Econ Exam III

larger

All else being equal, the steeper the demand curve, the _____ the social surplus in a market.

firms currently making pizza will switch to making calzones.

Assume there are two industries in our economy: the production of pizza and the production of calzones. Each of these products is produced in a similar way with similar ingredients and requires similar skills. If the market price of pizza in this competitive market is below the ATC curve and the price of calzones is above the ATC curve, _____

It would incentivize distributors to ship more snow shovels into the area to meet the increased demand.

Hardware stores charge higher prices for snow shovels after a big snow storm.

When an industry's goods or services become less highly valued by society, firms in the industry suffer losses and thus become motivated to put their resources to more profitable uses elsewhere. Businesses always seek to improve their profits and in so doing, they move resources into the production of goods and services that society values the highest. When an industry's goods or services become more highly valued by society, positive economic profits emerge for firms in the industry, attracting new firms and their resources to that industry.

How do economic profits and losses allocate resources in an economy?

price

In perfect competition, the marginal revenue is the same as:

the portion of the marginal cost curve above average total cost.

In the long​ run, the supply curve for a perfectly competitive firm is represented by ___.

a centrally planned economy

In what type of economy does the government decide how economic resources will be allocated?

highest

Inputs or outputs go to the ___ bidders if people are free to exchange voluntarily in the markets without government intervention or other market friction

It would be adversely affected since incentives to work or seek profits would be greatly diminished.

The government of a certain country decides that all its citizens should be equally well off. It decides to redistribute money so that each person has a roughly equal share of the total income. How would this policy affect economic activity in the​ country?

the tragedy of the commons

The lack of private ownership of certain resources like public lands or water can contribute to overuse. This is known as:

less expensive

The marginal cost of eliminating the first 20% of pollution is much ___ than the marginal cost of eliminating the last 20% of pollution.

the output where marginal cost is exactly equal to marginal benefit

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

external cost being borne by someone else

When a private cost is different than the social cost there is an:

greater than or equal to

When comparing the accounting profit with economic​ profit, it must be true that the accounting profit is ___ economic profit.

increase; decrease

When firms switch from making pizza to making calzones, the price of pizza will _____ and the price of calzones will _____.

when marginal benefit is less than marginal cost

When is output higher than the efficient level?

when marginal benefit is greater than marginal cost

When is output lower than the efficient level?

When there are neither external benefits nor external costs

When is the market equilibrium said to be efficient?

no incentive to consider negative externalities that impact that resource

When no one owns a specific resource, there is:

Total Revenues - Total Costs

Which of the following equations calculates the profits of a​ firm?

Rewarding private contributors with private goods.

Which of the following is a technique used to encourage people to contribute and resolve the free-rider problem?

Produce until the additional revenue from one extra unit equals the additional cost of each unit.

Which of the following is true about how a firm in a competitive market decides what level of output to produce in order to maximize its​ profit?

Because education generates external benefits

Why does the government encourage people to become educated?

The MSC curve lies below the supply curve

A bakery generates a pleasant odor for its neighborhood. Which is the following is true?

coordination

A difficult problem for central planners is bringing together those economic agents whose interests coincide in order to trade. This is known as the ___ problem.

inefficient, so there is an opportunity for government to promote efficiency

A market with external benefits is ____.

greater than the private cost

A negative externality causes the social cost of production to be:

price (marginal revenue); average variable cost curve

A perfectly competitive firm will choose to shut down when the ___ intersects the marginal cost curve below the ___.

smaller

All else being equal, the flatter the supply curve, the ____ the social surplus in a market

be perfectly competitive

For markets to generate the greatest benefit and function in the most efficient manner they must:

Pigovian taxes and subsidies

Government taxes and subsidies designed to create an efficient equilibrium in markets with externalities are known as:

the GDP would be much higher than it is but the well-being of the typical person would not necessarily be higher

If Americans still worked sixty hour weeks, as they did in 1890, ___

less pollution is a likely result

If polluters are charged to pollute then:

attainable and efficient

If you produce at a point on your PPC, then you are producing at a point that is ___.

decrease

If your economics' professor decided to give all students the highest grade in the class, your classmates' incentives to study economics would _____.

prices

In a market economy, the alignment of interests is accomplished through the use of ___.

incentive

Once planners have successfully brought economic agents together, a second problem of aligning the interests of the economic agents must be solved. This is known as the ___ problem.

shortages

Price controls that put a maximum price on goods and services that is below a free market price create ____

surpluses

Price controls that put a minimum price on goods and services that is above a free market price create _____

rationing

Price performs a ___ function

rival and excludable

Private goods are ____.

both private and external benefits

Social benefit is the total benefit from the consumption of a good or service that includes:

external costs or benefits

Some goods induce costs or benefits to someone other than the parties involved in transaction. These costs or benefits are known as:

transaction costs are low

The Coase theorem postulates that private solutions to the problem of negative externalities are possible if:

transaction costs

The costs associated with engaging in a process to solve a particular pollution problem are referred to as:

the portion of the marginal cost curve above average variable cost.

Therefore, the​ short-run supply curve for a perfectly competitive firm is represented by ___.

seeks to cap nationwide emissions and then distributes emission-allowance permits across firms.

Under a policy strategy in which a government imposes an emissions cap and issues tradable emissions-allowance permits to firms, the government:

A benefit from a good experienced by someone other than the producer or consumer of the good

What is an external benefit?

Both public and private goods

What types of goods provide external benefits?

Levy a tax that varies with the level of congestion.

Which of these is the preferred method to reduce the external cost (pollution) of traffic congestion according to an economist?

Subsidize polluters

Which one of the following will not help to reduce the problem that exists when social costs exceed social benefits?

can; cannot

While at a​ Subway® in your​ neighborhood, you notice that a single employee completes an​ order, right from helping you choose your​ bread, veggies, and meat to making your sub the way you want it.​ However, over at Pizza​ Hut®, each task in a pizza order is completed by a different worker. Why do you think Subway and Pizza Hut have chosen these different ways to produce​ meals? Pizza production is mostly​ standardized, so Pizza Hut ___ take advantage of specialization and the division of​ labor, while sandwich production is more customized so Subway ___ take advantage of specialization and the division of labor.

Yes, but only if price stayed above average variable cost.

Would a​ profit-maximizing firm continue to operate if the price in the market fell below its average cost of production in the short​ run?

price ceiling

a legally determined maximum that sellers may charge is known as a:

Public goods

goods available for everyone to consumer regardless of who is paying or not. Ex: police protection

Private goods

goods that can be consumed by a single person or household. Ex: education

market value of all final goods and services produced in a country during a period of time

gross domestic product is best defined as the:

externality

occurs when an economic activity has either a spillover cost or a spillover benefit on a bystander

set the price above equilibrium

prolonged agricultural surpluses can arise if governments:

prices are not allowed to rise to equilibrium

prolonged shortages arise if:

Production Possibilities Curve (PPC)

shows the relationship between the maximum production of one good for a given level of production of another good.

equals the external cost

the idea of a pollution tax is to internalize the externality, which happens when the tax:

larger

All else being equal, the steeper the demand curve, the ____ the social surplus in a market

equity

a fair distribution of economic benefits: