MicroEcon Exam 2

A vertical demand curve indicates a price elasticity of demand that equals to a. 0. b. 1. c. -1. d. infinity.

a

Cost, as measured by an accountant, generally does not include a. the opportunity cost of the firm. b. explicit workers' wages. c. any explicit rental rates. d. any depreciation.

a

What is a market failure? a. Inability of the free market to produce an efficient quantity of something. b. It refers to the inability of the market to allocate resources efficiently up to the point where marginal social benefit equals marginal private cost. c. It refers to a situation where an entire sector of the economy (for example, the airline industry) collapses because of some unforeseen event. d. It refers to a breakdown in a market economy because of widespread corruption in government.

a

Which of the following displays non-rivalry and non-excludability in consumption? a. public goods b. private goods c. quasi-public goods d. common resources

a

curve A is the ________ curve. a. average fixed cost b. marginal cost c. average total cost d. average variable cost

b

curve C is the ________ curve. a. average fixed cost b. marginal cost c. average total cost d. average variable cost

d

A rent ceiling set below the equilibrium market rent for apartments will result in a. a shortage and smaller social surplus. b. a larger number of apartments rented. c. no change in the number of apartments rented. d. a more efficient allocation of housing.

a

If the efficient market hypothesis is correct, then a. index funds should typically beat managed funds, and usually do when factoring in the fees. b. index fund should typically beat managed funds, but usually do not. c. mutual funds should typically beat index funds, and usually do. d. mutual funds should typically bet index funds, but usually do not.

a

In the United States, many beekeepers travel from state to state, renting out their bee colonies to farmers for pollination services. This is an example of a. a Coasian solution to a positive externality problem. b. a Pigouvian solution to a positive externality problem. c. a tradable exchange contract. d. command and control policy.

a

Strong minimum wage regulations a. increase unemployment among lower-skilled but not higher-skilled workers. m. encourage markets to adjust to change. n. are favored by owners of supermarkets. o. are favored by owners of fast-food restaurants.

a

The incidence of sales tax is determined by the a. elasticities of supply and demand. b. greed of the sellers. c. federal government in all cases. d. level of government (for example, local, state, or federal) which imposes the tax.

a

What is total cost? a. the sum of total variable cost and total fixed cost. b. the sum of total marginal cost and total fixed cost. c. the sum of average fixed cost and average variable cost. d. the sum of fixed cost and average variable cost.

a

When a negative externality exists, the private market produces a. more than the economically efficient output level. b. less than the economically efficient output level. c. products at a low opportunity cost. d. products at a high opportunity cost.

a

A price floor a. always results in a shortage. b. results in a surplus if the floor price is greater than the equilibrium price. c. results in a shortage if the floor price is greater than the equilibrium price. d. always results in a surplus.

b

According to the efficient markets hypothesis, better than expected news about a corporation will a. have no effect on it's stock price. b. raise the price of the stock. c. lower the price of the stock. d. change the price of the stock in a random direction.

b

An index fund a. holds only stocks and bonds that are indexed to inflation. b. holds all the stocks in a given stock index in an attempt to mimic it. c. guarantees a return that follows the index of leading economic indicators. d. typically has a lower return than a managed fund.

b

Explicit costs differ from implicit costs in that a. implicit costs always present while some firms do not have any explicit costs. b. explicit costs are paid in money, but implicit costs are often non-paid opportunity costs. c. explicit costs are more important than implicit costs. d. explicit costs are what an accountant would consider costs and are usually less than implicit costs.

b

Opportunity cost equals a. explicit costs minus implicit costs. b. explicit costs plus implicit costs. c. implicit costs only. d. explicit costs only.

b

Price ceilings in the housing market create a. efficiency, but often cause housing to deteriorate. b. inefficiency, housing deterioration, and black market activity. c. inefficiency, but lead to the building of more housing. d. efficiency and lead to the building of more housing.

b

Refer to Figure 10-1. Which graph represents a market with a negative externality? a. Panel (a) b. Panel (b) c. Panel (c) d. Both (b) and (c) are correct

b

Refer to Figure 6-5. Suppose a tax of $9 per unit is imposed on the sellers in this market. What will be the per unit tax burden on the buyers in this market? a. $0 b. $4 c. $5 d. $9

b

Suppose that a market supply curve is highly inelastic and that the demand curve is highly elastic. If a tax is imposed on the buyers in this market, a. the buyers will bear a greater burden of the tax than the sellers. b. the sellers will bear a greater burden of the tax than the buyers. c. the buyers and sellers are likely to share the burden of the tax equally. d. the buyers and sellers will not share the burden equally, but it is impossible to determine who will bear the greater burden of the tax without more information.

b

The big tradeoff in economics is the common reference to a tradeoff between a. taxes and subsidies. b. efficiency and equity. c. price ceilings and price floors. d. consumer surplus and producer surplus.

b

The marginal product of labor is equal to the a. slope of the marginal product of labor curve. b. increase in the total product that results from hiring one more worker. c. total product divided by the total number of workers hired. d. None of the above answers are correct.

b

The ʺtragedy of the commonsʺ refers to the phenomenon where a. individuals are free riders. b. people overuse a common resource. c. people do not internalize an externality. d. there is rivalry in consumption.

