ECON 201 Test 2

On holiday weekends thousands of people picnic in state parks. Some picnic areas become so overcrowded the benefit or value of picnicking diminishes to zero. Suppose that the Minnesota State Park Service institutes a variable free structure. On weekdays when the picnic areas get little use, the fee is zero. On normal weekends, the fee is $8 per person. On holiday weekends, the fee is $14 per person. The fee system corrects a problem known as the

Tragedy of the Commons

What do clean air in New York City and elephants in Africa have in common?

They are both common resources

Suppose the government imposes a tax of P'-P". The area measured by I+J+K+L+M+Y represents

Total surplus before the tax

A firm's opportunity costs of production are equal to its

explicit costs + implicit costs

Marginal cost is equal to average total cost when

average total cost is at its minimum

When a firm is operating at an efficient scale,

average total cost is minimized

Taking into account private and external costs, the maximum total surplus that can be achieved in this market is

$1,080

Larry's Lunchart is a small street vendor business. If Larry makes 15 pretzels in his first hour of business and incurs a total cost of $16.50, his average cost per pretzel is

$1.10

Cindy's Car Wash has average variable costs of $2 and average fixed costs of $3 when it produces 100 units of output (car washes). The firm's total cost is

$200

Marcus sells 300 candy bars at $0.50 each. His total costs are $125. His profits are

$25

Suppose that for a particular firm the only variable input into the production process is labor and that output equals zero when no workers are hired. In addition, suppose that when four units of output are produced, the total cost is $175, and the average variable cost is $33.75. What would the average fixed cost be if ten units were produced?

$4

Refer to table 10-3 Taking into account private and external costs, the maximum total surplus that can be achieved in this market is

$55

Billy's Bean Bag Emporium produced 300 bean bag chairs but sold only 275 of the units it produced. The average cost of production for each unit of output produced was $100. The price for each of the 275 units sold was $95. Total profit for Billy's Bean Bag Emporium would be

-$3,875

Kate is a florist. Kate can arrange 20 bouquets per day. She is considering hiring her husband William to work for her. William can arrange 18 bouquets per day. What would be the total daily output of Kate's firm if she hired her husband?

38 bouquets

Refer to table 10-3 The socially optimal quantity of output is

5 units

Refer to table 13-9. What is the marginal product of the third worker?

60 units

In some parts of the United States, sugar beets are grown and harvested. The process of producing usable sugar from the beets generates foul-smelling smoke. A government policy that limits the emission of smoke by sugar-beet-processing firms is an example of

A command-and-control policy

The sign on a church in your neighborhood reads "All are welcome at Sunday Service." Because the church has limited seating and is usually full, the Sunday Service is

A common resource

A city street is

A common resources when it is congested, but it is a public good when it is not congested

Which of the following statements is correct using the information below? Rival in Consumption? Yes No Yes. A B Excludable? No C D

A congested nontoll road is an example of the type of good represented by Box C

The tax on cigarettes is an example of

A corrective tax

Technology spillover occurs when

A firm's research yield technical knowledge that is used by society as a whole

Excludability is the property of a good whereby

A person can be prevented from using it

Which of the following statements about a well-maintained yard best conveys the general nature of the externality

A well-maintained yard conveys a positive externality because it increases the value of adjacent properties in the neighborhood

Which area represents the increase in consumer surplus when the price falls from P1 to P2?

ABDG

When the price rises from P1 to P2, which area represents the increase in producer surplus to existing producers?

ABGD

Which area represents producer surplus when the price is P2?

ACH

Refer to figure 13-9. Which of the curves is most likely to characterize the short-run average total cost curve of the smallest factory?

ATCa

Which curve represents the long-run average total cost

ATCd

If gasoline taxes were significantly increased in the United States, then

All of the above -Some of the government regulations that require automakers to produce more fuel-efficient cars would become unnecessary -Other taxes, such as income taxes, could be lowered -It is likely that roads would become safer and the environment would become cleaner

At low levels of production, the firm

All of the above -benefits from increased size because it can take advantage of greater specialization -has the potential for economies of scale -it is unlikely to experience acute problems with coordination

Taxes causes deadweight losses because taxes

All of the above are correct -Reduce the sum of producer and consumer surpluses by more than the amount of -Prevent buyers and sellers from realizing some of the gains from trade -Cause marginal buyers and marginal sellers to leave the market, causing the quantity sold to fall

Refer to figure 10-10 Which of the following statements is correct?

