AP Microeconomics Unit 6 Study Guide

All of the following are sources of inequality in the distribution of personal income EXCEPT a) progressive income taxes b) discrimination in employment c) differences in personal motivation d) differences in educational level attained e) differences in abilities

a

There are negative externalities associated with the use of a freeway in a major city at rush hour because during this time a) drivers slow down other drivers because of the high traffic volume b) drivers value their time more c) government revenues from toll roads increase d) revenues of bus companies increase e) gasoline costs more

a

Which of the following is a government policy that is intended to address a market failure? a) Taxing the use of toxic pesticides by farmers b) Fining firms that outsource jobs to lower labor costs c) Subsidizing corn farmers who face increasing production costs d) Taxing short-run profits in competitive markets e) Subsidizing entry of firms into a market with an existing natural monopoly

a

Public goods are typically provided by the government, because private markets tend to a) produce them at higher cost b) produce less than the socially optimum quantity c) produce more than the socially optimum quantity d) charge a monopoly price that is greater than the marginal social cost e) charge a monopoly price that is less than the marginal social cost

b

A pure public good is a good that is a) provided efficiently by markets b) rivalrous and excludable in consumption c) nonrivalrous and excludable in consumption d) rivalrous and nonexcludable in consumption e) nonrivalrous and nonexcludable in consumption

e

If the production of a good results in a positive externality, the government might be able to improve economic efficiency in this market by a) eliminating private production of the good b) imposing a tax on private producers c) promoting the export of the surplus output d) initiating antitrust action e) granting a subsidy to private producers

e

Antitrust policy seeks to prevent or eliminate which of the following practices? a) Firing of workers b) Collusion and price fixing c) Pollution of rivers d) Monopolistic competition e) Discrimination in the labor market

b

A free-rider problem arises when a good is a) nonrival b) nondepletable c) nonexcludable d) produced in a competitive market e) produced in a monopolistic market

c

Which of the following is likely to result in allocative inefficiency? a) An oligopoly market structure b) A firm producing at the level of output where price is equal to marginal cost c) A perfectly competitive market in long-run equilibrium with no externalities d) A perfectly price-discriminating monopoly e) A monopsonist that faces a minimum wage where marginal revenue product equals the supply of labor

a

A chemical plant pollutes a river that serves as the water supply for a nearby town. From an economist's point of view, pollution from the plant should be reduced until the... a) marginal benefit from the cleaner water is equal to the marginal cost of making the water cleaner b) marginal benefit from cleaner water is maximized c) total benefit from cleaner water is zero d) total benefit from cleaner water is equal to the total cost of making the water cleaner e) total benefit from cleaner water is maximized

a

Assume that the marginal social benefit of the last unit of vaccination provided is greater than the marginal social cost. Which of the following can be used to achieve efficiency in the market for vaccination? a) A per-unit subsidy for vaccinations b) A lump-sum tax for vaccinations c) A limit on the quantity of vaccinations d) A price floor for vaccinations e) A price ceiling for vaccinations

a

Assume that under new environmental regulations, tire companies have to pay taxes based on how much pollution is created when producing each tire. The price paid by consumers and the quantity of tires sold will most likely change in which of the following ways? a) Price: Increase Quantity: Decrease b) Price: Increase Quantity: Increase c) Price: Decrease Quantity: Increase d) Price: Decrease Quantity: Decrease e) Price: No change Quantity: No change

a

National defense is a good example of a pure public good because it is a) nonrival and nonexcludable b) nonrival and excludable c) rival and nonexcludable d) rival and excludable e) free and provided at zero cost

a

Private supply of public goods is most likely to result in a) less than the efficient level of output, due to the free-rider problem b) less than the efficient level of output, due to the problem of insufficient competition c) more than the efficient level of output, due to lower costs of private firms d) more than the efficient level of output, due to the existence of externalities e) an overuse of these goods

a

Suppose that at the current output level the marginal social cost of producing a good is greater than its marginal private cost, and that the marginal social benefit associated with production of the good is equal to its marginal private benefit. Which of the following government actions would most likely increase efficiency? a) Taxing the production of the good b) Taxing the production of substitute goods c) Giving tax rebates to people who purchase the good d) Subsidizing production of complementary goods e) Subsidizing consumption of the good

a

A governmental welfare program that taxes the labor income of the wealthy and redistributes the tax revenue to low-income citizens will a) increase income inequality and efficiency b) decrease income inequality and efficiency c) increase income inequality and decrease efficiency d) decrease income inequality and increase efficiency e) decrease income inequality and not affect efficiency

b

An industry will produce more than the socially efficient level of output under which of the following conditions? a) The production or consumption of a good generates a positive externality. b) The production or consumption of a good generates a negative externality. c) The industry is a monopoly. d) The industry produces a public good. e) The industry produces a private good.

