Microeconomics- Exam 8

Consider a police department trying to decide how to allocate its crime prevention resources between motor vehicle thefts and burglaries. The marginal benefit of one less motor vehicle theft is $20,000, and the marginal benefit of one less burglary is $1,000. Suppose the annual number of motor vehicle thefts and the annual number of burglaries depends on the number of detectives assigned to each type of crime, as shown in the table below. Each detective costs $35,000 each per year, regardless of whether the detective is assigned to motor vehicle thefts or burglaries. Picture Suppose the police department hires 4 detectives and assigns all of them to motor vehicle theft. The marginal benefit of the fourth detective assigned to motor vehicle theft is ______, and the marginal benefit that would have been gained had the detective instead been assigned to burglary is ______. Select one: a. $20,000; $40,000 b. $40,000; $40,000 c. $20,000; $20,000 d. $40,000; $20,000

a. $20,000; $40,000

MegaCable and Acme are competing for an exclusive contract to provide the city of Dustin with cable television for the next year. The firm that wins the contract will earn an economic profit of $5 million. The contact will be awarded to the firm that spends the most on lobbying. If both firms spend the same amount on lobbying, then the winner will be determined by a coin flip, so each will have a 50 percent chance of winning. Suppose MegaCable spends $2 on lobbying, and Acme spends $1 on lobbying. In this case, MegaCable's economic profit net of its lobbying costs will be ______, and Acme's economic profit net of its lobbying costs will be ______. Select one: a. $4,999,998; -$1 b. $5 million; -$1 c. $2.5 million; $2.5 million d. 0; $5 million

a. $4,999,998; -$1

Suppose the figure below shows Annie's demand curve for physical therapy. The marginal cost of each visit to the physical therapist is $150. Picture If Annie had first-dollar medical insurance, then she would choose to have _____ visits a year. Select one: a. 40 b. 25 c. 10 d. 0

a. 40

Suppose the figure below shows Luke's demand curve for check-ups along with the supply curve for check-ups. Picture If Luke had first-dollar medical insurance, then he would choose to have _____ check-ups a year. Select one: a. 5 b. 2 c. 3 d. 4

a. 5

The table below shows the marginal benefit and marginal cost of purchasing an additional unit of 3 different public goods. Picture The government is spending the socially optimal amount on: Select one: a. public good 1 b. public good 2 c. public good 3 d. public good 1 and public good 2

a. public good 1

Suppose the figure below shows Luke's demand curve for check-ups along with the supply curve for check-ups. Relative to when Luke has to pay the entire marginal cost of each check-up, the loss of total economic surplus due to first-dollar medical insurance would be ____ per year. Select one: a. $50 b. $100 c. $150 d. $200

b. $100

Two firms, Industrio and Capitalista, have access to five production processes, each of which has a different cost and gives off a different amount of pollution. The daily costs of the processes and the corresponding number of tons of smoke emitted are shown in the table below. Both firms currently use process A, and each emits 4 tons of smoke per day. The government is considering two plans to reduce pollution: requiring both firms to reduce pollution by 25 percent or auctioning pollution permits. Each permit would entitle the owner to emit one ton of smoke per day. Without a permit, no smoke can be emitted. Picture Suppose the government decides to auction 6 permits. The government conducts the auction by starting at a price of $1 and asking how many permits each firm wants to buy at that price. If the total is more than 6, it raises the price by $1 and asks again until the total quantity demanded falls to 6. Under this system, each permit will sell for ______ with Industrio buying ______ and Capitalista buying ______. Select one: a. $31; 2; 4 b. $41; 4; 2 c. $51; 4; 2 d. $101; 3; 3

b. $41; 4; 2

Consider a town with three residents. The residents' demand curves for various acres of a public park are shown below. Picture Picture Picture Suppose the town can purchase land for the park at a cost of $20 per acre. The optimal park size would be ______ acres. Select one: a. 2 b. 4 c. 6 d. 8

b. 4

Two firms, Acme and FirmCo, have access to five production processes, each of which has a different cost and gives off a different amount of pollution. The daily costs of the processes and the corresponding number of tons of smoke emitted are shown in the table below. Picture Suppose the firms are both currently using process A. If the government imposes a tax of $110 per ton of smoke emitted, then Acme will use process ______, and FirmCo will use process ______. Select one: a. B; A b. C; A c. C; C d. D; C

b. C; A

In the United States, the emergence of the third-party payment system explains ______ of the increase in health care expenditures from 1940 to the present. Select one: a. all b. a great deal c. almost none d. none

b. a great deal

If low-income households spend a larger share of their income on food than do high-income households, then a tax on food is: Select one: a. a progressive tax. b. a regressive tax. c. a proportional tax. d. a way to redistribute from the wealthy to the poor.

b. a regressive tax.

One justification for the creation of a federal level of government is: Select one: a. the ability to deficit spend. b. economies of scale in the provision of military defense. c. to encourage local diversity in the types of public goods provided. d. greater responsiveness to the will of the voters.

b. economies of scale in the provision of military defense.

All else equal, the amount of waste caused by full health insurance is: Select one: a. larger the lower is the price elasticity of demand for medical services. b. larger the higher is the price elasticity of demand for medical services. c. larger the lower is the price elasticity of supply for medical services. d. smaller the higher is the price of medical services.

b. larger the higher is the price elasticity of demand for medical services.