b

What are variable costs? a. the same thing as overhead costs. b. costs that change as output changes c. the costs of fixed inputs. d. costs that don't change as the firm increases its output.

b

What is marginal cost? a. total variable cost divided by quantity. b. the extra cost of producing 1 more unit of output. c. the change in total fixed cost from producing 1 more unit of output. d. the average fixed cost of producing output.

b

Which of the following best describes the typical average total cost? a. it is the same at all levels of output b. it decreases initially when output increases, but then increases c. it decreases continually as output is increased. d. it increases initially when output increases, but then decreases

b

Which of the following displays rivalry and excludability in consumption? a. public goods b. private goods c. quasi-public goods d. common resources

b

Which of the following is an example of a fixed cost in a bicycle factory? a. the electric bill. b. the mortgage payment on the property. c. total wages and salaries. d. employee benefits

b

A $2.00 per unit tax imposed on buyers will a.shift the demand curve upwards by $2.00. b.shift the demand curve upwards by some amount less than $2.00 depending on the buyers' burden of the tax. c.shift the demand curve downwards by $2.00. d.shift the demand curve downwards by some amount less than $2.00 depending on the buyers' burden of the tax.

c

A period of time in which the quantity of at least one factor of production used by a firm is fixed is called the a. market period. b. intermediate run. c. short run. d. long run.

c

A tax on sellers will a. shift the demand curve upwards by the amount of the tax. b. shift the demand curve downwards by the amount of the tax. c. shift the supply curve upwards by the amount of the tax. d. shift the supply curve downwards by the amount of the tax.

c

An externality is a. a benefit realized by the purchaser of a good or service. b. a cost paid for by the producer of a good or service. c. a benefit or cost experienced by someone who is not a producer or consumer of a good or service. d. anything that is external or not relevant to the production of a good or service.

c

Firms that can reduce pollution at a low cost a. and firms that can reduce pollution at a high cost will both sell tradable pollution permits. b. and firms that can reduce pollution at a high cost will both buy tradable pollution permits. c. will sell tradable pollution permits, and firms that can reduce pollution at a high cost will buy tradable pollution permits. d. will buy tradable pollution permits, and firms that can reduce pollution at a high cost will sell tradable pollution permits.

c

The Coase theorem states that a. government intervention is always needed if externalities are present. b. assigning property rights is the only thing the government should do in a market economy. c. if transactions costs are low, private bargaining will result in an efficient solution to the problem of externalities. d. a free market equilibrium is the best solution to address externalities.

c

The long run is a period of time in which a. some but not all factors of production are fixed. b. some but not all factors of production are variable. c. all factors of production are variable. d. all factors of production are fixed.

c

The loss in total surplus resulting from a tax is called a. a deficit. b. economic loss. c. deadweight loss. d. inefficiency.

c

What causes market failure in the case of common resources or externalities? a. unforeseen circumstances which leads to the bankruptcy of many firms b. a lack of government intervention in a market c. incomplete property rights or inability to enforce property rights d. an inequitable income distribution

c

Which of the following best describes average fixed cost? a. it is the same at all levels of output b. it decreases initially when output increases, but then increases c. it decreases continually as output is increased. d. it increases initially when output increases, but then decreases

c

Which of the following is not consistent with the efficient market hypothesis? a. Stock prices should follow a random walk. b. Changes in stock prices are unpredictable. c. News has no effect on stock prices. d. There is little point in spending many hours studying the business pages looking for undervalued stocks.

c

You are given three options. You may have the balance in an account that has been collecting 5 percent interest for 20 years, the balance in an account that has been collecting 10 percent interest for 10 years, or the balance in an account that has been collecting 20 percent interest for five years. Each account had the same original balance. Which account now has the lowest balance? a. the first one b. the second one c. the third one d. It doesn't matter; they all have the same balance.

c

You want to have $100,000 in five years. If the interest rate is 8 percent, about how much money do you need to put away today? a. $66,225.25 b. $67,556.42 c. $68,058.32 d. $71,428.57

c

An effective minimum wage is a price ________ that ________ the quantity of low-skilled labor demanded. a. ceiling; decreases b. floor; increases c. ceiling; increases d. floor; decreases

d

If property rights are not clearly defined and enforced, then a. incentives for specialization based on comparative advantage are weakened. b. resources are devoted to protecting possessions rather than to production. c. some potential gains from specialization and trade are lost. d. All of the above answers are correct.

d

Refer to Figure 6-5. Suppose a tax of $9 per unit is imposed on the sellers in this market. How much will buyers pay per unit of that good after the tax is imposed? a. $5. b. Between $5 and $10. c. Between $10 and $14. d. $14.

d

The sellers pay the entire sales tax levied on a good when demand is perfectly ________ or supply is perfectly ________. a. inelastic; inelastic b. elastic; elastic c. inelastic; elastic d. elastic; inelastic

d

Refer to Figure 10-1, Panel (c). The market equilibrium quantity is a. Q4, which is the socially optimal quantity. l. Q5, which is the socially optimal quantity. f. Q4, and the socially optimal quantity is Q5. m. Q5, and the socially optimal quantity is Q4.

f

Economies of scale refer to the range of output over which a. marginal cost exceeds average cost. b. the marginal product of labor diminishes. c. the average cost falls as output increases. d. the average variable cost is lower than the average total cost.

C