b

Assuming that all residents of the city of Smallville prefer to have streetlights installed citywide, which of the following best explains why individual residents do not install the optimal number of streetlights? a) Streetlights generate negative externalities. b) Streetlights are nonexcludable. c) Installing streetlights results in diseconomies of scale. d) The marginal cost of installing streetlights is zero. e) The marginal benefit of installing streetlights is zero.

b

Imposing taxes that increase as a firm's pollution increases is often recommended by economists as a means to reduce pollution. The reason for this recommendation is that such taxes would likely a) eliminate pollution completely b) encourage firms to use the most efficient method to reduce pollution c) increase the government's revenues d) encourage firms to increase production e) be paid out of firm's profits and not paid for by higher consumer prices

b

The government must provide public goods such as national defense because a the production of public goods requires economies of scale that the private sector cannot achieve b) it is generally impossible to exclude individuals who value public goods but do not pay for them c) public goods cannot be produced in private competitive markets, since they have highly inelastic demand d) private producers charge a price that is substantially greater than marginal cost e) no single individual should have to pay for public goods, since they benefit society as a whole

b

The socially optimal quantity of a public good is provided when a) marginal private cost equals marginal private benefit b) marginal social cost equals marginal social benefit c) total private cost equals total social benefit d) total social cost equals total social benefit e) marginal social benefit minus marginal social cost is at a maximum

b

When consumption of a good generates a positive externality, which of the following must be true at the market equilibrium? a) Marginal social benefit is less than marginal private cost. b) Marginal social benefit is greater than marginal private benefit. c) Marginal social cost is greater than marginal social benefit. d) Marginal social cost is less than marginal private benefit. e) Marginal social cost is equal to marginal external benefit.

b

Which of the following is a characteristic of a public good? a) It is excludable. b) It is nonrival in consumption. c) It yields substantial spillover costs. d) The private sector would produce a larger than socially optimal quantity. e) Private-sector producers would realize too great a profit.

b

Which of the following is most likely to reduce inequality in a country's distribution of income? a) An increase in the population growth rate b) Job training for low-skill workers c) An increase in the trade deficit d) A decrease in funding for training unemployed workers e) A regressive tax rate

b

Which of the following is true of the marginal cost of providing a pure public good to one more consumer? a) It is positive. b) It is equal to zero. c) It is equal to the original cost of the good. d) It decreases as the number of consumers increases. e) It increases as the number of consumers increases.

b

Which of the following is true when there are negative externalities associated with the production of a good? a) The market will adjust automatically to equate marginal social costs and marginal social benefits. b) Marginal social costs will exceed marginal private costs unless businesses are forced to internalize the external costs. c) Marginal private costs will exceed marginal social costs, but the government can correct the problem. d) Producers should be subsidized so that they will produce more of the good. e) Consumers should be subsidized so that they will consume more of the good.

b

Which of the following will most likely lead to a more equal distribution of income? a) More regressive national sales tax b) More progressive income taxes c) An increase in the high school dropout rate d) An increase in structural unemployment e) An increase in earnings for owners of capital

b

A perfectly competitive manufacturing industry pollutes public water in its production process, leaving the water unsuitable for use by the surrounding communities. At the market equilibrium output level, which of the following is true? a) Marginal private cost exceeds marginal social cost. b) Marginal private cost exceeds marginal private benefit. c) Marginal social cost exceeds marginal social benefit. d) The market equilibrium output is equal to the socially efficient output. e) The market equilibrium output is less than the socially efficient output.

c

A society that wishes to achieve greater income equality is most likely to have which of the following? a) A regressive income tax system and high estate and gift taxes b) A regressive income tax system and low estate and gift taxes c) A progressive income tax system and high estate and gift taxes d) A progressive income tax system and low estate and gift taxes e) A proportional income tax system and high estate and gift taxes

c

As an unregulated monopolist, City Cable is earning positive economic profits. If the government regulated the firm by requiring it to produce the level of output that allowed the firm to earn zero economic profit, City Cable would set a price that is equal to its a) marginal cost b) marginal revenue c) average total cost d) average variable cost e) total cost

c

Assume that many boats have free and open access to fishing in the waters of a country. Which of the following statements is true? a) With the availability of fish for all consumers, there is a positive externality; therefore, governments need to encourage greater use of the common areas with more production and increased consumption. b) Over time, fishing operations will voluntarily leave the market as a result of increased competition. c) There will be a tendency for fishing operations to overfish, reduce the stock of fish, and limit the future availability of fish for succeeding generations. d) The waters of a country are a rare example of a resource that is not scarce. Therefore, standard economic analysis does not apply. e) The advantage of allowing free and open access to fishing is to limit the harm from a negative externality where too few fish are currently caught.

