Econ Final Part 2 (8-16)

When an externality is present, the market equilibrium is a. efficient, and the equilibrium maximizes the total benefit to society as a whole. b. efficient, but the equilibrium does not maximize the total benefit to society as a whole. c. inefficient, but the equilibrium maximizes the total benefit to society as a whole. d. inefficient, and the equilibrium does not maximize the total benefit to society as a whole.

D

Which of the following statements regarding a competitive firm is correct? a. Because demand is downward sloping, if a firm increases its level of output, the firm will have to charge a lower price to sell the additional output. b. If a firm raises its price, the firm may be able to increase its total revenue even though it will sell fewer units. c. By lowering its price below the market price, the firm will benefit from selling more units at the lower price than it could have sold by charging the market price. d. For all firms, average revenue equals the price of the good.

D

Which of the following would not be considered a private good? a. a sweater b. a slice of pizza c. a Toyota Prius d. cable TV service

D

Who among the following is a free rider? a. Mickey buys groceries from the store where he works. b. Donald rides to work with Betsey, but he pays Betsey for gasoline and other travel-related expenses. c. Fred drives 20,000 miles a year on public streets, but he pays no more in property taxes than Barney, who only drives 1,000 miles. d. Wilma watches many public television programs, but she has never sent in a contribution to the station

D

Because of the free-rider problem, a. private markets tend to undersupply public goods. b. the federal government spends too many resources on national defense and not enough resources on medical research. c. fireworks displays have become increasingly dangerous. d. poverty has increased.

A

Deadweight loss measures the loss a. in a market to buyers and sellers that is not offset by an increase in government revenue. b. in revenue to the government when buyers choose to buy less of the product because of the tax. c. of equality in a market due to government intervention. d. of total revenue to business firms due to the price wedge caused by the tax.

A

In many cases selling pollution permits is a better method for reducing pollution than imposing a corrective tax because a. it is hard to estimate the market demand curve and thus charge the "right" corrective tax. b. selling pollution permits create a net increase in pollution. c. Corrective taxes distort incentives. d. Corrective taxes provide greater flexibility to firms that can reduce pollution at a low cost.

A

In the long run, all of a firm's costs are variable. In this case the exit criterion for a profit-maximizing firm is to shut down if a. price is less than average total cost. b. price is greater than average total cost. c. average revenue is greater than average fixed cost. d. average revenue is greater than marginal cost.

A

Negative externalities lead markets to produce a. greater than efficient output levels and positive externalities lead markets to produce smaller than efficient output levels. b. smaller than efficient output levels and positive externalities lead markets to produce greater than efficient output levels. c. greater than efficient output levels and positive externalities lead markets to produce efficient output levels. d. efficient output levels and positive externalities lead markets to produce greater than efficient output levels.

A

Profit-maximizing firms in a competitive market produce an output level where a. marginal cost equals marginal revenue. b. marginal cost equals average total cost. c. marginal revenue is increasing. d. price is less than marginal revenue.

A

The Tragedy of the Commons results when a good is a. rival in consumption and not excludable. b. excludable and not rival in consumption. c. both rival in consumption and excludable. d. neither rival in consumption nor excludable.

A

Three business people meet for lunch at an Indian restaurant. They decide that each person will order an item off the menu, and they will share all dishes. They will split the cost of the final bill evenly among each of the people at the table. When the food is delivered to the table, each person faces incentives similar to the a. consumption of a common resource good. b. production of a public good. c. consumption of a club good. d. production of a private good.

A

Total cost can be divided into two types of costs: a. fixed costs and variable costs. b. fixed costs and marginal costs. c. variable costs and marginal costs. d. average costs and marginal costs.

A

When a free-rider problem exists, a. the market will devote too few resources to the production of the good. b. the cost of the good will always be more than the benefit of the good. c. the good will not be produced. d. entrepreneurs will eventually find a way to make free-riders pay their share.

A

A monopolist produces a. more than the socially efficient quantity of output but at a higher price than in a competitive market. b. less than the socially efficient quantity of output but at a higher price than in a competitive market. c. the socially efficient quantity of output but at a higher price than in a competitive market. d. possibly more or possibly less than the socially efficient quantity of output, but definitely at a higher price than in a competitive market.

B

A tax on a good a. gives buyers an incentive to buy more of the good than they otherwise would buy. b. gives sellers an incentive to produce less of the good than they otherwise would produce. c. creates a benefit to the government, the size of which exceeds the loss in surplus to buyers and sellers. d. All of the above are correct.

B

A tax on a good a. raises the price that buyers effectively pay and raises the price that sellers effectively receive. b. raises the price that buyers effectively pay and lowers the price that sellers effectively receive. c. lowers the price that buyers effectively pay and raises the price that sellers effectively receive. d. lowers the price that buyers effectively pay and lowers the price that sellers effectively receive

B

As a monopolist increases the quantity of output it sells, the price consumers are willing to pay for the good a. is unaffected. b. decreases. c. increases. d. There is not enough information given in answer the question.

