Final Exam

The optimum level of pollution emissions

occurs where the marginal external costs equals the marginal cost of abatement

suppose Ohio's state government is considering an increase in the sale tax imposed on yachts to help pay for government programs. Which of the following is true?

the sales of yachts will decrease

which always increase(s) as output increases

total cost and variable cost

a minimum wage policy induces an:

excess supply of labor

A newly-certified medical doctor who accepts a job in private practice will earn $250,000 with probability 0.20 and $30,000 with probability 0.80. The doctor's expected utility from income is:

0.2∗U(250,000) + 0.8∗U(30,000)

what is the difference between a price support and a price floor

government buys the excess supply to maintain a price support, but not for a price floor

Recently, Skooterville has experienced a large growth in population. As a result, the market demand curve for housing in Skooterville:

has shifted to the right

If a worker's wage decreases, the substitute effect will

increase leisure, regardless of whether leisure is a normal or inferior good

a firm never operates

on the downward sloping portion of its AVC curve

at the profit-maximizing level of output, what is relationship between the total revenue (TR) and total cost (TC) curves?

they must have the same slope

a tennis pro charges $15 per hour for tennis lessons for children and $30 per hour for tennis lessons for adults. The tennis pro is practicing

third-degree price discrimination

Although rice is a staple of the Japanese diet, the Japanese government has long restricted the importation of rice into Japan. The result of this import quota is:

to decrease the consumer surplus of Japanese rice consumers

assuming a standard S-shaped production function, marginal product crosses the horizontal axis (is equal to zero) at the point where

total product is maximized

A price floor policy establishes a minimum price for a market. Which of the following results from a binding price floor? equilibrium, excess demand, excess supply, or shortage

excess supply

If a worker views leisure as a normal good, then the income effect associated with a wage decrease will

increase the number of hours worked

what happens in a perfectly competitive industry when economic profit is greater than zero?

existing firms may get larger, new firms may enter the industry, firms may move along their LRAC curves to new outputs, and there may be pressure on prices to fall

A newly-certified medical doctor who accepts a job with an HMO will earn $100,000 with a probability of 0.95 and $60,000 with a probability 0.05. The doctor's expected income is:

$98,000

when the income-consumption curve has a positive slope throughout its entire length, we can conclude that

both goods are normal

From 1970 to 2010, the real price of a college education increased, and total enrollment increased. Which of the following could have caused this increase in price and enrollment?

A shift to the left in the supply curve for college education and a shift to the right in the demand for college education

Suppose Congress passes a law that states the price of gasoline may not exceed $6 per gallon (but may be lower). If the current price of gasoline is less than $6, what impact does this law have on the current price and quantity of gasoline in the US market?

The law currently has no impact, and the market clears at the equilibrium price

If the market for widgets is suddenly monopolized, we should expect:

a decrease in consumer surplus in the widget market

a positive externality is shown by a social benefit (MSB) curve that is

above and to the right of the demand curve for the good that generates it

an increase in technology that enhances labor productivity will likely result in:

an increase in labor employment and an increase in the wage rate

Which of the following would shift the market demand curve for new textbooks "out" or to the right?

an increase in the number of students attending college

Which of the following costs always decline as output increases

average fixed cost

The difference between what a consumer is willing to pay for a unit of a good and what must be paid when actually buying it is called

consumer surplus

For a two-part tariff imposed on two consumers, the entry fee is based on the:

consumer surplus of the consumer with lower willingness-to-pay

In contrast to various forms of price discrimination, peak-loading pricing does not require

different types of consumers

In recent years, the world demand curve for copper shifted rightward due to continued economic growth in China and other emerging economies. Also, the costs of extracting the copper increased due to higher energy prices. As a result, we observed:

higher equilibrium copper prices and either higher or lower quantities

compared to the equilibrium price and quantity sold in a competitive market, a pure monopolist will charge a ________ price and sell a ________ quantity

higher; smaller

Which of the following is true concerning the income effect of a decrease in price? It will lead to an increase in consumption only for a normal good. It will always lead to an increase in consumption. It will always lead to an increase in consumption only for an inferior good. It will lead to an increase in consumption only for a Giffen good.

it will lead to an increase in consumption for a normal good

which of the following causes a firm's long-run demand curve for labor to be relatively elastic

labor and capital are relatively close substitutes

Assume that yogurt is a normal good. If the price of yogurt rises, then the substitution effect results in the person buying ________ of the good and the income effect results in the person buying ________ of the good.

less, less

A firm maximizes profit by operating at the level of output where

marginal revenue equals marginal cost

when compared to the demand curve for only one variable input, the demand curve for a factor input when several inputs are variable is

more elastic

The cross-price elasticity between a pair of complementary goods will be

negative

which of the following is a negative externality connected to attending college?

