -The good or service is never produced because not enough people paid to use it. -The good or service is produced regardless.

The good or service is never produced because not enough people paid to use it.

How could the free rider problem be solved? -The public good is ignored and never produced. -The government taxes people and uses the revenue to provide the public good. -The government subsidized people to provide the public good. -The market will adjust and fix itself so the public good will be provided without interference.

The government taxes people and uses the revenue to provide the public good.

Which of the following goods is both nonrival and non excludable? A tuna in the ocean A soccer match in a stadium A hot dog at a hot dog stand The light from a lighthouse at a harbor entrance

The light from a lighthouse at a harbor entrance

Which of the following statements is correct? Marginal utility is the sum of total utility. Total utility is the product of multiplying price times marginal utility. Total utility is the sum of marginal utilities. Total utility is the change in marginal utility as quantity consumed increases.

Total utility is the sum of marginal utilities.

Combinations to the right of the budget line are -Efficient -Attainable -Unattainable -Inconsequential

Unattainable

Which of the following statements is correct? -When marginal utility is decreasing, an increase in the quantity consumed will decrease total utility. -When marginal utility is positive, an increase in the quantity consumed will decrease total utility. -When marginal utility is zero, an increase in the quantity consumed will make total utility zero. -When marginal utility is positive, an increase in the quantity consumed will increase total utility.

When marginal utility is positive, an increase in the quantity consumed will increase total utility.

If the short-run average variable cost of production for a firm is decreasing, then it follows that -average variable cost must be greater than marginal cost. -average variable cost must be greater than average fixed cost. -marginal cost must be decreasing. -average fixed cost must be constant.

average variable cost must be greater than marginal cost.

Marginal utility is equal to change in total utility multiplied by change in quantity consumed. change in total utility divided by change in quantity consumed. total utility divided by quantity consumed. total utility multiplied by quantity consumed.

change in total utility divided by change in quantity consumed.

The upward-sloping portion of the long-run average cost curve is a result of: -economies of scale. -constant returns to scale. -diseconomies of scale. -increasing marginal productivity.

diseconomies of scale

To an economist, the economic costs associated with the use of resources include explicit, but not implicit, costs. neither implicit nor explicit costs. implicit, but not explicit, costs. explicit and implicit costs.

explicit and implicit costs.

Accounting profit equals total revenue minus explicit costs. economic costs. implicit costs. economic profits.

explicit costs.

Monetary payments a firm makes to pay for resources are called explicit costs. implicit costs. normal profit. opportunity costs.

explicit costs.

The utility of a good or service -is easy to quantify. -rarely varies from person to person. -is the satisfaction or happiness one receives from consuming it. -is synonymous with usefulness.

is the satisfaction or happiness one receives from consuming it.

A consumer with a limited income will maximize utility when each good is purchased in amounts such that the total utility is the same for each good in a bundle. marginal utility per dollar spent on each of the final choices in a bundle is maximized for each good. marginal utility per dollar spent on each of the final choices in a bundle is equal. marginal utility of each good in a bundle is maximized.

marginal utility per dollar spent on each of the final choices in a bundle is equal.

Implicit costs are -opportunity costs of using owned resources. -composed entirely of variable costs. -always greater in the short run than in the long run. -equal to total fixed costs.

opportunity costs of using owned resources.

External benefits in consumption refer to benefits accruing to those who bought and consumed the product. other than the ones who consumed the product. who are selling the product to the consumers. who are consuming the product abroad.

other than the ones who consumed the product.

When producers do not have to pay the full cost of producing a product, they tend to underproduce the product because of a positive externality. underproduce the product because of a negative externality. overproduce the product because of a negative externality. overproduce the product because of a positive externality.

overproduce the product because of a negative externality.

It is the custom for paper mills located alongside the Layzee River to discharge waste products into the river. As a result, operators of hydroelectric power-generating plants downstream along the river find that they must clean up the river's water before it flows through their equipment. In the situation described above, we would expect an -overproduction of paper in the mills. -underproduction of paper in the mills. -external cost resulting from the production of hydroelectric power. -attainment of allocative efficiency in the market. Incorrect

overproduction of paper in the mills.

Which of the following defines marginal utility? the change in total utility divided by the price of a product the maximum amount of satisfaction or happiness derived from consuming a product the additional satisfaction or happiness received from the consumption of an additional unit of a good or service the total satisfaction or happiness received from the consumption of a good, service, or combination of goods and services

the additional satisfaction or happiness received from the consumption of an additional unit of a good or service

A positive externality or spillover benefit (additional social benefit) occurs when -firms earn positive economic profits. -the benefits associated with a product exceed those that accrue for consumers. -a firm does not bear all of the costs of producing a good or service. -product differentiation increases the variety of products available to consumers.

the benefits associated with a product exceed those that accrue for consumers.

A negative externality or spillover cost (additional social cost) occurs when -firms fail to achieve productive efficiency. -the price of the good exceeds the marginal cost of producing it. -the total cost of producing a good exceeds the costs borne by the producer. -firms fail to achieve allocative efficiency.

the total cost of producing a good exceeds the costs borne by the producer.

The satisfaction or happiness one gets from consuming a good or service is called price. income. profits. utility.

utility.