c

In a perfectly competitive market for a good with a downward sloping demand curve and an upward sloping supply curve, the marginal social benefit is greater than the marginal social cost at the market equilibrium quantity. The government imposition of a new per-unit tax on the production of the good would a) have no effect on the price of the good b) increase consumer surplus c) increase the deadweight loss d) increase producer surplus e) increase the quantity sold of the good

c

National defense is an example of a public good because a) it requires tax revenues to fund any production b) one person's use of it will decrease another person's ability to use it c) it is nonexcludable and nonrival d) the private market typically produces the socially efficient level of output e) the public is protected from invasion

c

Public goods are underproduced in a competitive market because the free-rider problem causes which of the following? a) Fixed supply b) Effective price ceilings c) Reduced market demand d) Negative externalities e) Increased imports

c

Which of the following is an example of a pure public good? a) A hamburger sold in a restaurant on a college campus b) Medical education to become a doctor c) A hurricane warning siren d) Paper pulp produced with pollution emissions e) A ticket to the movie theater

c

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? a) Output: Increase Pollution: Increase b) Output: Increase Pollution: Decrease c) Output: Decrease Pollution: Increase d) Output: Decrease Pollution: Decrease e) Output: No change Pollution: No change

d

A progressive income tax is characterized by a) a higher average tax rate at low income levels than at high income levels b) tax rates that increase total tax revenues c) marginal tax rates that do not change as income changes d) marginal tax rates that increase as income increases e) marginal tax rates that decrease as income increases

d

Assume accountants and teachers have identical marginal revenue product schedules. Which of the following provides an explanation for why accountants receive higher starting salaries than school teachers? a) Accountants have less human capital than school teachers. b) Accountants have lower opportunity cost than school teachers. c) Accounting firms provide a more pleasant work environment than schools provide. d) The supply of accountants is low relative to the supply of teachers. e) Fewer teaching majors graduate from college each year than accounting majors.

d

If a positive externality exists in the consumption of a good, the private market equilibrium quantity will be a) the same as the socially optimal quantity, since the marginal private benefit equals the marginal social benefit b) greater than the socially optimal quantity, since the marginal social cost exceeds the marginal private cost c) greater than the socially optimal quantity, since the marginal private benefit exceeds the marginal social benefit d) less than the socially optimal quantity, since the marginal social benefit exceeds the marginal private benefit e) less than the socially optimal quantity, since the marginal private benefit exceeds the marginal private cost

d

In the absence of externalities, which of the following is true of a competitive market in equilibrium? a) Consumer surplus is maximized. b) Producer surplus is maximized. c) Marginal benefit exceeds marginal cost. d) Marginal social benefit equals marginal social cost. e) Consumer surplus equals producer surplus.

d

Which of the following actions is most likely to reduce the degree of income inequality within a society? a) Lowering the tax rate on income from savings b) Increasing regulations on labor unions c) Increasing the cost to households of primary and secondary education d) Introducing progressive inheritance taxes on accumulated wealth e) Eliminating taxes on corporate profits

d

Which of the following best defines a pure public good? a) A good that is provided free of charge to the public b) A good that is provided by the government, whether or not a fee is charged c) A good that is efficiently produced only by a monopoly d) A good whose benefits can be enjoyed by many consumers at the same time and from which consumers cannot be excluded e) A good that by law must be available to all consumers without discrimination on the basis of sex, race, or religion

d

Which of the following best represents a positive externality? a) Purchasing a pass for an amusement park b) Dining at a favorite restaurant c) Being disturbed by neighboring construction noise d) Enjoying watching birds at a neighbor's bird feeder e) Dumping waste on someone else's property

d

Which of the following is the best example of the free-rider problem? a) A company gives away free samples of a new product. b) A single firm is the sole supplier of corn oil. c) There are economies of scale in the production of passenger elevators. d) It is difficult to exclude those who do not pay for a good from enjoying the benefits of the good. e) There is free entry and exit into production of toothpaste, but products are not homogeneous.

d

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 a) years of schooling b) occupations c) marginal products d) marginal revenue products e) tastes for luxury goods

e

In a perfectly competitive labor market, an increase in an effective minimum wage will result in a) an increase in the supply of workers b) a decrease in the supply of workers c) a decrease in the demand for workers d) more workers being hired e) fewer workers being hired

e

The market inefficiency of a negative production externality will be eliminated if a policy is put in place that results in which of the following outcomes? a) the level of output produced is maximized b) the marginal benefit of production is maximized c) the marginal cost of production is minimized d) the marginal social benefit of production exceeds the marginal social cost e) the marginal social benefit of production is equal to the marginal social cost

e

A Lorenz curve can be used by economists to do which of the following? a) Show the distribution of personal income b) Show the amount of wealth in a nation c) Show the amount of consumption in a nation d) Explain why different households have different incomes e) Explain why income is equally distributed in socialist countries

a