All of the above are correct -The private cost of producing the 160th unit of output is $16 -The social cost of producing the 160th unit of output is $22 -The external cost of producing the 160th unit of output is $6

A negative externality arises when a person engages in an activity that has

An adverse effect on a bystander who is not compensated by the person who causes the effect

A tariff is a tax placed on

An imported good and it raises the domestic price of the good above the world price

Most economists view the United States' experience with trade as

An ongoing experiment that confirms the virtues of free trade

Consider the following information about baseball production at Bobby's Baseball Factory: Worker Marginal Product 1 3 2 5 3 8 4 10 5 7 6 4 7 2 Bobby pays all his workers the same wage, and labor is his only variable cost. From this information we can conclude that Bobby's average variable cost decreases

As output rises from 0 to 26, but rises after that

Which of the following statements about costs is correct?

As the quantity of output increases, marginal cost eventually rises

A patent is used to

Assign property rights

Which of the following statements is not correct? Fixed costs are constant Variable costs change as outputs changes Average fixed costs are constant Average total costs are typically U-shaped

Average fixed costs are constant

Which of the following is not a property of a firm's cost curves?

Average total cost will cross marginal cost at the minimum of marginal cost

Governments can improve market outcomes for

Both public goods and common resources

Private contracts between parties with mutual interests

Can solve inefficiencies associated with positive externalities

The market for soybeans in Canada consists solely of domestic buyers of soybeans and domestic sellers of soybeans if

Canada forbids international trade in soybeans

What is the difference between command-and-control policies and market-based policies toward externalities?

Command-and-control policies regulate behavior directly, whereas market-based policies provide incentives for private decision makers to change their behavior

Which of the following costs of publishing a book is a fixed cost?

Composition, typesetting, and jacket design for the book

Which area represents the increase in producer surplus when the price rises from P1 to P2 due to new producers entering the market?

DGH

The decrease in total surplus that results from a market distortion, such as tax, is called a

Deadweight loss

When trade in coffee is allowed, consumer surplus in Guatemala

Decreases by the area B + D

Suppose that a firm's long-run average total costs of producing custom wooden picnic tables is $300 when it produces 10,000 tables and $325 when it produces 11,000 tables. For this range of output, the firm is experiencing

Diseconomies of scale

Which of the following statement is not correct? -In the long run, there are no fixed costs -Marginal cost is independent of fixed costs -Economies of scale is a short-run concept -Diminishing marginal product explains increasing marginal cost

Economies of scale is a short-run concept

If an aluminum manufacturer does not bear the entire cost of the smoke it emits, it will

Emit a higher level of smoke than is socially efficient

Who among the following is a free rider?

Ernie listens to National Public Radio, but does not contribute to any fundraising efforts

In deciding whether a good is a public good, one must determine the

Excludability of the good

Private goods are both

Excludable and rival in consumption

With trade, Guatemala will

Export 22 units of coffee

Which of the following is not correct? -Markets allocate scarce resources with the forces of supply and demand -The equilibrium of supply and demand is typically an efficient allocation of resources -Governments can sometimes improve market outcomes -Externalities cannot be positive

Externalities cannot be positive

Which of the following goods is excludable but not rival in consumption?

Fire protection in a small town

Which of the following costs do not vary with the amount of output a firm produces?

Fixed costs

David's firm experiences diminishing marginal product for all ranges of inputs. The total cost curve associated with David's firm

Gets steeper as output increases

Refer to Figure 9-1. From the figure it is apparent that

Guatemala will export coffee if trade is allowed

Relative to the no-trade situation, trade with the rest of the world results in

Guatemalan consumers paying a higher price for coffee

A production function describes

How a firm turns inputs into output

Suppose the government imposes a tax of P'-P". Total surplus before the tax is measured by the area

I+J+K+L+M+Y

The nation of Wheatland forbids international trade. In Wheatland, you can buy 1 pound of corn for 3 pounds of fish. In other countries, you can buy 1 pound of corn for 2 pounds of fish. These facts indicate that

If Wheatland were to allow trade, it would import corn

Refer to figure 10-13 In order to reach the social optimum, the government could

Impose a tax of $8 per unit on plastics

Farmer Jack is a watermelon farmer. If Jack plants no seeds on his farm, he gets no harvest. If he plants 1 bag of seeds, he gets 30 watermelons. If he plants 2 bags of seeds, he gets 50 watermelons. If he plants 3 bags of seeds he gets 60 watermelons. A bag of seeds costs $100, and the costs of seeds are his only costs. Farmer Jack's production function will

Increase at a decreasing rate

Josiah installed a metal sculpture in his front yard. A positive externality arises if the sculpture

Increases the value of other properties in the neighborhood

One reason that private solutions to externalities do not always work is that

Interested parties incur costs in the bargaining process

Suppose the government imposes a tax of P'-P". Total surplus after the tax is measured by the area

J+K+L+M

Diminishing marginal product suggests that

Marginal cost is upward sloping

Which of the following is not a common resource?

