Consumer Econ Final Chp 14-16

Peter studies at the coffee shop around the corner, at the same time that John talks loudly on his cell phone. The costs and benefits of each cell phone call made by John are given by the following table: If the both Peter and John could negotiate a settlement without transactions costs, how many phone calls would John end up making if Peter had the rights to stop any cell phone calls from taking place at the coffee shop? A. 2 B. 0 C. 1 D. 3

A. 2

Peter studies at the coffee shop around the corner, at the same time that John talks loudly on his cell phone. The costs and benefits of each cell phone call made by John are given by the following table: If the both Peter and John could negotiate a settlement without transactions costs, how many phone calls would John end up making if he (John) had the rights to make any calls he liked at the coffee shop? A. 2 B. 0 C. 1 D. 3

A. 2

Suppose Chase Bank owns a truck that it leases to Ryder Inc. The truck's value is $100,000 and it is expected to deteriorate at a rate of 5 percent per year. If the real interest rate is 2 percent, then Chase's total costs of owning the truck are A. $7,000 B. $100 C. $5,000 D. $1,000

A. $7,000

Consider a perpetual bond that pays $150/yr to its owner. What would be the price of the consol if the interest rate is 2 percent? A. $7,500 B. $75 C. $3 D. $30

A. $7,500

Say a worker sees work and leisure as perfect complements with a ratio of 5 to 1 (requiring 1 hour of leisure for every $5 in income). If this worker earned a wage of $10 her optimal demand for leisure would be: A. 16. B. 20. C. 24. D. 10.

A. 16.

If the nominal interest rate is 10% and the rate of inflation is 7%, what is the real rate of interest? A. 2.8% B. 7.0% C. 10.3% D. 3.0%

A. 2.8%

If grazing land is used by all individuals on a free open range, they will operate until the A. AP of the land equals the opportunity cost of the input. B. MP of the land equals the opportunity cost of the input. C. TP of the land equals the opportunity cost of the input. D. MP of the land is larger than the opportunity cost of the input.

A. AP of the land equals the opportunity cost of the input.

Imagine that there is a group of workers, group B, which has an average productivity of $9 per hour. Suppose workers from group A have an average productivity of $15 per hour and that employers have a productivity test that is 100% accurate 1/3 of the time, but has no value 2/3 of the time. If a worker from group B took the same productivity test that was given to workers in group A, what is the best estimate of the VMP for this worker if his test score is $21 per hour? A. $13 B. $18 C. $17 D. $21

A. $13

Suppose you are deciding how much oil to pump from your oil well in the next ten years. If you know oil would sell for $5 per gallon in ten years and the real interest rate is about 4%, the present value of the opportunity cost of selling the oil today would be about A. $3.38. B. $4.00. C. $2.50. D. $0.

A. $3.38.

If Alex seeks to maintain a constant income level, and all workers in his industry, including Alex, get a wage increase, which of the following will always be true? A. Alex will have a backward bending supply curve for his labor B. The market supply of labor curve will be backward bending for Alex's type of work C. The substitution effect of the wage increase leads to less work D. The income effect of the raise causes Alex to work more

A. Alex will have a backward bending supply curve for his labor

Why is it difficult to get a cab on a rainy day? A. Cab drivers have backward bending daily supply curve B. Cab drivers must drive much slower when it rains C. The demand for cabs shifts left and the quantity of cabs supplied falls D. Cabs don't like to work on rainy day

A. Cab drivers have backward bending daily supply curve

The diagram below shows the labor market faced by monopsonists. To maximize profits, this firm will hire labor at point: A. L1. B. L2. C. L3. D. 0.

