Econ exam ch 8-15 ( -13)

a. both excludable and rival.

private goods are: a. both excludable and rival. b. neither excludable nor rival. c. excludable, but not rival. d. rival, but not excludable.

b. import restrictions

Because producers are better able to organize than consumers are, we would expect there to be political pressure to create a. free trade b. import restrictions c. export restrictions d. none of the above

a. average total cost is minimized.

If marginal cost is equal to average total cost, then a. average total cost is minimized. b. marginal cost is zero. c. marginal cost is minimized. d. average variable cost is minimized.

c. a comparative advantage in the production of the good.

If the world price for a good exceeds the before-trade domestic price for a good, then that country must have a. an absolute advantage in the production of the good. b. an absolute disadvantage in the production of the good. c. a comparative advantage in the production of the good. d. a comparative disadvantage in the production of the good.

b. -$5.10.

A monopoly firm can sell 150 units of output for $10 per unit. Alternatively, it can sell 151 units of output for $9.90 per unit. The marginal revenue of the 151st unit of output is a. -$0.10. b. -$5.10. c. $2.45. d. $5.10.

b. buyers, sellers, and the government.

A tax affects a. sellers only. b. buyers, sellers, and the government. c. buyers and sellers only. d. buyers only.

d. demand curve downward (or to the left).

A tax levied on the buyers of a good shifts the a. supply curve upward (or to the left). b. demand curve upward (or to the right). c. supply curve downward (or to the right). d. demand curve downward (or to the left).

d. rival, but not excludable.

Common resources are: a. both excludable and rival. b. neither excludable nor rival. c. excludable, but not rival. d. rival, but not excludable.

d. increase tax revenue and decrease the deadweight loss.

When a country is on the downward-sloping side of the Laffer curves, a cut in the tax rate will a. decrease tax revenue and decrease the deadweight loss. b. increase tax revenue and increase the deadweight loss. c. decrease tax revenue and increase the deadweight loss. d. increase tax revenue and decrease the deadweight loss.

a. price takers.

When buyers in a competitive market take the selling price as given, they are said to be a. price takers. b. market entrants. c. free riders. d. monopolists.

c. Free trade harms both domestic producers and domestic consumers and therefore reduces total surplus.

Which of the following is not employed as an argument in support of trade restrictions? a. Free trade destroys domestic jobs. b. Free trade harms the national security if vital products are imported. c. Free trade harms both domestic producers and domestic consumers and therefore reduces total surplus. d. Free trade harms infant industries in an importing country.

c. profit that can be invested in research and development.

A benefit of a monopoly is a. efficient production. b. decreasing long-run marginal costs. c. profit that can be invested in research and development. d. All of the above are correct.

b. government regulation.

A command-and-control policy is another term for a a. pollution permit. b. government regulation. c. corrective tax. d. Both a and b are correct.

c. induces buyers to consume less, and sellers to produce less.

A deadweight loss is a consequence of a tax on a good because the tax a. induces the government to increase its expenditures. b. increases the equilibrium price in the market. c. induces buyers to consume less, and sellers to produce less. d. imposes a loss on buyers that is greater than the loss to sellers.

d. implicit costs do not require a direct monetary outlay by the firm, whereas explicit costs do.

A difference between explicit and implicit costs is that a. explicit costs do not require a direct monetary outlay by the firm, whereas implicit costs do. b. explicit costs must be greater than implicit costs. c. implicit costs must be greater than explicit costs. d. implicit costs do not require a direct monetary outlay by the firm, whereas explicit costs do.

d. barriers to entry.

A fundamental source of monopoly market power arises from a. availability of "free" natural resources, such as water or air. b. perfectly elastic demand. c. perfectly inelastic demand. d. barriers to entry.

d. at the present level of output, marginal revenue exceeds marginal cost.

A monopolist will choose to increase output when a. market price increases. b. at all levels of output, marginal cost increases. c. the demand curve shifts to the left. d. at the present level of output, marginal revenue exceeds marginal cost.

b. equal to the price of its product.

A monopolist's average revenue is always a. greater than the price of its product. b. equal to the price of its product. c. less than the price of its product. d. equal to marginal revenue.

c. more than is socially desirable.

A negative externality will cause a private market to produce a. less than is socially desirable. b. less than the same market would produce in the presence of a positive externality. c. more than is socially desirable. d. exactly the quantity that is socially desirable.

c. less than is socially desirable.

A positive externality will cause a market to produce a. the socially optimal equilibrium amount. b. more than is socially desirable. c. less than is socially desirable. d. more than the same market would produce in the presence of a negative externality.

b. price is less than average variable cost.

