Micro Unit 6 MCQ
Figure B contains diagrams for two separate product markets. Assume that society's optimal level of output in each market is Q0 and that government purposely shifts the market supply curve from S to S1 in Graph 1 and from S to S2 in Graph 2. 8. Refer to Figure B. According to Graph 1, which of the following is NOT true:
at Qe, the Marginal Social Benefit is greater than the Marginal Social Cost
The creation of markets for pollution rights that were auctioned by state governments would most likely provide:
both an incentive not to pollute and revenue which could be devoted to environmental improvement
Assume the production of COVID-19 vaccinations results in positive externalities within a society. The government could improve economic efficiency in this society by:
granting a per-unit subsidy to producers of vaccinations
Unlike a private good, a public good:
has benefits available to all, including nonpayers
When it comes to producing the efficient level of output,
marginal analysis helps firms and governments use resources efficiently
The free-rider problem is the result of
non-exclusion
Most governments provide military protection for their citizens. Economists consider this an example of a pure public good because military protection is:
non-rivalrous and non-excludable in consumption
Negative externalities result in:
over allocation of resources
Refer to Figure B. The shift of the supply curve from S to S1 in Graph 1 might be caused by a:
per unit tax on the producers of this product
The free-market system does NOT produce public goods because:
private firms cannot stop consumers who are unwilling to pay for such goods from benefiting from them
Monopolies are considered inefficient because they:
produce less than society wants and set a price above marginal cost
All of the following are sources of inequality in the distribution of income in EXCEPT:
progressive income taxes
In the above diagrams, we can conclude that the government is correcting for:
spillover costs in Graph 1 and spillover benefits in Graph 2
Suppose that Sonny and Cher are the only two members of society and are willing to pay $10 and $8, respectively, for the 3rd unit of a public good. Also, assume that the marginal cost of the 3rd unit is $17. We can conclude that:
the 3rd unit should be produced
The tendency for society to overuse and therefore abuse common resources is called the:
tragedy of the commons
If a positive externality exists in the market for vaccines, which of the following is true?
A lump sum subsidy to vaccine producers will result in the socially optimal quantity
In the absence of externalities, which market structure produces the socially optimal quantity?
A) Perfect competition
Half of the inhabitants of an island oppose building a new bridge to the mainland, since they say it will destroy the island's quaint atmosphere. The economic concept that is most relevant to the decision of whether or not to build the bridge is
A. Externalities
Which of the following is a government policy that is intended to address a market failure?
A. Taxing the is e of toxic pesticides by farmers
If the government regulates the monopolist to produce the allocatively efficient quantity and provides a subsidy sufficient to maintain zero economic profits for the firm, what price would the government set and what level of output would the firm produce?
B) $2.00 and 80
A free-rider problem exist when
B) a good is nonexcludable in consumption.
An increase in the marginal social benefit of consuming a public good should result in
B. An increase in the optimal quantity of the good.
A governmental welfare program that taxes the labor income of the wealthy and redistributes the tax revenue to low income citizens will
B. Decrease income inequality and efficiency
Which of the following is ost likely to reduce inequality in a country's distribution of income?
B. Job training for low-skill workers
Pollution abatement polices will improve efficiency if the
B. Marginal cost of abatement is less than the marginal benifit of abatement
Which of the following will most likely lead to a more equally distributed distribution of income?
B. More progressive income taxes
If an industry ignores the external cost it generates in its production, which of the following will be true at the competitive market equilibrium output?
B. Price will be less tan the marginal social cost
Most economists argue that a monopoly is inefficient because it
B. Produces too little output and sets a price about marginal costs
Refer to Figure C, which depicts the market for Sun-LessTM , a popular spray-tanning product. Sun-LessTM currently yields costs to individuals who are neither consumers nor producers in the form of a peculiar odor that lingers for days after the product has been applied. The letters in the graph represent the enclosed areas. Assume that the government takes action in the form of a per-unit tax on producers of Sun-LessTM . Which of the following correctly states the amount of the tax, the price, quantity, and deadweight loss, if any exists?
B. Tax - $4 Price - $10 Quantity - 20 Deadweight Loss - None
In the United States, the federal government redistributes income primarily by
B. Taxing different income levels at different tax rates
The "invisible hand" refers to the:
B. notion that, with competition, decisions motivated by self-interest promote the social interest
The diagram describes conditions for a natural monopoly. In order to regulate the monopoly to produce the largest possible output without a loss, government regulators would establish a price of
C) $2.50
Which of the following is an example of a positive externality?
C) Immunizations that prevent the spread of diseases
The graph shows market with a negative externality. Assuming the government takes no action, what is the consumer surplus and dead-weight loss associated with this market?
D. CS - AEFG. DWL - DH
Which of the following is the best example of a negative externality?
D. Oil leakages from drilling platforms in the Gulf of Mexico
A per-unit tax on pollution produced by a firm will affect the firm's output and pollution levels in which of the following ways?
D. Output - decrease. Pollution - Decrease
Refer to Figure C, which depicts the market for Sun-LessTM , a popular spray tanning product. Sun-LessTM currently yields costs to individuals who are neither consumers nor producers in the form of a peculiar odor that lingers for days after the product has been applied. The letters in the graph represent the enclosed areas. Prior to any government action, which of the following correctly states the price, quantity, and deadweight loss, if any exists?
