Microeconomics test #3
If a natural monopoly is forced to use marginal cost pricing, which of the following is not true?
Average total costs would increase
If welfare benefits equaled the poverty gap, for each household in poverty
Poverty would be eliminated
To maximize profit, a natural monopolist will
Produce where MR = MC
Other things being equal, which of the following would increase the market demand for labor?
An increase in the marginal productivity of labor
The costs associated with the employment of more than 100,000 workers by the federal government regulatory agencies are an example of
Administrative costs
The opportunity cost of working is the
Value of leisure time that must be given up
Charles is retired and earns $10,000 per year working part-time. He is entitled to a maximum Social Security retirement benefit of $14,000. Social Security regulations allow him to earn $8,000 and still get maximum benefits. If he increases the number of hours he works and thus increases his earnings to $20,000 his total benefits will decrease by
$4,000
The percentage of federal tax receipts allocated to income transfers is
50%
A progressive tax is
A tax system in which tax rates rise as income rises
In monopolistic competition, the entry of new firms will
All of the above (study, 14)
Workers typically require higher wages in order to work additional hours because of the
All of the above (study, 37)
The demand for factors of production is
All of the above (study, 42)
Which of the following would shift the market demand for labor, ceteris paribus?
All of the above (study, 45)
When the minimum wage is raised in a competitive market, ceteris paribus
All of the above (study, 61)
Wealth
All of the above (study, 69)
If the market's response to the FOR WHOM question is suboptimal
All of the above (study, 75)
If welfare benefits equaled the poverty gap, for each household in poverty
All of the above (study, 94)
The Social Security program is an income-transfer program for
All of the above (study, 97)
Approximately what percentage of U.S. households receive transfer payments?
Almost every household receives some form of income transfer payment
Cost efficiency refers to the
Amount of output associated with an additional dollar spent on input
If the MPP of an additional unit of labor is 4 units per hour, product price is constant $3 per unit, and the wage rate is $15 per hour, then
An additional unit of labor should not be employed
Which of the following is a form of government intervention that is designed to correct market failures?
Antitrust laws
To be eligible for a welfare program, the recipient must be
Any of the above (study)
Social insurance programs insure people against the costs of
Any of the above (study, 91)
The demand for labors and other factors of production typically declines in a recession because those factors
Are derived from the demand for final output, which also declines in a recession
Social Security annual benefits to retirees
Are higher for high income workers and lower for low income workers
The marginal revenue product of labor is equal to
Change in total revenue / change in quantity of labor
The costs that firms incur to learn about the regulations in their industry are referred to as
Compliance costs
Higher marginal tax rates fir welfare programs will
Decrease incentive to work
Critics content that imposing a minimum wage higher than the equilibrium wage in a competitive industry would
Decrease the number of workers employed in that industry
Both perfect competition and monopolistic competition
Earn zero economic profit in the long run
When the regulatory process itself becomes a drag on economic growth, society experiences
Efficiency costs of regulation
In monopolistic competition, a firm's demand is tangent to the long-run average cost curve in the long run because
Entry eliminates economic profit, and exit eliminates losses
Ceteris paribus, if the demand for computers increases, the demand for labor in the computer manufacturing industry will
Increase because the MRP of labor has increased
A marginal tax rate of zero for welfare programs will
Increase the number of people eligible for welfare
A payroll tax
Increases the nominal cost of labor
The fact that landlords are able to pass the majority, but not all, of the burden of property taxes on to renters suggests that the price elasticity of demand for apartments is
Inelastic
A college graduate who works at a firm is also working part-time on a master's degree in business and expects to be paid a higher wage after earning the degree. The basic reason for this wage differential is
Investment in human capital
A 7.25% sales tax
Is a regressive tax because poor individuals consume a higher percentage of their income than high-income individuals
The long-run average total cost curve of a natural monopolist
Is always above the marginal cost curve in the relevant range of production
The individual firm that hires labor under competitive conditions faces a labor supply curve which
Is perfectly elastic
A natural monopoly is a desirable market structure because
It can offer the products consumers want at the lowest possible price because of economies of scale
Which of the following is true about a payroll tax?
It reduces the net wages to employees
The marginal revenue product of labor curve is the firms
Labor-demand curve
Brand loyalty usually makes the demand curve for a product
Less price elastic
The cost efficiency of labor is equal to the
MPP of labor divided by the wage rate
The change in total revenue associated with one additional unit of input measures labors
MRP
Which of the following characterizes monopolistic competition?