A. L1.

According to the text discussion of efficient capital markets, which of the following would a well-trained economist recognize as logical and expected? A. Monkeys throwing darts at a financial page can hit stocks that perform as well as stocks picked by financial experts B. The best managed companies usually earn higher returns than companies rated lower on the list of well managed companies C. Experienced investors pay handsome sums to get investment advice from expert advisors D. Only expert investors should invest in the stock market

A. Monkeys throwing darts at a financial page can hit stocks that perform as well as stocks picked by financial experts

Which of the following possible points on a labor supply curve is consistent with the income- leisure tradeoff graph below? A. Wage = 1: Hours worked = 12 B. Wage = 2: Hours worked = 10 C. Wage = 3: Hours worked = 14 D. All of these are consistent with the information on the graph

A. Wage = 1: Hours worked = 12

If the value of your marginal product is 100 and you are being paid 80, which of the following is the most plausible reason that you remain with the firm? A. You value the high rank and leadership role as well as the salary that your position offers. B. You have no other options so you stay or go unemployed. C. You are altruistic and want to contribute to the firm's normal profit. D. You have no way of knowing the value of your marginal product so you feel OK about the salary of 80.

A. You value the high rank and leadership role as well as the salary that your position offers.

Suppose you are deciding how much oil to pump from your oil well in the next two years. Other things equal, you will be more likely to pump more oil this year than next year if you expect A. a higher price for oil this year than next year. B. a lower price for oil this year than next year. C. less demand for oil next year than this year. D. the same price of oil this year than next year.

A. a higher price for oil this year than next year.

Risk premium is A. a payment differential necessary to compensate the investor for having to bear a risk. B. the additional payment paid by bonds issued by the federal government. C. the tendency of some investors to incur in high risk. D. the benefits of buying from a trustworthy institution.

A. a payment differential necessary to compensate the investor for having to bear a risk.

(Appendix) If relative income standing and job safety both matter, then A. a prisoner dilemma problem may result where optimality requires collusion or a law requiring cooperation. B. a free market environment for choosing both objectives can bring optimality. C. if no legislation occurs, workers will be unsafe and less equal in income standing. D. workers will always be able to find the best suitable job.

A. a prisoner dilemma problem may result where optimality requires collusion or a law requiring cooperation.

In the loanable funds market A. demand is downward sloping because lower interest rates make more capital projects profitable. B. supply is vertical because loanable funds are fixed in any relevant time frame. C. demand for loanable funds shifts right if the interest rate falls. D. demand for loanable funds shifts right in the interest rate rises.

A. demand is downward sloping because lower interest rates make more capital projects profitable

Economists are strongly united in their belief that the stock market is A. efficient. B. inefficient. C. an unfair gamble. D. risk neutral.

A. efficient.

The upward sloping portion of the supply curve for labor implies that A. higher wages lead to an increase in hours of work supplied. B. the law of diminishing returns has settled in. C. higher wages lead to fewer hours of work supplied. D. a minimum wage law is in effect.

A. higher wages lead to an increase in hours of work supplied.

If the MRPL is greater than the wage rate, and the supply of labor is horizontal, the firm will A. hire more labor. B. hire less labor. C. increase the wage paid. D. not change its employment or wage practices.

A. hire more labor.

Say a firm that sells its product at a price of $20 is using 20 units of labor. If the marginal product of the last unit of labor hired was 10, and the firm pays each worker a wage of $40, then this firm should

A. hire more workers.

In the short run, a profit maximizing firm will respond to a reduction in the wage rate by

A. hiring more labor.

The demand for labor curve will be less elastic for the industry than for the firm because A. if all firms hire more labor, increased output will lower product price and therefore the marginal revenue product curve. B. if all firms hire more labor, the product price will rise. C. if all firms hire more labor, diminishing returns will not set in as quickly. D. industry demand for labor is more elastic than the firm's demand for labor.

A. if all firms hire more labor, increased output will lower product price and therefore the marginal revenue product curve.

Pay rates within a firm seem to show less variation than marginal productivity rate differences. This is because A. firms cannot measure marginal productivity accurately. B. firms compensate their high producers with non-monetary perks. C. social norms do not allow employers to pay high productivity wages. D. as much as possible firms try to pay employees the same rate for fairness reasons.

B. firms compensate their high producers with non-monetary perks.

In the market for loanable funds an increase in the government budget deficit will A. increase the market rate of interest. B. decrease the market rate of interest. C. have no effect over the market rate of interest. D. increase the supply of loanable funds.