other college students play loud music when you are trying to sleep

the marginal rate of technical substitution is equal to the

ratio of the marginal products of the inputs

The concept of a risk premium applies to someone who is

risk adverse

An individual with a constant marginal utility of income will be

risk neutral

A production function assumes a given

technology

Suppose that the marginal cost of an additional ton of steel produced by a Japanese firm is the same whether the steel is set aside for domestic use or exported abroad. If the price elasticity of demand for steel is greater abroad than it is in Japan (that is, foreign consumers are more responsive to price changes), which of the following is an expected outcome?

the Japanese firm will charge a lower price abroad than in Japan

The marginal product of an input is

the addition to total output due to addition of the last unit of an input, holding all other inputs constant

A government can impose an import quota or an equivalent tariff that achieves the same impact on trade. What is the key difference in the welfare outcomes of these two policy options?

the government captures some of the profits from foreign suppliers through the tariff revenue

If a worker's labor supply curve is backward bending, then

the income effect associated with a higher wage is greater than the substitution effect

a firm's short-run average total cost (ATC) curve is U-shapes. Which of these conclusions can be reached regarding the firm's return to scale?

the short-run average total cost curve reveals nothing regarding returns to scale

if a firm is using the optimal, long run combination of labor and capital

the slopes of the production isoquant and isocost curves are equal AND costs are minimized for the production of a given output AND the marginal rathe of technical substitution equals the ratio of input prices

an amusement park charges an entrance fee of $35 per person plus $2.50 per ride. This is am example of

two-part tariff

Blanca would prefer a certain income of $10,000 and a 0.5 probability of $30,000. Based on this information:

we can infer that Blanca is risk adverse

To achieve the optimal level of emissions, a government could set an emissions standard at the quantity

where the marginal external cost curve intersects the marginal cost of abatement curve

monopoly power results from the ability to

set price above marginal cost

Suppose the major soft drink companies develop vending machines for canned and bottled drinks that can determine your maximum willingness-to-pay for a drink, and the machine charges you that price when you purchase a drink. If this were possible, the consumer surplus in the vended soft drink market would be:

zero because all surplus value is captured by the seller

A production function in which the inputs are perfectly substitutable would have isoquants that are

linear

The price elasticity of gasoline supply in the US is 0.4. If the price of gasoline rises by 8%, what is the expected change in the quantity of gasoline supplied in the US?

+3.2%

What is the value of the Lerner index under perfect competition?

0

Ronny's Pizza House operates in the perfectly competitive local pizza market. If the price of pepperoni increases, what is the expected impact on Ronny's profit-maximizing output decision?

Output decreases because the marginal cost curve shifts upward

Many mining and mineral extraction processes tend to exhibit increasing returns to scale. Suppose copper mines have increasing returns, and the existing copper mines reduce their capital and labor inputs by 25 percent in response to a global recession. What is the expected impact on copper output?

Output decreases by more than 25 percent

A perfectly competitive firm's profit maximizing condition can be written as

P = MC

Cole's Coal Company is the only employer in a remote and mountainous region of the country, so the firm is a monopsony buyer of labor in the market. If the local population declines and there are fewer qualified coal miners available, which one of the curves used to determine the monopsony outcome in this market shifts?

The average expenditure curve and the marginal expenditure curve

Which of the following conditions must hold in the equilibrium of competitive market where the government puts a specific tax on consumers?

The quantity sold and the seller's price must lie on the supply curve, the quantity demanded must equal the quantity supplied, and the difference between the price the buyer pays and the price the seller receives must equal the specific tax.

What type of good is clean air?

nonrival and nonexclusive

a firm's (long run) output expansion path is

a curve that shows the least-cost combination of inputs needed to produce each level of output for given input prices

In the personal computer market, some large manufacturers are able to buy computer components (e.g., disk drives, memory chips) at lower prices than smaller firms in the market. This outcome indicates that the large firms have

a degree of monopsony power

which of the following statements is not a correct characterization of a pure monopoly?

a monopolist can charge as high a price as it likes

if we take the production function and hold the level of output constant, allowing the amounts of capital and labor to vary, the curve that is traced out is called

a production isoquant

a box of cornflakes is

a rival good because if Buyer 1 buys the box, then Buyer 2 cannot consume it

the short run is

a time period in which at least one input is fixed

suppose a technological innovation shifts the marginal cost curve downward. Which one of the following cost curves does NOT shift?

average fixed cost curve

Suppose a graph showing the marginal external cost curve and marginal cost of abatement curve of emissions indicates that an emissions fee of $10/unit will lead to the optimal level of emissions. If the government sets an emissions fee of $5/unit, emissions will

be above the optimal level, but will be curtailed relative to the level that would arise with no fee

When the federal government installs a price support program that requires the government to purchase all of a good not bought in the private economy at the support price, the impact on total welfare is the

change in consumer surplus + the change in producer surplus - the cost to government

when a firm engages in "perfect" (first degree) price discrimination

consumer surplus is zero. consumers (as a group) buy more than they would if the firm charged a single, monopoly price. producer surplus is greater than it would be if the firm charged a single, monopoly price. the firm's profit is greater than it would be if the firm charged a single, monopoly price.