Many firms produce a particular type of product but each maintains some independent control over its own price
If an individual is taxed at a 30% rate for each extra dollar earned, the reference is to the
Marginal tax rate
The number of hours that a worker is willing to work is determined by the trade-off between the increasing
Marginal utility of leisure and the decreasing marginal utility of income
Market failure includes
Market power resulting in reduced output and higher price
The primary benefit of the Social Security program is the
More equitable distribution of income that results
The law of diminishing returns states that, ceteris paribus, the MPP of labor declines as
More labor is employed
To produce with the greatest possible price efficiency, a natural monopoly
Must be subsidized by the government to overcome losses
Suppose that an economy wants to eliminate the resource waste associated with excess capacity in monopolistically competitive markets. Which of the following actions would achieve this goal?
Require all firms in a given monopolistically competitive market to produce identical products
In which industry is monopolistic competition most likely to be found?
Retail trade
If household income and wealth increases there will be a
Rightward shift of the labor supply curve
State and local governments generate most of their revenues through
Sales and property taxes
By instituting a sales tax, a tax plan would
Shift the Lorenz curve for after-tax income away from the absolute equality
The federal income tax is designed to
Shift the Lorenz curve inward
Why do skilled workers generally earn more than unskilled workers?
Skilled labor has higher marginal revenue products than unskilled labor
If Reggie's substitution effects outweigh his income effects, his labor-supply curve
Slope upward
At the point where income effects outweigh substitution effects, the labor-supply curve
Starts to bend backward
When people are standing in line for jobs and there are more people than jobs, then the labor market is characterized by a
Surplus of labor
The Social Security program is financed by
Taxes on payrolls
Other things being equal, a profit-maximizing employer will employ additional labor as long as
The MRP of labor exceeds the wage rate
A tax structure is called progressive when
The average tax rate decreases if income decreases
The benefits received principle of taxation is
The basis for the gasoline tax
Which of the following increases labor demand for workers at tourist resorts
Tourism increases in popularity, increasing the demand for workers at tourist resorts
Which of the following is an example of product differentiation?
Two bars of soap differ only in their label, but consumers pay $0.20 more for the label they recoginze
If the government forces a natural monopoly to produce the output where P = MC, the firm
Will incur losses
The difference between personal income and wealth is that
Income is a flow, while wealth is a stock
The size distribution of income best measures the answer to the
FOR WHOM question
In monopolistic competition, a firm
Has a downward-sloping demand curve
Which of the following has not been a major factor contributing to the high productivity of labor in the United States?
High wage rates
A profit-maximizing firm's daily total revenue is $155 with 3 workers, $200 with 4 workers, and $230 with 5 workers. The cost of each worker is $40 per day. The firm should
Hire 4 workers
Suppose that Silvia's Dance Studio uses both labor and capital, the cost efficiency of labor is 5 dance lessons per dollar and the cost efficiency of capital is 1 dance lesson per dollar. Silvia should
Hire less capital and more labor
If wages dropped below $100 per period, ceteris paribus, the firm depicted in the above figure should
Hire more workers (study, 63)
Which statement best describes the overall tax and transfer systems of the U.S.?
Our tax system does not by itself reallocate income; transfer payments help redistribute income from rich to poor
The economic inefficiency of monopolistic competition means that
Producers produce at an output short of, and charge a price greater than, minimum average total cost
If the taxes by state and local governments were combined with Federal tax system, the overall tax structure in the U.S. would best be characterized as
Progressive
The labor-supply cover depicts the
Quantities of labor supplied at alternative wage rates
An upward-sloping labor-supply curve illustrates
The direct relationship between quantity of labor supplied and the wage rate
Which of the following statements regarding the distribution of money income is most correct?
The distribution of money income overstates the extent of poverty in the U.S.
Tax incidence most accurately refers to
The distribution of the real burden of a tax
Personal income
The flow of annual income received by a household before paying taxes
Economists Chamberlain and Prante of the Tax Foundation note that if the U.S. population in 2004 were grouped into quintiles by income
The top two income quintiles paid more in taxes than the benefits received from government spending
In-kind transfers are
The transfer of goods and services, instead of income, to those in need
Which of the following would NOT shift the market demand for labor, ceteris paribus?
The wage paid to labor
At a given wage rate, the firm will be willing to hire an additional worker only if
The worker contributes at least as much to marginal revenue as to marginal costs