A. increase the market rate of interest.

A monopsonist is a firm which A. is a "sole-buyer" in an input market. B. faces a downward sloping demand curve for its output. C. is a price taker in the labor market. D. faces a horizontal demand curve for labor.

A. is a "sole-buyer" in an input market.

The substitution effect of an increase in the wage rate on the quantity of leisure demanded A. makes leisure more expensive which leads people to work more. B. makes leisure less expensive which causes people to work less. C. gives people more purchasing power and causes people to demand more leisure. D. gives people less purchasing power and so they will demand less leisure.

A. makes leisure more expensive which leads people to work more.

The market demand for labor is A. more elastic in the long run than in the short run. B. more elastic in the short run than in the long run. C. unaffected by time differences. D. never elastic in the relevant range.

A. more elastic in the long run than in the short run.

A positional externality occurs when A. one person's increase in consumption lowers his neighbor's utility. B. one person builds a house which obstructs his neighbor's view. C. a polluter positions himself in a crowded city. D. a drunk person decides to drive.

A. one person's increase in consumption lowers his neighbor's utility.

The efficient market hypothesis would lead to the conclusion that A. people who win big in the stock market are more lucky than smart. B. only the highly skilled investors should put their money into the stock market. C. markets are not good anticipators of events that affect stock value. D. people who win big in the stock market are usually very good investors.

A. people who win big in the stock market are more lucky than smart.

An example of a negative externality is A. pollution. B. an apple orchard increasing the number of trees next to a bee farm. C. the Clean Air Act. D. a consumer paying too much for an item.

A. pollution.

A cash register at a coffee shop should be considered A. real capital. B. financial capital. C. either financial or real capital. D. none of the choices is correct.

A. real capital.

The market demand for labor is A. steeper than the horizontal summation of the individual demand curves. B. less steep than the horizontal summation of the individual demand curves. C. as steep as the horizontal summation of the individual demand curves. D. less steep than the individual demand curves.

A. steeper than the horizontal summation of the individual demand curves.

If the costs of negotiation are small but not negligible, A. the best available outcome results if the liability is placed on the party with the lowest cost of prevention. B. an efficient outcome results no matter how the law assigns responsibility. C. efficiency cannot be reached without government intervention. D. the best way to deal with the externality is to tax it.

A. the best available outcome results if the liability is placed on the party with the lowest cost of prevention.

According to the textbook, proponents of minimum wage laws assume that A. the demand curve for unskilled workers is nearly vertical. B. the supply curve for unskilled workers is upward sloping. C. the demand curve for unskilled workers is nearly horizontal. D. the supply curve for unskilled workers is downward sloping.

A. the demand curve for unskilled workers is nearly vertical.

Negative externality occurs when A. the production of a good harms third parties. B. the production of a good helps third parties. C. a buyer is sold inferior and damaged merchandise. D. the consumption of a good helps third parties.

A. the production of a good harms third parties.

According to the text, if diamonds represent a form of conspicuous consumption, then A. they should be taxed. B. they should be outlawed. C. they should be subsidized. D. they should be given for free.

A. they should be taxed.

Suppose a machine generates $500 worth of revenue at the end of each of the next three years, at which time it can be sold to a salvage company for $350. If the annual rate of interest is 0.08, what is the maximum amount a business would pay for this machine if maintenance costs are $100 per year? A. $1506 B. $1309 C. $9567 D. $1096

B. $1309

A machine produces no benefits now, but $200 in benefits at the end of a year. At the end of the year it falls apart into a heap of dust never to be used again. The present value of its income stream is approximately A. $220 if the interest rate is 10%. B. $182 if the interest rate is 10%. C. $200 no matter what the interest rate is. D. $200 if the interest rate is 20%.