A profit-maximizing firm will shut down in the short run when a. price is less than average total cost. b. price is less than average variable cost. c. average revenue is greater than average fixed cost. d. average revenue is greater than marginal cost.

a. sell all he wants at the going price, so he has little reason to charge less.

A seller in a competitive market can a. sell all he wants at the going price, so he has little reason to charge less. b. influence the market price by adjusting his output. c. influence the profits earned by competing firms by adjusting his output. d. All of the above are correct.

d. supply curve upward (or to the left).

A tax levied on the sellers of a good shifts the a. demand curve upward (or to the right). b. demand curve downward (or to the left). c. supply curve downward (or to the right). d. supply curve upward (or to the left).

c. Jenny pays Abe $300 to give the dog to his parents who live on an isolated farm.

Abe owns a dog; the dog's barking annoys Abe's neighbor, Jenny. Suppose that the benefit of owning the dog is worth $200 to Abe and that Jenny bears a cost of $400 from the barking. Assuming Abe has the legal right to keep the dog, a possible private solution to this problem is that a. Jenny pays Abe $150 to give the dog to his parents who live on an isolated farm. b. Abe pays Jenny $350 for her inconvenience. c. Jenny pays Abe $300 to give the dog to his parents who live on an isolated farm. d. There is no private transaction that would improve this situation.

d. private parties can bargain to reach an efficient outcome.

According to the Coase theorem, in the presence of externalities a. government assistance is necessary to reach an efficient outcome. b. the assignment of legal rights can prevent externalities. c. the initial distribution of property rights will determine the efficient outcome. d. private parties can bargain to reach an efficient outcome.

b. private parties can bargain with sufficiently low transaction costs.

According to the Coase theorem, private markets will solve externality problems and allocate resources efficiently as long as a. the externalities that are present are positive, not negative. b. private parties can bargain with sufficiently low transaction costs. c. businesses determine an appropriate level of production. d. government assigns property rights to the harmed party.

d. a pin factory

Adam Smith used a famous example of what type of firm to illustrate economies of scale? a. a lumber mill b. Apple c. a British university d. a pin factory

c. a slice of pizza.

All of the following are examples of public goods, EXCEPT: a. national defense. b. basic research. c. a slice of pizza. d. a fireworks display.

b. having the government provide more of the common resource.having the government provide more of the common resource.

All of the following are possible solutions to the overuse of common resources EXCEPT: a. converting the common resource into a private good through privatization or other means. b. having the government provide more of the common resource. c. regulations limiting the use of the common resource. d. a tax imposed on the common resource.

c. implicit costs.

As a general rule, when accountants calculate profit they account for explicit costs but usually ignore a. operating costs. b. fixed costs. c. implicit costs. d. certain outlays of money by the firm.

c. $1,600.

Assume a firm in a competitive industry is producing 800 units of output, and it sells each unit for $6. Its average total cost is $4. Its profit is a. $3,200. b. -$1,600. c. $1,600. d. $8,000.

c. implicit costs.

Bubba is a shrimp fisherman who could earn $5,000 as a fishing tour guide. Instead, he is a full-time shrimp fisherman. In calculating the economic profit of his shrimp business, the $5,000 that Bubba gave up is counted as part of the shrimp business's a. total revenue. b. marginal costs. c. implicit costs. d. explicit costs.

d. maximizing profits.

Economists assume that the typical person who starts her own business does so with the intention of a. capturing the highest number of sales in her industry. b. donating the profits from her business to charity. c. minimizing costs. d. maximizing profits.

c. command-and-control policy to increase social efficiency.

Emission controls on automobiles are an example of a a. corrective tax. b. policy to reduce congestion on urban freeways. c. command-and-control policy to increase social efficiency. d. policy that reduces pollution by allocating resources through market mechanisms.

a. are incurred even if nothing is produced.

Fixed costs can be defined as costs that a. are incurred even if nothing is produced. b. vary inversely with production. c. vary in proportion with production. d. are incurred only when production is large enough.

d. firms' costs of production in that market.

For any competitive market, the supply curve is closely related to the a. income tax rates of consumers in that market. b. preferences of consumers who purchase products in that market. c. interest rates on government bonds. d. firms' costs of production in that market.

d. $100.

If Kevin's children run a lemonade stand for a day and sell 200 glasses of lemonade at $0.50 each, their total revenues are a. $199.50. b. $200. c. $400. d. $100.

c. exactly triple.

If a firm in a perfectly competitive market triples the quantity of output sold, then total revenue will a. more than triple. b. less than triple. c. exactly triple. d. Any of the above may be true depending on the firm's labor productivity.

b. above the before-trade domestic price of the good.

If free trade is allowed, a country will export a good if the world price is a. below the before-trade domestic price of the good. b. above the before-trade domestic price of the good. c. equal to the before-trade domestic price of the good. d. none of the above.

c. quadruples.