National defense

Pollution is a

Negative externality that can be viewed as a common-resource problem

Both public good and common resources are

Nonexcludable

When a good is rival in consumption,

One person's use of the good diminishes another person's ability to use it

The market equilibrium price is

P3b

Which of the following is not a public good? -National defense -Patented technological knowledge -General knowledge -Elimination of poverty

Patented technological knowledge

A corrective tax

Places a price on the right to pollute

According to the Coase theorem, private markets will solve externality problems and allocate resources efficiently as long as

Private parties can bargain with sufficiently low transaction costs

A tornado siren is a

Public good

The installation of a scrubber in a smokestack reduces the emission of harmful chemicals from the smokestack. Therefore, the socially optimal quantity of smokestack scrubber is represented by point

Q5

The old lyric "the best things in life are free"

Refers to goods provided by nature or the government

A vacation home in Malibu is

Rival in consumption and excludable

In the case of a technology spillover, the government can encourage firms to internalize a positive externality by

Subsidizing production, which would increase supply

For a large firm that produces and sells automobiles, which of the following costs would be a variable cost?

The cost of the steel that is used in producing automobiles

Which of the following statements is correct?

The efficient provision of public goods is intrinsically more difficult than the efficient provision of private goods

Which of the following quantities causes a decrease in response to a tax on a good?

The equilibrium quantity in the market for the good, producer surplus, and the well-being of buyers of the good

Suppose that an MBA degree creates no externality because the benefits of an MBA are internalized by the student in the form of higher wages. If the government offers subsidies for MBAs, then which of the following statement is correct?

The equilibrium quantity of MBAs will be greater than the socially optimal quantity of MBAs

When a country allows trade and becomes an exporter of a good,

The gains of the domestic producers of the good exceed the losses of the domestic consumers of the good

Thirsy Thelma owns and operates a small lemonade stand. When Thelma is producing a low quantity of lemonade she has few workers and her equipment is not being fully utilized. Because she can easily put her idly resource to use,

The marginal cost of one glass of lemonade is smaller than if output were high

Honey producers provide a positive externality to orchards because

The orchard owner does not have to purchase bees to pollinate his flowers

A logical starting point from which the study of international trade begins is

The principle of comparative advantage

If good x is available free of charge, then

The private market cannot ensure an efficient allocation of resources in the market for good x

Stick Storage manufactures and sells computer flash drives. Last year it sold 2 million flash drives at a price of $10 each. For last year, the firm's

Total revenue was $20 million

Suppose the government imposes a tax of P'-P". The area measured by J+K+L+M represents

Total surplus after tax

An overcrowded beach is an example of

Tragedy of the Commons

Without government intervention, public goods tend to be

Underproduced and common resources tend to be overconsumed

To measure the gains and losses from a tax on a good, economists use the tools of

Welfare economics

Which of the following statements is not correct? -Common resources are rival in consumption but are not excludable -Uncongested toll roads are examples of club goods -When African elephants were privatized, the survival of the species deteriorated -National defense is not rival in consumption, nor is it excludable

When African elephants were privatized, the survival of the species deteriorated

Which of the following is not an important question for economic policy raised by the experience of the textile industry?

Which argument for restricting free trade is politically feasible?

Suppose Brazil has a comparative advantage over other countries in producing almonds, but other countries have an absolute advantage over Brazil in producing almonds. If trade in almonds is allowed, Brazil

Will export almonds

When a good is taxed play

both buyers and sellers of the good are made worse off

Which of the following would not be considered a private good?

cable TV service

The Tragedy of the Commons occurs because

common resources are rival in consumption

At levels of output between M and N, the firm experiences

constant returns to scale

A pizza is

excludable and rival in consumption

The failure of markets to adequately protect the environment can be viewed either as a problem of

externalities or as a problem of common resources

The long-run average total cost curve is always

flatter than the short-run average total cost curve, but not necessarily horizontal.