B. $182 if the interest rate is 10%.

If the marginal product of the fifth person employed is 10 and the product price is $5, then the VMPL is

B. $50 if the product market is perfectly competitive.

The marginal factor cost of the third laborer is _____ if the labor supply curve faced by a firm has the following wage-quantity coordinates: A. 15 B. 25 C. 30 D. Cannot be determined until the nature of the product market is known

B. 25

Suppose fishermen go fishing at a fishery that has no property rights (meaning any fishermen could fish as she liked). The marginal cost of a fishing boat is constant at $100, and the price for each pound of fish sells at $1. Further, assume the relation between the number of vessels and the total catch is given by the following table: Each boat that goes out get an equal share of all the fish caught and there are 8 boats possible. If the fishery was own collectively by all the fishermen, how many boats would be sent out fishing? A. 0 B. 6 C. 7 D. 8

B. 6

Which of the following would cause the demand curve for automobile workers to increase? A. A decrease in price in automobiles. B. A better organized assembly line where specialization increased output. C. Higher social security taxes. D. Higher gas prices.

B. A better organized assembly line where specialization increased output.

Many minor league ballplayers get called up to play in the majors and then get sent back down again to the minors. Jim makes $26,000 in the minors and then when he gets called up he makes $125,000, though he never plays and is an unknown name to the fans. It is most likely true that A. Jim's productivity suddenly increases by $99,000 when he is called up to the majors. B. A portion of Jim's major league salary is economic rent. C. Jim was playing for way below the value of his marginal product in the minor leagues. D. Jim is irrational to accept only $26,000 in the minor leagues.

B. A portion of Jim's major league salary is economic rent.

The story in your book about Austria and the nuclear power plants is a clear case of which of the following? A. When externalities exist it is easy to negotiate an agreement between the offender and the offended party. B. Political differences can sometimes override rationality, raising negotiation costs and making solutions difficult or impossible. C. The story supports the claim of the Coase Theorem that the liability for actions should be placed on the side that has the lowest cost of correcting the problem. D. When coal powered plants become offensive countries will switch to nuclear power in order to maintain political stability in a region.

B. Political differences can sometimes override rationality, raising negotiation costs and making solutions difficult or impossible.

Suppose the problem is the stereo noise in the dorm. On the graph on the next page the amplifier dial numbers are located on the horizontal axis. The vertical axis measures the marginal costs and benefits of various levels of music (noise). Also measured on the vertical axis is the marginal cost of insulating the walls to prevent the externalities from penetrating the wall. What if negotiation is impossible and you have the rights to play? A. You will play at 10 and insulate your walls. B. She will insulate her walls and you will play at 10. C. You will play at 6 and she will suffer through the listening of your playing. D. You will play at 3 and she will listen to the music that comes into her apartment.

B. She will insulate her walls and you will play at 10.

Which of the following two statements is true of the graph shown below? Statement 1: The graph leads to a supply of labor curve that is positively sloped throughout. Statement 2: The opportunity cost of leisure is lower at point A than at point D. A. Statement 1 B. Statement 2 C. Both statements are true D. None of the statements is true

B. Statement 2

If transactions costs are very high and auctions for pollution permits are not possible, which of the following is the most effective way to deal with pollution? A. Allow the parties to negotiate B. Tax pollution C. Require all polluters to limit their pollution to a certain level with regulation D. Give subsidies to reduce pollution

B. Tax pollution

Suppose the problem is the stereo noise in the dorm. On the graph on the next page the amplifier dial numbers are located on the horizontal axis. The vertical axis measures the marginal costs and benefits of various levels of music (noise). Also measured on the vertical axis is the marginal cost of insulating the walls to prevent the externalities from penetrating the wall. If she has the property rights with negotiation impossible, then what will the outcome be? A. You will shut your stereo off. B. You will play to 3 and insulate so that the noise does not reach her. C. You will play to 6 and she will insulate her walls. D. You will play to 4 and she will absorb the noise even though she dislikes it.

B. You will play to 3 and insulate so that the noise does not reach her.

An example of a positive externality is A. pollution. B. an apple orchard increasing the number of trees next to a bee farm. C. the Clean Air Act. D. smoking in a crowded place.