The table below shows the marginal benefit and marginal cost of purchasing an additional unit of 3 different public goods. Picture The government is spending more than is socially optimal on: Select one: a. public good 1 b. public good 2 c. public good 3 d. public good 1 and public good 2

b. public good 2

Citizens of Tinytown are considering building a new park. If each voter in Tinytown has a reservation price that is less than the total cost of the park, then: Select one: a. the benefit of the park is less than the cost of the park, so the park should not be built. b. some sort of collective action by voters will be necessary to fund the park. c. a private firm will have an incentive to build the park. d. the park will never be built.

b. some sort of collective action by voters will be necessary to fund the park.

If one state is suffering from acid rain as a result of sulfur dioxide emissions from the industries in a neighboring state, then: Select one: a. the individual states can easily reach a solution to the problem. b. the problem is best addressed through federal regulation. c. state courts can provide adequate remedies. d. the acid rain ceases to be an externality.

b. the problem is best addressed through federal regulation.

According to the Manning study, people with $1,000-deductible health care coverage had: Select one: a. better health outcomes than those with first-dollar coverage. b. the same health outcomes as those with first-dollar coverage. c. worse health outcome than those with first-dollar coverage. d. worse health outcomes than those with no insurance coverage.

b. the same health outcomes as those with first-dollar coverage.

MegaCable and Acme are competing for an exclusive contract to provide the city of Dustin with cable television for the next year. The firm that wins the contract will earn an economic profit of $5 million. The contact will be awarded to the firm that spends the most on lobbying. If both firms spend the same amount on lobbying, then the winner will be determined by a coin flip, so each will have a 50 percent chance of winning. The socially optimal amount for each firm to spend on lobbying is ______. Select one: a. $0 b. $2,500,000 c. $5,000,000 d. $10,000,000

c. $5,000,000

Kris, Taylor and Max are the only three residents in a neighborhood. A public good that would benefit all of them has a one-time installation cost of $900. The value of the public good to each resident is shown in the table below. Any tax plan must be approved by simple majority. Picture If the government proposes to pay for the public good with a proportional income tax of 8 percent, then: Select one: a. all three voters will vote in favor of the tax. b. Max and Taylor will vote against the tax, but Kris will vote in favor of it. c. Kris and Max will vote in favor of the tax, but Taylor will vote against it. d. all three voters will vote against the tax.

c. Kris and Max will vote in favor of the tax, but Taylor will vote against it.

Medical insurance covering routine medical care became common: Select one: a. around 1900. b. in the 1920's. c. after World War II. d. during the 1980's.

c. after World War II.

It will be difficult to find a solution to the problems caused by greenhouse gas emissions because: Select one: a. the scientific evidence on the negative effects of greenhouse gas emissions is weak. b. voters are not aware of the problems caused by greenhouse gas emissions. c. an international political organization would be necessary to enforce a solution. d. the technology to reduce greenhouse gas emissions is undeveloped.

c. an international political organization would be necessary to enforce a solution.

If all firms were to pay the same premium per worker into the workers' compensation system, then firms with high injury rates would pay premiums that: Select one: a. exactly cover the claims generated by their workers b. are too large to cover the claims generated by their workers. c. are too small to cover the claims generated by their workers. d. lead to the socially optimal level of workplace injuries.

c. are too small to cover the claims generated by their workers.

If a boxing fight is shown on pay-per-view television every Saturday at 4pm, the demand curve for each fight is given below. Picture If there is a pay-per-view charge to watch a fight, the outcome is ______ because ______. Select one: a. efficient; prices will allocate the program to those who value it the most b. efficient; the marginal cost of an additional viewing household is zero c. inefficient; the marginal cost of an additional viewing household is zero d. inefficient; television stations would not always make a profit

c. inefficient; the marginal cost of an additional viewing household is zero

The presence of an unregulated negative externality means that the unregulated market equilibrium quantity is: Select one: a. efficient. b. smaller than is optimal. c. larger than is optimal. d. greater than demand.

c. larger than is optimal.

Even if a tax imposed in a market generates a loss in surplus for the participants in that market, the tax could still increase economic efficiency if: Select one: a. voters approve of the tax. b. the government needs to generate tax revenue. c. the public expenditures financed by the tax lead to a big enough increase economic surplus. d. the tax revenue is used to fund spending by local governments.

c. the public expenditures financed by the tax lead to a big enough increase economic surplus.

Suppose the figure below shows Luke's demand curve for check-ups along with the supply curve for check-ups. Picture If Luke had to pay the entire marginal cost of each check-up, then he would choose to have ______ check-ups a year. Select one: a. 5 b. 1 c. 2 d. 3

d. 3

Broadcast television is an example of: Select one: a. a collective good provided by the government. b. a private good provided by private firms. c. a private good provided by the government. d. a public good provided by private firms.

d. a public good provided by private firms.

A group of physicians that provides medical services to members for a fixed annual fee is termed a: Select one: a. health management organization. b. fee-for-service plan. c. partnership. d. health maintenance organization.

d. health maintenance organization.

In contrast to first-dollar insurance coverage, one concern about HMOs is that: Select one: a. the price of medical care will be too low. b. acute treatment will be overemphasized. c. patients will receive more medical care than they need. d. patients will not receive adequate medical care.

d. patients will not receive adequate medical care.

In general, the optimal amount of medical care is: Select one: a. as much as one can afford. b. enough to stay healthy. c. the quantity at which the total cost of the care equals its total benefit. d. the quantity at which the marginal cost of the care equals its marginal benefit.

d. the quantity at which the marginal cost of the care equals its marginal benefit.