A command-and-control policy is another term for a

government regulation

With trade, Nicaragua

imports 250 calculators

When a factory is operating in the short run,

it cannot adjust the quantity of fixed inputs

Suppose that Christine owns her own CPA firm. She uses only two inputs in her business: her hours worked (labor) and a computer (capital). In the short run, Christine most likely considers

labor to be variable and capital to be fixed

Constant returns to scale occur when a firm's

long-run average total costs do not vary as output increases

Diseconomies of scale occur when

long-run average total costs rise as output increases

The U.S. Patent System

makes specific, technical knowledge excludable

Average total cost is increasing whenever

marginal cost is greater than average total cost

Diminishing marginal product suggest that

marginal cost is upward sloping

If marginal cost is rising,

marginal product must be falling

If 325 units of plastics are produced and consumed, then the

market equilibrium has been reached

Total cost is the

market value of the inputs a firm uses in production

Economists normally assume that the goal of a firm is to

maximize its profit

A television broadcast is an example of a good that is

not rival in consumption

This firm experiences diseconomies of scale at what output levels?

output levels greater than N

When a good is excludable,

people can be prevented from using the good

total revenue equals

price x quantity

A total-cost curve shows the relationship between the

quantity of output produced and the total cost of production

A free rider is a person who

receives the benefit of a good but avoids paying for it

Suppose the socially-optimal quantity of good x is 2,500 units and the market-equilibrium quantity of good x is 3,000 units. When 2,500 units of good x are produced, the

social cost of good x equals the private value of good x

The most likely explanation for economies of scale is

specialization of labor

A tax levied on the sellers of a good shift the

supply curve upward (or to the left)

An example of an opportunity cost that is also an implicit cost is

the value of the business owner's time

Refer to figure 13-3. The graph illustrates a typical

total-cost curve

In the short run, a firm incurs fixed costs

whether it produces output or not

The price of sugar that prevails in international markets is called the

world price of sugar

Consider the town of Springfield with only three residents, Sophia, Amber, and Cedric. The three residents are trying to determine how large, in acres, they should build the public park. The table below shows each resident's willingness to pay for each acre of the park. Acres Sophia Amber Cedric 1 $10 $24 $6 2 8 18 5 3 6 14 4 4 3 8 3 5 1 6 2 6 0 4 1 7 0 2 0 Suppose the cost to build the park is $24 per acre and that the residents have agreed to split the cost of building the park equally. If the residents decide to build a park with size equal to the number of acres that maximized total surplus from the park, how much total surplus will Amber recieve?

$32

Jacqui decides to open her own business and earns $50,000 in accounting profit the first year. When deciding to open her own business, she withdrew $20,000 from her savings, which earned 5 percent interest. She also turned down three separate job offers with annual salaries of $30,000, $40,000, and $45,000. What is Jacqui's economic profit from running her own business?

$4,000

If the government imposes a price floor of $110 in this market, then consumer surplus will decrease by

$600

The change in total surplus in Nicaragua because of trade is

$625, and this is an increase in total surplus

Refer to Figure 5 below for questions 4-5. At the equilibrium price, consumer surplus is

$800

Frank owns a dog-grooming business. Which of the following costs would be implicit costs? (i) dog shampoo (ii) rent on the storefront (iii) wages Frank could earn as a substitute elementary-school teacher (iv) interest that Frank's money was earning before he spent his savings to set up the dog-grooming business

(iii) and (iv) only

Sonia opened a yoga studio where she teaches classes and sells yoga clothing. Fixed costs for Sonia's yoga studio include the cost of the (I) tank tops (ii) wages paid to the other yoga instructors (iii) lease on the studio space (iv) insurance that the landlord requires Sonia to carry for the studio

(iii) and (iv) only

With trade, total surplus in the Guatemala coffee market amounts to

1,870

Eldin is a house painter. He can paint three houses per week. he is considering hiring his friend Murphy. Together, Eldin and Murphy can paint five houses per week. What is Murphy's marginal product?

2 houses

Let L represent the number of workers hired by a firm, and let Q represent that firm's quantity of output. Assume two points on the firm's production function are (L=6, Q=147) and (L=7, Q=184). The marginal product of the seventh worker is

37 units of output

The term market failure refers to

A market that fails to allocate resources efficiently

Because elephants roam freely in many countries in Africa, each individual African elephant poacher has

A strong incentive to kill as many elephants as he can find

Which area represents consumer surplus at a price of P2?