B. an apple orchard increasing the number of trees next to a bee farm.

Peter studies at the coffee shop around the corner, at the same time that John talks loudly on his cell phone. The costs and benefits of each cell phone call made by John are given by the following table: According to the Coase theorem, when the parties affected by externalities can negotiate costlessly with one another A. an efficient outcome results if the liability is placed on the party with the lowest cost of prevention. B. an efficient outcome results no matter how the law assigns responsibility. C. efficiency cannot be reached without government intervention. D. the correct way to deal with an externality is to tax it.

B. an efficient outcome results no matter how the law assigns responsibility.

In the diagram below, the economic rent is represented by A. area A. B. area B. C. areas B and C. D. areas A and B.

B. area B.

Economic theory supports the view that increasing the minimum wage will A. increase the employment of teenagers. B. decrease the employment of teenagers. C. decrease the employment of unionized labor. D. increase the number of monopsony firms.

B. decrease the employment of teenagers.

A for-profit company that buys real capital and leases it to a non-profit company can A. offer the capital at a lease rate higher than it would cost the non-profit to buy the capital itself. B. depreciate the leased capital to lower the firm's tax liability. C. add a net gain to the economy because one or both companies gain and no one loses. D. charge a higher than market price to the non-profit company.

B. depreciate the leased capital to lower the firm's tax liability.

Peak load pricing A. is designed to shift the demand curve of consumers to the left. B. is designed to move consumers up along their demand curve. C. is usually used when supply is very elastic. D. is designed to encourage more supply rather than to allocate a fixed supply.

B. is designed to move consumers up along their demand curve.

If a company dumps pollution in the water and fishermen are hurt and if transactions costs are prohibitively high and efficiency is the most important criteria, A. the company should be made liable for the damage. B. liability should be placed on the group that has the least cost of solving the problem. C. the company should be allowed to pollute because a river is not private property. D. the company should be taxed enough so the government can keep the river clean.

B. liability should be placed on the group that has the least cost of solving the problem

The market supply curve for any particular category of labor is A. likely to be backward-bending. B. likely to be upward sloping. C. equal to the horizontal summation of the VMPL curves for that category of labor. D. steeper than the horizontal summation of the VMPL curves for that category of labor.

B. likely to be upward sloping.

The quantity of loanable funds supplied by firms is A. independent of the interest rate. B. positively related to the interest rate. C. inversely related to the interest rate. D. negatively related to the rate of return.

B. positively related to the interest rate.

Suppose the purchase price for a fax machine is $900. If the market rate of interest is 0.04, annual maintenance expenses are 0.03, and physical and technological depreciation is 0.15, how much will the machine's annual rental cost be? A. $922 B. $702 C. $198 D. $261

C. $198

The competitive labor market model suggests that the persistence of significant employer discrimination requires the owners of the firm to A. supply capital at a rate of return higher than what they could earn by investing their money elsewhere. B. supply capital at a rate of return below what could be earned elsewhere. C. hire a quantity of labor in which VMPL exceeds the wage rate. D. engage in collusion.

B. supply capital at a rate of return below what could be earned elsewhere.

Economic rent is A. the sum of the payment actually received by an owner of a factor of production and her reservation price. B. the difference between the payment actually received by the owner of a factor of production and her reservation price. C. the payment actually received by an owner of a factor of production. D. the reservation price of an owner of a factor of production.

B. the difference between the payment actually received by the owner of a factor of production and her reservation price.

The value of the marginal product of labor, VMPL, for the perfectly competitive firm equals

B. the extra revenue the firm gets by selling the output of one additional unit of labor.

If an additional worker costs you $15 per hour and can add 10 units per hour of output to the firm, you should hire that person as long as A. the value of marginal product is between $10 and $14. B. the product price is at least $1.50. C. the marginal product of the worker is greater than the value of the marginal product. D. demand for your product is increasing and you sell in a competitive market.

B. the product price is at least $1.50.

The theory of internal wage structure predicts that worker pay will come closest to the value of their marginal product if A. they work in an environment that has intensive workplace interaction. B. their work allows them to do most of their work at home. C. they work at a job that is unskilled. D. the worker is a research chemist rather than a real estate sales agent.