B

Economists normally assume that the goal of a firm is to a. maximize its total revenue. b. maximize its profit. c. minimize its explicit costs. d. minimize its total cost.

B

In the long run, a. inputs that were fixed in the short run remain fixed. b. inputs that were fixed in the short run become variable. c. inputs that were variable in the short run become fixed. d. variable inputs are rarely used.

B

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 = 12, Q = 122) and (L = 13, Q = 132). Then the marginal product of the 13th worker is a. 8 units of output. b. 10 units of output. c. 122 units of output. d. 132 units of output.

B

Suppose that smoking creates a negative externality. If the government does not interfere in the cigarette market, then a. the equilibrium quantity of cigarettes smoked will equal the socially optimal quantity of cigarettes smoked. b. the equilibrium quantity of cigarettes smoked will be greater than the socially optimal quantity of cigarettes smoked. c. the equilibrium quantity of cigarettes smoked will be less than the socially optimal quantity of cigarettes smoked. d. There is not enough information to answer the question

B

The entry of new firms into a competitive market will a. increase market supply and increase market price. b. increase market supply and decrease market price. c. decrease market supply and increase market price. d. decrease market supply and decrease market price.

B

The government provides public goods such as anti-poverty programs because a. private markets are incapable of producing these types of goods. b. free-riders make it difficult for private markets to supply the socially optimal quantity. c. markets are always better off with some government oversight. d. external benefits will accrue to private producers

B

The government provides public goods such as anti-poverty programs because a. private markets are incapable of producing these types of goods. b. free-riders make it difficult for private markets to supply the socially optimal quantity. c. markets are always better off with some government oversight. d. external benefits will accrue to private producers.

B

When a good is excludable, a. one person's use of the good diminishes another person's ability to use it. b. people can be prevented from using the good. c. no more than one person can use the good at the same time. d. everyone will be excluded from using the good.

B

When new firms have an incentive to enter a competitive market, their entry will a. increase the price of the product. b. drive down profits of existing firms in the market. c. shift the market supply curve to the left. d. increase demand for the product.

B

When property rights are not well established, a. private goods become public goods. b. markets fail to allocate resources efficiently. c. the distribution of private goods is unfair. d. government resources are used inefficiently.

B

Winona's Fudge Shoppe is maximizing profits by producing 1,000 pounds of fudge per day. If Winona's fixed costs unexpectedly increase and the market price remains constant, then the short run profit-maximizing level of output a. is less than 1,000 pounds. b. is still 1,000 pounds. c. is more than 1,000 pounds. d. becomes zero.

B

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

C

For a firm, the production function represents the relationship between a. implicit costs and explicit costs. b. quantity of inputs and total cost. c. quantity of inputs and quantity of output. d. quantity of output and total cost.

C

Goods that are rival in consumption include both a. club goods and public goods. b. public goods and common resources. c. common resources and private goods. d. private goods and club goods.

C

If a competitive firm is currently producing a level of output at which marginal cost exceeds marginal revenue, then a. average revenue exceeds marginal cost. b. the firm is earning a positive profit. c. decreasing output would increase the firm's profit. d. All of the above are correct

C

In a perfectly competitive market, the process of entry and exit will end when a. price equals minimum marginal cost. b. marginal revenue equals marginal cost. c. economic profits are zero. d. accounting profits are zero.

C

Many species of animals are common resources, and many must be protected by law to keep them from extinction. Why is the cow not one of these endangered species even though there is such a high demand for beef? a. Cows reproduce at a high rate and have adapted well to their environment. b. Public policies protect cows from predators and diseases. c. Cows are privately owned, whereas many endangered species are owned by no one. d. There is a natural ecological balance between the birth rate of cows and human consumption.

C

Marginal cost tells us the a. value of all resources used in a production process. b. marginal increment to profitability when price is constant. c. amount by which total cost rises when output is increased by one unit. d. amount by which output rises when labor is increased by one unit.

C

Max sells maps. The map industry is competitive. Max hires a business consultant to analyze his company's financial records. The consultant recommends that Max increase his production. The consultant must have concluded that Max's a. total revenues exceed his total accounting costs. b. marginal revenue exceeds his total cost. c. marginal revenue exceeds his marginal cost. d. marginal cost exceeds his marginal revenue

C

Mrs. Smith operates a business in a competitive market. The current market price is $8.50. At her profitmaximizing level of production, the average variable cost is $8.00, and the average total cost is $8.25. Mrs. Smith should a. shut down her business in the short run but continue to operate in the long run. b. continue to operate in the short run but shut down in the long run. c. continue to operate in both the short run and long run. d. shut down in both the short run and long run.