AFG

Which area represents the increase in producer surplus when the price rises from P1 to P2?

AHGB

Average total cost (ATC) is calculated as follows

ATC = (total cost)/(quantity of output)

Costa Rica allows trade with the rest of the world. We can determine whether Costa Rica has a comparative advantage in producing pharmaceuticals if we

All of the above -Know whether Costa Rica imports or exports pharmaceuticals -Compare the world price of pharmaceuticals to the price of pharmaceuticals that would prevail in Costa Rica if trade with the rest of the world were not allowed -Compare the quantity of pharmaceuticals consumed in Costa Rica with the quantity of pharmaceuticals that would be consumed in Costa Rica if trade with the rest of the world were not allowed

On the Fourth of July, there is no fireworks display in the small town of Yankeeville, even though it would be efficient for such a display to be produced. Which of the following statements is correct?

All of the above -The lack of a fireworks display in Yankeeville arises because of an externality -The lack of a fireworks display in Yankeeville is a case of market failure. -In deciding not to produce a fireworks display in Yankeeville, private individuals and private firms made decisions that were privately rational but socially inefficient

Suppose that a country abandons a no-trade policy in favor of a free-trade policy. If, as a result, the domestic price of beans increases to equal the world price of beans, then

All of the above -that country becomes an exporter of beans -that country has a comparative advantage in producing beans -at the world price, the quantity of beans supplied in that country exceeds the quantity of beans demanded in that country

For a construction company that builds houses, which of the following costs would be a fixed cost?

All of the above are correct -the $50,000 per year salary paid to a construction foreman -the $30,000 per year salary paid to the company's bookkeeper -the $10,000 per year premium paid to an insurance company

Refer to Figure 13-3. The graph illustrates a typical total cost curve. Based on its shape, what does the corresponding production function look like?

An upward-sloping curve that increases at a decreasing rate

Which area represents producer surplus when the price is P1?

BCG

Which area represents consumer surplus at a price of P1?

BDF

Bob owns 5 acres of land. Bob sells the land to a real estate developer who builds a subdivision with 10 houses. The land is an example fo a good that is

Both rival in consumption and excludable

When a tax on a good is enacted seller, and that seller is a price taker

Buyers and sellers share the burden of the tax regardless of whether the tax is levied on buyers or on sellers

The Mansfield Public Library has a large number of books that anyone with a library card may borrow. Anyone can obtain a card for free. Because the number of copies of each book is limited, not everyone can have the same book at the same time. What type of good would the library books be classified as in this case?

Common resources

When a country allows trade and becomes an importer of a good,

Domestic producers become worse off, and domestic consumers become better off

Imagine a 2,000-acre park with picnic benches, trees, and a pond. Suppose it is publicly owned, and people are invited to enjoy its beauty. When the weather is nice, it is difficult to find parking on summer afternoons. Otherwise, it is a great place. The park is a common resource because

If too many people use it, one person's use diminishes other people's use

For any country, if the world price of copper is lower than the domestic price of copper without trade, that country should

Import copper

Which of the following statements is true of the tax on gasoline?

It discourages driving on noncongested roads, even though there is no congestion externality for these roads

Suppose the government imposes a tax of P'-P". The producer surplus after the tax is measured by the area

M

Assume, for Mexico, that the domestic price of oranges without international trade is lower than the world price of oranges. This suggests that, in the production of oranges,

Mexico has a comparative advantage over other countries and Mexico will export oranges

An externality is the impact of

One persons's actions on the well-being of a bystander

The Tragedy of the Commons describes

Overuse of a common resource relative to its economically efficient use

Suppose the government imposes a tax of P'-P". The area measured by M represents

Producer surplus after the tax

When a country that imports a particular good imposes a tariff on that good,

Producer surplus increases and total surplus decreases in the market for that good

A tax on a good

Raises the price that buyers effectively pay and lowers the price that sellers effectively receive

Resources tend to be allocated inefficiently when goods

are available free of charge

A tax levied on the buyers of a good shifts the

demand curve downward (or to the left)

When the marginal product of an input declines as the quantity of that input increases, the production function exhibits

diminishing marginal product

Total revenue equals

price x quantity

Goods that are excludable include both

private goods and club goods

For a firm, the relationship between the quantity of inputs and quantity of outputs is called the

production function

A tornado siren is a

public good

Suppose the government imposes a tax of P'-P". The area measured by K+L represents

tax revenue