B. their work allows them to do most of their work at home.

Given high transactions costs, the best way to deal with a positive externality is A. to tax it. B. to subsidize it. C. to allow both parties to negotiate. D. to limit the extent of the externality.

B. to subsidize it.

Suppose workers from group A have an average productivity of $15 per hour and that employers have a productivity test that is 100% accurate 1/3 of the time, but has no value 2/3 of the time. What is the best estimate of the VMP of a worker from group A with a test score of $21 per hour? A. $13 B. $18 C. $17 D. $21

C. $17

Suppose the problem is the stereo noise in the dorm. On the graph on the next page the amplifier dial numbers are located on the horizontal axis. The vertical axis measures the marginal costs and benefits of various levels of music (noise). Also measured on the vertical axis is the marginal cost of insulating the walls to prevent the externalities from penetrating the wall. If negotiation costs are zero and you have the property rights to the airwaves, how loud will the music be played? The answer to the questions are to the nearest whole dial number. A. 3 B. 4 C. 6 D. 10

C. 6

Which of the following is true about labor union effects on labor markets? A. The higher wages in the union sector tend to elevate wages indirectly across all sectors of the labor market B. Union labor tends to be less productive because the union protects its workers from discipline or firing C. Approximately 90% of the wage difference between union and nonunion workers is due to the higher quality of union workers D. Labor unions have no documented impacts on labor markets because they are subject to the same labor market forces that other firms face

C. Approximately 90% of the wage difference between union and nonunion workers is due to the higher quality of union workers

When a CEO gets 20 million dollars a year in salary is any of that considered rent? A. Any part of the salary that exceeds the average CEO salary in the industry is rent. B. The part of the salary that exceeds the next highest paid CEO in the industry is rent. C. Because he would leave the company if he got less, none of the money is considered rent. D. All of the money is economic rent because rent refers to all money that moves resources to where they are used.

C. Because he would leave the company if he got less, none of the money is considered rent.

Since the last recession interest rates have been very low. Also it is generally known that we are close to major breakthroughs in solar energy and battery storage technology. How would these two factors impact the price of oil today? A. Both factors will work to increase the current price of oil. B. Both factors will work to decrease the price of oil today. C. The first factor will increase the current price of oil and the second factor would tend to decrease oil prices today. D. The first factor will decrease the price of oil today and the second factor will tend to increase the present price.

C. The first factor will increase the current price of oil and the second factor would tend to decrease oil prices today.

Which of the equilibrium points on the leisure-income graph below has a wage rate of $4 per hour? A. a B. b C. c D. d

C. c

Say a firm that sells its product at a price of $40 is using 20 units of capital. If the marginal product of the last unit of capital used was 50, and the constant rental rate of capital is $2,000, then this firm should A. acquire more capital. B. decrease the amount of capital. C. continue to use same units of capital. D. decrease its output.

C. continue to use same units of capital.

Proponents of the minimum wage implicitly assume that the ____ if they discount the unemployment effects of the policy. A. supply curve for unskilled workers is inelastic B. supply curve for unskilled workers is highly elastic C. demand curve for unskilled workers is inelastic D. demand curve for unskilled workers is highly elastic

C. demand curve for unskilled workers is inelastic

The income effect of an increase in the wage rate on the quantity of leisure demanded A. makes leisure more expensive which leads people to work more. B. makes leisure less expensive which causes people to work less. C. gives people more purchasing power and causes people to work less. D. gives people less purchasing power and so they will work more.

C. gives people more purchasing power and causes people to work less.

The "backward bending" portion of the labor supply curve implies that A. higher wages lead to an increase in hours of work supplied. B. the law of diminishing returns has settled in. C. higher wages lead to fewer hours of work supplied. D. a minimum wage law is in effect.

C. higher wages lead to fewer hours of work supplied.

Which phrase finishes this statement best? The net effect of a union increasing wages A. is to lower non-union wages by an offsetting amount so national income is not changed. B. is to increase wages in both union and non-union sectors. C. is to misallocate labor toward non-union work unless unionization enhances union worker productivity by its actions. D. is that no one gains in the end since union shops cannot compete and do not survive.