D. Price - $8 Quantity - 40 Deadweight Loss - K
If one firm in a perfectly competitive industry experiences a technological breakthrough that lowers only that firms cost of production, which of the following correctly describes the effect of this firm's price, quantity and profit?
D. Price - No change, Quantity - increase, Profit - increase
If the monopolist produces the allocative Lt efficient lévela of output rather that the profit maximizing level of output, consumer surplus will
Decrease be he area P5JKP4
Which of the following Gini coefficients indicates that a country has an equal distribution of income?
E) 0
The higher wages college graduates receive are primarily due to
E) differences in human capital
Assume the government imposes a per-unit tax on each firm the amount of P3-P1, what is the consumer surplus and dead-weight loss after government intervention?
E. CS - A. DWL - None
The short run supply curve for a firm in a perfectly competitive industry is
E. It's arenal cost curve above the minimum point of its average variable cost curve
A pure public good is a good that is
E. No rivalrous and no excludable in consumption
In a perfectly competitive free market economy, a wage gap between two workers can be explained by differences in all of the following EXCEPT their
E. Tastes for luxury goods
Which best explains why the government typically provides public goods rather than the free market?
Free market firms that provide public goods would not make enough profit
According to the Lorenz curve about, which of the following must be true?
Income is more equally distributed in Country A than in Country B
Based on the information in the Lorenz curve above, which of the following is true?
Income is more equally distributed in Country X than in Country Z
Which of the following would the government use to determine if building a dam is socially optimal?
MSB=MSC
The production of whooping cough vaccinations creates benefits to individuals who choose not to purchase the vaccination. At the market equilibrium output level, which of the following is true?
Marginal social benefit exceeds marginal social cost
Which of the following would most likely cause the burden of an excise tax to fall completely on producers?
Perfectly elastic demand for the product
Anti-trust laws are designed to
Prevent monopolies and allow competition to regulate prices
Dunder Mifflin Paper Company, Inc. ignores the external costs it generates in its production. Which of the following will be true at the competitive market equilibrium output?
Price will be less than the marginal social cost
To correct a positive externality the government can
Provide a per unit subsidy to firms producing the product
Which of the following is clearly NOT an example of the government addressing a market failure?
Subsidizing egg farmers that face higher production costs
The chart in Figure A shows the number of city parks and the willingness to pay higher taxes for the only two individuals in society, Mike and Joe. Which of the following must be true?
The city should create 3 parks since each member of society is willing to pay at least some higher taxes
Assume the government places a $3 per pack (per-unit) tax on cigarettes causing the price of a pack of cigarettes to increase by $2. Which of the following is true?
This is a regressive tax
An example of a good that is nonrival and nonexcludable is
D) a lighthouse
Antitrust laws are intended to
D) control monopolies and maintain a competitive market environment
The city council divides a community's residents into three groups: individual young adults, families with children, and older adults. The following table summarizes how much each group is willing to pay for each playground. Amount Groups Are Willing to Pay for Each Playground Number of Individual Families with Older Playgrounds Young Adults Children Adults 1 $400 $2,000 $1,000 2 $300 $1,800 $900 3 $200 $1,600 $800 4 $100 $1,400 $700 5 $0 $1,200 $600 6 $0 $1,000 $500 7 $0 $900 $400 8 $0 $800 $300 The city council must pay $2,250 to build each playground. Which of the following is a characteristic of playgrounds and what is the optimal number of playgrounds for the township to build? A) Playgrounds are nonrival in consumption, and the optimal number of playgrounds is zero. B) Playgrounds are nonrival in consumption, and the optimal number of playgrounds is two. C) Playgrounds are rival in consumption,
C) Playgrounds are rival in consumption, and the optimal number of playgrounds is three.
The closer income distribution moves toward complete equality, the closer the Lorenz curve moves to
C) a diagonal line
The following graph shows the marginal social cost (MSC), the marginal private cost (MPC), and the marginal social benefit (MSB) of a good. If the government wants the firm to internalize the externality, the government can do so by
C) imposing a per-unit tax of $1.00
In the absence of externalities, the perfectly competitive market maximizes economic surplus when
C) the market is at equilibrium
The primary purpose of antitrust laws is to
C. Prevent firms from monopolizing trade and to promote competition
If the current price for the perfectly competitive firm represented in Figure 1 is $10, what would be the result of an increase fixed cost on the firms profit maximizing price and quantity?
C. Process constant and Quantity constant
The Gini Coefficient is the most commonly used measure of income inequality. In comparing Country A, with a Gini Coefficient of 0.50, to Country B, with a Gini Coefficient of 0.75, one could reasonably conclude that:
County B has greater income inequality than Country A
The following graph shows the marginal social cost (MSC), the marginal private cost (MPC), and the marginal social benefit (MSB) of a good. Which of the following indicate the marginal external cost and the socially optimal quantity?
D) $1.00 and 20 units
Assume the government implements a policy that causes a market to produce the socially optimal level of output. Which of the following must be true?
D) Equating marginal private benefit and marginal private cost must have resulted in inefficiencies in the market.
Which of the following happens when there are market failures?
The public sector steps in to better allocate resources
