ECON Exam 2

Refer to the graph below. According to this graph, the existence of a minimum wage in the market for low-skilled workers results in:

a surplus of workers

Refer to the graphs below. Which of the following statements is correct?

Market B exhibits a negative externality because the marginal social cost exceeds the marginal private cost.

Refer to the graph below. When an externality is present, which combination of price and quantity does the market yield without government intervention?

P1, Q1

What does the sum of consumer surplus and producer surplus equal?

economic surplus

which of the following are sometimes called accounting costs?

explicit costs

Fill in the blanks. When there are many people involved, the transactions costs are often___ than the net benefits from reducing an externality. In such cases, a private solution to an externality problem ___feasible.

higher; is not

Which of the following is true? i.Total cost = fixed cost + variable cost ii.Total cost = explicit costs + implicit costs iii.Economic cost = accounting cost + implicit costs

i, ii, and iii

What is the focus of a command-and-control approach to reducing pollution?

imposing quantitative limits on the amount of pollution firms are allowed to generate

Refer to the graphs below. In which of the markets is the quantity Q1 less than the economically efficient quantity?

in Market A

What cost measure is equal to AFC + AVC?

average total cost

Which of the following is known as the highest-valued alternative that must be given up in order to engage in an activity?

opportunity cost

Refer to the graph below. From the origin up until point A,

output increases at an increasing rate.

What is the term used to describe the total cost of producing a good which includes both private and external costs?

social cost

The term used to describe a change in the ability of a firm to produce a given level of output with a given level of inputs is called___.

technological change

The term tax incidence refers to

the actual division of the burden of a tax.

Which of the following is the definition of marginal benefit?

the additional benefit to a consumer from consuming one more unit of a good or service

Which of the following is the definition of marginal cost?

the additional cost to a firm of producing one more unit of a good or service

Refer to the graph below. The graph shows an individual's demand curve for tea. If the price is $3.00, what is consumer surplus for the fourth cup of tea.

$0

Refer to the graph below. When market price is $2.00, what is producer surplus from selling the 40th cup?

$0.20

Refer to the graph below. The graph shows an individual's demand curve for tea. If the price is $2.00, what is consumer surplus for the fourth cup of tea.

$1.00

Refer to the graph below. How much is the value of total fixed cost?

$2,400

Refer to the graph below. How much is the marginal cost of producing the 50th cup?

$2.00

Refer to the graph below. When 14,000 cups of tea are produced per month, the marginal benefit of the 14,000th cup of tea is___, the marginal cost of the 14,000th cup of tea is¬¬____, and output is____.

$2.20; $1.80; below the efficient level

Refer to the graph below. A tax is imposed in this market that shifts the supply curve from S1 to S2. What price do producers receive after this tax is imposed?

$2.98

If the average price that cable subscribers are willing to pay for cable television is $208, but the actual price they pay is $81, how much is consumer surplus per subscriber?

$208 - $81 = $127

Refer to the table below. What is the marginal cost of producing the 200th pizza?

$3.25

Refer to the table below. What is the marginal cost of producing the 640th pizza?

$43.33

Refer to the table below. What is the average total cost of producing 550 pizzas?

$5.00

Refer to the graph below. What Pigovian tax would push the market to efficiency?

$50

Refer to the graph below. What is the optimal quantity of this public good?

15 units

Refer to the graph below. To achieve economic efficiency, which output level should be produced?

15,000 cups per month, because at this level of output, marginal benefit is equal to marginal cost

Refer to the graph below. A tax is imposed in this market that shifts the supply curve from S1 to S2. In this graph, how much of the gas tax do consumers pay?

8 cents per gallon

What is the short run?

a period of time during which at least one of the firm's inputs is fixed

Refer to the graph below. After a price of $3.50 is imposed by the government in this market, what meaning do we give to area A?

Area A is consumer surplus transferred to producers.

Refer to the graphs below. Which graph is representative of a typical average total cost curve?