C. is to misallocate labor toward non-union work unless unionization enhances union worker productivity by its actions.

The optimal level of employment for a monopsonist is set at the point where the A. wage rate equals the VMPL. B. wage rate equals the marginal factor cost. C. marginal factor cost equal to the MRPL. D. supply of labor equals the marginal factor cost.

C. marginal factor cost equal to the MRPL.

Interest rates are determined by the A. rental rate of capital. B. marginal revenue product of physical capital. C. market supply and demand for loanable funds. D. physical depreciation of capital.

C. market supply and demand for loanable funds.

According to the text, a rise in the interest rate A. will raise consumer savings. B. will lower consumer savings. C. may either raise or lower consumer savings. D. will cause the rental cost of capital to decrease.

C. may either raise or lower consumer savings.

When an employer's information indicates that two individuals have exactly the same productivity, there will be competitive pressure to A. pay lower wages to the person who belongs to the group with the higher average productivity. B. pay both workers the same wage rate even if one worker belongs to a group with a higher average productivity. C. pay higher wages to the person who belongs to the group with the higher average productivity. D. not hire the person who belongs to the lower average production group.

C. pay higher wages to the person who belongs to the group with the higher average

The competitive labor market model suggests that persistence of significant employer discrimination A. should be larger than what currently is. B. should not be considered at all. C. requires the owners of the firm to supply capital at a rate of return substantially below its opportunity cost. D. requires workers to supply labor at a rate below their opportunity cost.

C. requires the owners of the firm to supply capital at a rate of return substantially below its opportunity cost.

We see a backward-bending labor supply curve whenever A. minimum wages are set too low. B. minimum wages are set too high. C. the income effect dominates the substitution effect over some range of wage rates. D. the substitution effect dominates the income effect over some range of wage rates.

C. the income effect dominates the substitution effect over some range of wage rates.

The hiring rule for the perfect competitor in the labor market is to choose that amount of labor for which the wage rate is exactly equal to

C. the value of the marginal product of labor, VMPL.

Laws are efficient if they A. uphold absolute property rights. B. restrict all undesirable action like polluting. C. work to equate the marginal benefits and marginal costs of behavior. D. help maximize total benefits of behavior. E. impose no costs on citizens.

C. work to equate the marginal benefits and marginal costs of behavior.

Consider a perpetual bond that pays $200 per year to its owner. By how much would the price of this bond fall if the interest rate rose from 0.04 to 0.05? A. $4,000 B. $500 C. $2,000 D. $1,000

D. $1,000

Suppose the problem is the stereo noise in the dorm. On the graph on the next page the amplifier dial numbers are located on the horizontal axis. The vertical axis measures the marginal costs and benefits of various levels of music (noise). Also measured on the vertical axis is the marginal cost of insulating the walls to prevent the externalities from penetrating the wall. If negotiation costs are zero and she has the property rights to the airwaves, how loud will the music be played? A. 0 B. 3 C. 4 D. 6

D. 6

Suppose fishermen go fishing at a fishery that has no property rights (meaning any fishermen could fish as she liked). The marginal cost of a fishing boat is constant at $100, and the price for each pound of fish sells at $1. Further, assume the relation between the number of vessels and the total catch is given by the following table: Each boat that goes out get an equal share of all the fish caught and there are 8 boats possible. If there were no controls over fishing, how many vessels would be sent out fishing? A. 0 B. 6 C. 7 D. 8

D. 8

Which of the following is considered financial capital? A. Funds a firm has in a savings account to be used to buy equipment that wears out. B. Stock and bonds sold to finance operations. C. Money that accumulates as profit in a firm's checking account. D. All of these are financial capital.

D. All of these are financial capital.

Which of the following three statements is true: I) The amount of capital equipment a firm wishes to buy depends on the rate of interest; II) The amount of capital equipment a firm wishes to buy depends on the purchase price of capital; III) The amount of capital equipment a firm wishes to buy depends on the rates of technological and physical depreciation. A. I B. II C. I and II D. All three statements are true.