C

Research into new technologies provides a a. negative externality, and too few resources are devoted to research as a result. b. negative externality, and too many resources are devoted to research as a result. c. positive externality, and too few resources are devoted to research as a result. d. positive externality, and too many resources are devoted to research as a result.

C

Suppose planting flowering shrubs creates a positive externality equal to $7 per shrub. Further suppose that the local government offers a $7 per-shrub subsidy to planters. The number of shrubs that are planted is then a. less than the socially optimal quantity. b. greater than the socially optimal quantity. c. equal to the socially optimal quantity. d. There is not enough information to answer the question

C

Suppose that a steel factory emits a certain amount of air pollution, which constitutes a negative externality. If the market does not internalize the externality, a. the supply curve would adequately reflect the marginal social cost of production. b. consumers will be required to pay a higher price for steel than they would have if the externality were internalized. c. the market equilibrium quantity will not be the socially optimal quantity. d. producers will produce less steel than they otherwise would if the externality were internalized.

C

Suppose that cookie producers create a positive externality equal to $2 per dozen. What is the relationship between the equilibrium quantity and the socially optimal quantity of cookies to be produced? a. They are equal. b. The equilibrium quantity is greater than the socially optimal quantity. c. The equilibrium quantity is less than the socially optimal quantity. d. There is not enough information to answer the question.

C

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? a. private goods b. club goods c. common resources d. public goods

C

The decrease in total surplus that results from a market distortion, such as a tax, is called a a. wedge loss. b. revenue loss. c. deadweight loss. d. consumer surplus loss.

C

What happens to the total surplus in a market when the government imposes a tax? a. Total surplus increases by the amount of the tax. b. Total surplus increases but by less than the amount of the tax. c. Total surplus decreases. d. Total surplus is unaffected by the tax

C

When adding another unit of labor leads to an increase in output that is smaller than the increases in output that resulted from adding previous units of labor, the firm is experiencing a. diminishing labor. b. diminishing output. c. diminishing marginal product. d. negative marginal product.

C

When firms have an incentive to exit a competitive market, their exit will a. lower the market price. b. necessarily raise the costs for the firms that remain in the market. c. raise the profits of the firms that remain in the market. d. shift the demand for the product to the left.

C

A firm in a competitive market currently produces and sells 500 doorknobs for a price of $10 per doorknob. Which of the following events would decrease the firm's average revenue? a. The firm increases its output above 500 doorknobs. b. The firm decreases its output below 500 doorknobs. c. The market price of doorknobs rises above $10. d. The market price of doorknobs falls below $10

D

A seller in a competitive market a. can sell all he wants at the going price, so he has little reason to charge less. b. will lose all his customers to other sellers if he raises his price. c. considers the market price to be a "take it or leave it" price. d. All of the above are correct.

D

Each of the following is likely to be a successful way for the government to solve the problem of overuse of a common resource except a. regulating the use or consumption of the common resource. b. taxing the use or consumption of the common resource. c. selling the common resource to a private entity. d. asking individuals to voluntarily reduce their use of the resource.

D

For a competitive firm, a. total revenue equals average revenue. b. total revenue equals marginal revenue. c. total cost equals marginal revenue. d. average revenue equals marginal revenue.

D

Goods that are excludable include both a. club goods and public goods. b. public goods and common resources. c. common resources and private goods. d. private goods and club goods.

D

If an externality is present in a market, economic efficiency may be enhanced by a. increased competition. b. weakening property rights. c. better informed market participants. d. government intervention.

D

If the use of a common resource is not regulated, a. no one can enjoy it. b. it will tend to be underused. c. property rights will be clearly defined. d. it will be overused.

D

Taxes cause deadweight losses because taxes a. reduce the sum of producer and consumer surpluses by more than the amount of tax revenue. b. prevent buyers and sellers from realizing some of the gains from trade. c. cause marginal buyers and marginal sellers to leave the market, causing the quantity sold to fall. d. All of the above are correct.

D

The economic inefficiency of a monopolist can be measured by the a. number of consumers who are unable to purchase the product because of its high price. b. excess profit generated by monopoly firms. c. poor quality of service offered by monopoly firms. d. deadweight loss.

D

The marginal product of labor is equal to the a. incremental cost associated with a one unit increase in labor. b. incremental profit associated with a one unit increase in labor. c. increase in labor necessary to generate a one unit increase in output. d. increase in output obtained from a one unit increase in labor

D

When a tax is levied on a good, the buyers and sellers of the good share the burden, a. provided the tax is levied on the sellers. b. provided the tax is levied on the buyers. c. provided a portion of the tax is levied on the buyers, with the remaining portion levied on the sellers. d. regardless of how the tax is levied.

D