If the tax on a good is doubled, the deadweight loss of the tax a. increases by 50 percent. b. triples. c. quadruples. d. doubles.

c. In the short run firms will shut down, and in the long run firms will leave the market.

In a competitive market the current price is $5. The typical firm in the market has ATC = $5.50 and AVC = $5.15. a. In the short run firms will continue to operate, but in the long run firms will leave the market. b. The firm will earn zero profits in both the short run and long run. c. In the short run firms will shut down, and in the long run firms will leave the market. d. New firms will likely enter this market to capture any remaining economic profits.

a. variable cost, each firm's marginal-cost curve is its supply curve.

In a market with a fixed number of firms, as long as price is above average a. variable cost, each firm's marginal-cost curve is its supply curve. b. total cost, each firm's marginal-cost curve is its supply curve. c. variable cost, each firm's average-total-cost curve is its supply curve. d. total cost, each firm's average-total-cost curve is its supply curve.

a. monopoly firms but not for competitive firms.

Marginal revenue can become negative for a. monopoly firms but not for competitive firms. b. neither competitive nor monopoly firms. c. both competitive and monopoly firms. d. competitive firms but not for monopoly firms.

c. (iii) only

Monopolies are inefficient because they (i) eliminate barriers to entry. (ii) price their product at a level where marginal revenue exceeds marginal cost. (iii) restrict output below the socially efficient level of production. a. (i) and (ii) only b. (ii) and (iii) only c. (iii) only d. (i), (ii), and (iii)

c. a function of the reduction in the quantity produced by a monopolist in comparison to a competitive market.

Monopoly pricing prevents some mutually beneficial trades from taking place. These unrealized, mutually beneficial trades are a. less of a concern for a monopoly than competitive market. b. offset by the higher profits earned by a monopolist. c. a function of the reduction in the quantity produced by a monopolist in comparison to a competitive market. d. All of the above are correct.

c. the profit represents a transfer from the consumer to the producer with no loss in total surplus.

Monopoly profit is not a social problem because a. the size of the economic pie grows when monopoly profits increase. b. producers are more efficient than consumers. c. the profit represents a transfer from the consumer to the producer with no loss in total surplus. d. None of the above are correct.

b. tax reduces the welfare of both buyers and sellers.

One result of a tax, regardless of whether the tax is placed on the buyers or the sellers, is that the a. equilibrium quantity of the good is unchanged. b. tax reduces the welfare of both buyers and sellers. c. price the buyer effectively pays is lower. d. supply curve for the good shifts upward by the amount of the tax.

d. increases as the size of the tax increases, and the increase in the deadweight loss is more rapid than the increase in the size of the tax.

Other things equal, the deadweight loss of a tax a. increases as the size of the tax increases, but the increase in the deadweight loss is less rapid than the increase in the size of the tax. b. increases as the price elasticities of demand and/or supply increase, but the deadweight loss does not change as the size of the tax increases. c. decreases as the size of the tax increases. d. increases as the size of the tax increases, and the increase in the deadweight loss is more rapid than the increase in the size of the tax.

b. average total costs less than market price.

Profit-maximizing firms enter a competitive market when existing firms in that market have a. total revenues that exceed fixed costs. b. average total costs less than market price. c. total revenues that exceed total variable costs. d. average total costs that exceed average revenue.

b. neither excludable nor rival.

Public goods are: a. both excludable and rival. b. neither excludable nor rival. c. excludable, but not rival. d. rival, but not excludable.

c. demand for the product is more elastic than the supply of the product.

Sellers of a product will bear the larger part of the tax burden, and buyers will bear a smaller part of the tax burden, when the a. supply of the product is more elastic than the demand for the product. b. tax is placed on the sellers of the product. c. demand for the product is more elastic than the supply of the product. d. tax is placed on the buyers of the product.

d. diseconomies of scale.

Suppose that a firm's long-run average total costs of producing small commuter jet airplanes increases as it produces between 2,000 and 4,000 airplanes. For this range of output, the firm is experiencing a. economies of scale. b. specialization. c. constant returns to scale. d. diseconomies of scale.

c. economies of scale.

Suppose that a firm's long-run average total costs of producing televisions decreases as it produces between 10,000 and 20,000 televisions. For this range of output, the firm is experiencing a. diseconomies of scale. b. constant returns to scale. c. economies of scale. d. coordination problems.

a. consumers will gain and producers will lose.

Suppose the world price is below the before-trade domestic price for a good. If a country allows free trade in this good, a. consumers will gain and producers will lose. b. produces will gain and consumers will lose. c. both producers and consumers will gain. d. both producers an consumers will lose.

b. a firm's research yields technical knowledge that is used by society as a whole.