B

Refer to the graph below. After rent control is imposed, which area represents a deadweight loss?

B+C

Refer to the graph below. If 14,000 cups of tea are produced, what area corresponds to deadweight loss?

C+E

Refer to the graph below. Based on the relationship between average total cost and marginal cost, which of the curves below appears to be average total cost?

Curve 2

Refer to the graph below. Based on the relationship between marginal product and average product, which curve appears to be average product?

Curve 2

Refer to the graph below. At any level of output, what is the vertical distance between Curve 2 and Curve 3 equal to?

Curve 4

Which of the following statements is correct according to Ronald Coase's argument for dealing with externalities and market failure?

In some situations, a private solution to the problem of externalities can be found.

Which of the following statements is correct?

In the long run, all costs are variable.

When the government imposes price floors or price ceilings, which of the following occurs?

Some people win. Some people lose. There is a loss of economic efficiency. All of the above occur.

Refer to the graph below. The graph shows an individual's demand curve for tea. At a price of $2.00, the consumer is willing to buy five cups of tea per week. More precisely, what does this mean?

The marginal benefit of consuming the fifth cup is $2.00.

Which of the following statements about the relationship between marginal product of labor and average product of labor is correct?

Whenever the marginal product of labor is greater than the average product of labor, the average product of labor must be increasing.

In response to information regarding the salaries of executives at firms receiving bailout funds in the United States, some people have called for a limit on the salaries paid to executives. Such a limit on the compensation executives can receive is an example of

a price ceiling

What is the name of a legally determined maximum price that sellers may charge?

a price ceiling

Some people believe there should be a legally determined maximum price in the gasoline market. Such a limit on the price of gasoline would be an example of

a price ceiling.

What is the name of a legally determined minimum price that sellers may receive?

a price floor

What does the term rivalry refer to?

a situation in which one person's consumption of a good means that no one else can consume it

Refer to the table below. Which of the boxes applies to goods that are excludable and nonrivalrous?

c

Refer to the graphs below. In each of the graphs, a curve has shifted as a result of a new social security tax. In which graph do the workers pay the entire social security tax?

in neither case

Refer to the graphs below. In each of the graphs, a curve has shifted as a result of a new social security tax. In which graph does the employer pay the entire social security tax?

in neither case

What are the sources of externalities and market failure?

incomplete property rights the difficulty of enforcing property rights in certain situations both a. and b.

Fill in the blanks. According to the Coase theorem, if transactions costs are__, private bargaining will result in an __solution to the problem of externalities.

low; efficient

What is the additional output that a firm produces as a result of hiring one more worker called?

marginal product of labor

Refer to the graph below. After the negative externality has been internalized, which point would best represent the efficient equilibrium?

point a

What is the benefit received by the consumer of a good or service called?

private benefit

Refer to the graph below. After rent control is imposed, area A represents:

producer surplus transferred from landlords to renters.

What does the term "spreading the overhead" refer to?

reducing average fixed cost by selling more output

Refer to the table below. Which of the following costs are implicit costs?

the foregone salary and interest

What does the term free riding refer to?

the idea that someone can benefit from a good without paying for it

Refer to the graph below. A tax is imposed in this market that shifts the supply curve from S1 to S2. What area corresponds to the excess burden (aka, deadweight loss) from the tax?

the light gray area

Refer to the graph below. What name other than demand curve can you give this curve?

the marginal benefit curve

What do we obtain by dividing the fixed cost by the quantity of output produced?

average fixed cost

Which of the following refers to the total output produced by a firm divided by the quantity of workers?

average product of labor

Refer to the graph below. The arrow in the graph refers to the difference between D1 and D2. What does this difference represent?

an external benefit

What is the difference between private benefit and social benefit?

an external benefit

Fill in the blanks. When graphing a conventional short-run production function, we place____ on the horizontal axis and ____on the vertical axis.

the variable input; output

Refer to the graph below. Which of the following best represents a tax equal to the value of the negative externality?