D. All three statements are true.

The hiring rule for a firm that faces a downward sloping demand curve for its output is to hire that amount of labor for which the wage rate is equal to A. marginal revenue. B. the price of the good being sold. C. VMPL. D. MRPL.

D. MRPL.

The laws relating to trespass, the use of airspace and unobstructed view tell us what about property rights definition in the United States? A. The laws are not absolute in protecting a property owner from intrusion. B. The laws rely on cost-benefit analysis to arrive at efficient outcomes. C. The laws vary depending on information costs and enforcement costs. D. Property laws involve all of these considerations.

D. Property laws involve all of these considerations.

Which of the following labor demand curves will be the least elastic? A. The long-run demand for labor for an inelastic product B. The short-run demand for labor for an inelastic product C. The long-run demand for labor for an elastic product D. The short-run demand for labor of a firm with L-shaped Isoquants

D. The short-run demand for labor of a firm with L-shaped Isoquants

According to the textbook, if a wave of pessimism cause stocks to become generally overvalued, the best investment strategy is to A. sell as many stocks as possible. B. hold all available stocks and sell them later. C. buy only government bonds. D. continue to diversify your investment portfolio.

D. continue to diversify your investment portfolio.

Opponents of the minimum wage law implicitly assume that the _____ if they worry about the unemployment effects of the policy. A. supply curve for unskilled workers is inelastic B. supply curve for unskilled workers is highly elastic C. demand curve for unskilled workers is inelastic D. demand curve for unskilled workers is highly elastic

D. demand curve for unskilled workers is highly elastic

For the monopolist, A. decreasing returns to scale cause the short-run demand curve for labor to be downward sloping. B. increasing returns to scale cause the short-run demand curve for labor to be downward sloping. C. an upward sloping marginal revenue curve causes its demand for labor to be downward sloping. D. diminishing returns to production and a falling product price as output increases causes the short-run demand curve for labor to be downward sloping.

D. diminishing returns to production and a falling product price as output increases causes the short-run demand curve for labor to be downward sloping.

Because the monopsonist takes into account the effect that employment expansion has on wages paid to existing workers, it will A. pay union workers more than nonunion workers. B. be exempt from minimum wage laws. C. employ more and pay more than the corresponding values under competition. D. employ less and pay less than the corresponding values under competition.

D. employ less and pay less than the corresponding values under competition.

In general, when a test is less than accurate, our best estimate of a worker's productivity will A. be the average productivity of the group to which he belongs. B. be his actual test score. C. always lie below his actual test score. D. lie between his actual test score and the average productivity of the group to which he belongs.

D. lie between his actual test score and the average productivity of the group to which he belongs.

If 9 units of labor will be supplied if the wage rate is $12 and 10 units of labor will be supplied if the wage rate is $14, then the marginal factor cost for the tenth unit of labor is A. less than $12. B. $12. C. between $12 and $14. D. more than $14.

D. more than $14.

If minimum wages in a monopsony labor market are set above the firm's MFC at its initial hiring level, the effect would be to A. increase the hiring of unskilled workers. B. increase productivity. C. reduce factor costs. D. reduce employment.

D. reduce employment.

According to Pigou, the best way to deal with a negative externality is to A. allow both parties to negotiate. B. assign liability to the party with the highest cost of prevention. C. assign liability to the party with the lowest cost of prevention. D. tax it.

D. tax it.

Peak load pricing helps firms gain profit because A. people are willing to pay more for the first units they consume of a good. B. demand shifts left during peak load hours. C. low prices when demand is strong means high volume sales. D. they can serve their customers with a smaller capital base.

D. they can serve their customers with a smaller capital base.

If a perfectly competitive firm can acquire the services of as much capital as it wishes at a constant rental rate of r per year, it should employ capital up to the point at which the A. rental rate is equal to variable cost. B. rental rate is equal to marginal cost. C. marginal product of capital is equal to r. D. value of the marginal product of capital is equal to r.

D. value of the marginal product of capital is equal to r.