Technology spillover occurs when a. a firm passes the high costs of technical research on to society through higher prices. b. a firm's research yields technical knowledge that is used by society as a whole. c. the government subsidizes firms engaged in high-tech research. d. copyright laws prohibit firms from profiting from the research of others.

d. fact that when public goods are provided there is no way of preventing others from using them, even if they do not pay for them.

The free-rider problem refers to the: a. under-use of common resources. b. abuse of power by some firms when they increase their prices to unreasonable levels. c. excessive consumption that occurs when goods are given for free during promotional campaigns. d. fact that when public goods are provided there is no way of preventing others from using them, even if they do not pay for them.

b. specialization of labor.

The most likely explanation for economies of scale is a. decreasing marginal cost. b. specialization of labor. c. coordination problems. d. increasing marginal cost.

a. the grounds surrounding medieval towns, which became barren through overuse.

The tragedy of the commons refers to: a. the grounds surrounding medieval towns, which became barren through overuse. b. ill conceived government policies that led to excessive bureaucracy. c. the free rider problem, that led communities to not provide desirable public goods. d. farmers being taxed too heavily.

c. charities and subsidies.

Two types of private solutions to the problem of externalities are a. charities and the Golden Rule. b. the Golden Rule and taxes. c. charities and subsidies. d. taxes and subsidies.

d. domestic producers are better off, domestic consumers are worse off, and the nation is better off because the gains of the winners exceed the losses of the losers.

When a country allows trade and exports a good, a. domestic consumers are better off, domestic producers are worse off, and the nation is worse off because the losses of the losers exceed the gains of the winners. b. domestic consumers are better off, domestic producers are worse off, and the nation is better off because the gains of the winners exceed the losses of the losers. c. domestic producers are better off, domestic consumers are worse off, and the nation is worse off because the losses of the losers exceed the gains of the winners. d. domestic producers are better off, domestic consumers are worse off, and the nation is better off because the gains of the winners exceed the losses of the losers.

b. the jobs argument

When politicians argue that outsourcing or offshoring of technical support to India by Dell Company Corp. is harmful to the U.S. economy, they are employing which of the following arguments for restricting trade? a. the infant-industry argument b. the jobs argument c. the national-security argument d. the deadweight-loss argument

b. loses some of the benefits of market efficiency.

When the government imposes taxes on buyers or sellers of a good, society a. gains efficiency but loses equality. b. loses some of the benefits of market efficiency. c. is better off because the government's tax revenues exceed the deadweight loss. d. moves from an elastic supply curve to an inelastic supply curve.

b. Congested freeways

Which of the following is a good example of a common resource? a. Batteries for toys b. Congested freeways c. A gallon of chocolate ice cream d. Electrical utility service

c. Having the government provide the good.

Which of the following is a possible solution to the free-rider problem of public goods? a. Taxing the good. b. Regulating the good, to limit its over use. c. Having the government provide the good. d. Educating consumers so they buy the optimal quantity of the good.

d. Make freeways into toll ways, with the toll great enough to discourage some drivers from using them.

Which of the following is the most efficient solution to congested freeways? a. Build more freeways. b. Add more lanes to existing freeways. c. Urge people to drive less. d. Make freeways into toll ways, with the toll great enough to discourage some drivers from using them.

a. A tariff increases producer surplus, decreases consumer surplus, increases revenue to the government, and reduces total surplus.

Which of the following statements about a tariff is true? a. A tariff increases producer surplus, decreases consumer surplus, increases revenue to the government, and reduces total surplus b. A tariff increases consumer surplus, decreases producer surplus, increases revenue to the government, and reduces total surplus. c. A tariff increases producer surplus, decreases consumer surplus, increases revenue to the government and increases total surplus. d. A tariff increases consumer surplus, decreases producer surplus, increases revenue to the government, and increases total surplus.

c. For every tariff, there is an import quota that could have generated a similar result.

Which of the following statements about import quotas is true? a. Import quotas are preferred to tariffs because they raise more revenue for the imposing government b. Voluntary quotas established by the exporting country generate no deadweight loss for the importing country. c. For every tariff, there is an import quota that could have generated a similar result d. An import quota reduces the price to the domestic consumers.

c. price is greater than marginal revenue.

With no price discrimination, the monopolist sells every unit at the same price. Therefore a. marginal revenue is equal to price. b. marginal revenue is equal to average revenue. c. price is greater than marginal revenue. d. Both a and b are correct.

c. perfectly inelastic.

With pollution permits, the supply curve for pollution rights is a. perfectly elastic. b. downward sloping. c. perfectly inelastic. d. upward sloping.