the vertical distance between S1 and S2

Refer to the graph below. The graph shows the market demand for satellite TV service. If the market price is $81, which consumers receive consumer surplus in this market?

those willing to pay more than $81

What does the term excludability refer to?

the fact that anyone who does not pay for a good cannot consume it

The following cost measures reach their minimum points when they are equal to the value of marginal cost, except one. Which cost measure is the exception?

average fixed cost

Refer to the graph below. Which area equals producer surplus when price is $2.20?

area B+D

Refer to the graph below. Compared to the competitive equilibrium, how much producer surplus is lost when the price is $2.20?

area E

Refer to the graph below. Assume this is a competitive market. Which of the following does not exist when the price is $2.00?

deadweight loss

Refer to the graph below. In moving along the curve from point A to point B, which of the following is more likely to occur?

diminishing returns

When a competitive market is in equilibrium, what is the economically efficient level of output?

the output level where marginal cost is equal to marginal benefit

Refer to the graph below. For a certain output range (or quantity of pizzas produced per day), marginal cost is greater than average cost. What is this output range?

the output range greater than about 525 pizzas per day

What is the production function?

the relationship between the inputs employed by a firm and the maximum output it can produce with those inputs

When we talk about property rights in the discussion of externalities, which rights do we refer to?

the rights of individuals to have exclusive use of their property

Refer to the graph below. After a price of $3.50 is imposed by the government in this market, what meaning do we give to area B + C?

deadweight loss

Refer to the graphs below. In which of these markets is an externality present?

in both Market A and Market B

What is the situation called in which the market fails to produce the efficient level of output?

market failure

Which costs are affected by the level of output produced?

variable costs

Refer to the graph below. To achieve economic efficiency, the level of output should be reduced when the quantity of cups produced equals

16,000

Refer to the graph below. When 15,000 cups of tea are produced and consumed per month, which of the following is true?

The sum of consumer and producer surplus is maximized. The level of output is economically efficient. The marginal benefit to buyers of the last cup of tea is equal to the marginal cost of producing the last cup of tea. All of the above are true.

What is the tragedy of the commons?

The tragedy of the commons refers to the tendency for a common resource to be overused.

Which of the following statements is correct?

There is no shortage of most scarce goods.

If the number of people in a publishing company does not go up or down with the quantity of books it publishes, then how should we categorize the salaries and benefits paid to these employees?

They are part of fixed cost.

What type of solution to externalities is the Coase theorem?

a private solution to externalities

What is the cost that affects someone who is not directly involved in the production or consumption of a good called?

an externality

Refer to the graph below. According to this graph, the existence of a minimum wage in the market for low-skilled workers results in:

an increase in wages but lower employment.

Refer to the graph below. Which area equals consumer surplus when price is $2.20?

area A

Refer to the graph below. Which area equals consumer surplus when price is $2.00?

area A + B + C

Refer to the graph below. What does Curve 4 represent?

average fixed cost

When is output inefficiently low?

when marginal benefit is greater than marginal cost

Refer to the graphs below. In each of the graphs, a curve has shifted as a result of a new social security tax. In which graph is the tax incidence larger on workers?

in both cases the tax incidence is the same

The processes a firm uses to turn inputs into outputs of goods and services is.

technology

Refer to the graphs below. What procedure does this series of graphs show?

the construction of market demand for a public good

Refer to the graph below. A tax is imposed in this market that shifts the supply curve from S1 to S2. What area corresponds to the revenue collected by the government from the tax?

the dark gray area

Which of the following is the definition of consumer surplus?

the difference between the highest price a consumer is willing to pay and the price the consumer actually pays

Which of the following is the definition of producer surplus?

the difference between the lowest price a firm would have been willing to accept and the price it actually receives

What happens to the difference between average variable cost and average total cost as the level of output increases?

the difference decreases

Fill in the blank. When a negative externality is present in producing a good or service, of the good or service will be produced at market equilibrium.

too much

Refer to the table below. When do diminishing returns in the production of pizzas start?

when the third worker is hired