As long as the actual market price exceeds the equilibrium market price, there will be:

downward pressure on the market price

When emissions are measured on the horizontal axis, the marginal cost of abating emissions is

downward-sloping because a high level of emissions is cheap to attain, and a low level of emissions is expensive to attain

a firm planning to engaging in third-degree price discrimination (market segmentation) must face each of the following conditions except

economies of scale

A monopolist that charges each customer the maximum price that the customer is willing to pay is

engaging in perfect price discrimination

to find its profit-maximizing output level, a pure monopolist will

equate marginal revenue and marginal cost

Suppose there is currently a surplus of wheat on the world market. The problem of excess supply may be removed from the market by:

lowering the market price and shifting the supply curve up

a firm operating in a perfectly competitive output market has a downward sloping short-run demand curve for labor because

marginal product of labor decreases as more labor is hired

Suppose the price of rice increases and you view rice as an inferior good. The substitution effect results in a ________ change in rice consumption, and the income effect leads to a ________ change in rice consumption.

negative, positive

Deadweight loss refers to

net losses in total surplus

Consider a graph in which good Y is on the vertical axis and good X is on the horizontal axis. On this graph, the income-consumption curve has a positive slope for low incomes, then it takes a zero slope for a higher income, and then it takes a negative slope for even higher incomes (the curve looks like an arc, first rising and then falling as income increases). This curve illustrates that, for all income levels,

only x is normal

when an isoquant line is just tangent to an isoquant, we know that

output is being produced at minimum cost

which of the following is not a necessary condition for long run equilibrium under perfect competition?

prices are relatively low

when the market price is held above the competitive level, the deadweight loss is composed of:

producer and consumer surplus losses associated with units that used to be traded on the market but are no longer exchanged

an effective price ceiling causes a loss of

producer surplus for a certain and possibly consumer surplus as well

Unlike a firm buying a particular factor of production in a perfectly competitive market, a pure monopsonist

sets a marginal value equal to marginal expenditure in deciding how much of teh factor to use

The change in the quantity demanded of a good resulting from a change in relative price with the level of utility held constant in called the ________ effect

substitution

to find the social marginal benefit of public goods, one needs to

sum the consumers' demand curves vertically

The battery packs used in electric and hybrid automobiles are important components for manufacturing these cars. As the price of these batteries decline, we expect that the:

supply curve for electric and hybrid autos will shift down (rightward)

The process of dry cleaning clothing produces air pollutants. Therefore, in the market for dry cleaning services

the equilibrium price is below its socially optimal level, while the equilibrium quantity is above its socially optimal level

If a perfectly competitive firm's marginal cost (MC) and marginal revenue (MR) curves are equal at a point where MR is above AVC but below ATC,

the firm is earning negative profit, but will continue to produce in the short run

according to the law of diminishing returns

the marginal product of an input will eventually decline

As we move downward along a demand curve for apples,

the marginal utility of apples decreases

If a decline in the wage rate causes every firm in a market to hire more labor

the market supply curve for output will increase, the equilibrium price of output will decrease, every firm's marginal revenue product of labor curve will decrease, and the typical firm will end up hiring less labor than it would if it were the only firm facing the lower wage.

a competitive firm's short run supply curve is

the portion of its marginal cost curve that lies above average variable cost

when labor usage is at 12 units, output is 36 units. From this we may infer that

the average product of labor is 3

for a firm engaging in "perfect" (first-degree) price discrimination, marginal revenue is

equal to the price paid for each unit of output

A firm should always hire more labor when the marginal revenue product of labor

exceeds the wage rate

When the price of wood (which is an input in the production of furniture) falls, the consumer surplus associated with the consumption of furniture

increases

the marginal revenue product if labor can be expressed as the

increment to revenue received from one additional unit of input hired

An isoquant line reveals the

input combinations that can be purchased with a given outlay of funds

when a consumer electronics company introduces a new product, it often sets a relatively high initial price, and lowers the price about a year later. This is an example of

intertemporal price discrimination

For any given level of output: marginal cost must be greater than average cost. average variable cost must be greater than average fixed cost. average fixed cost must be greater than average variable cost. fixed cost must be greater than variable cost. None of the above is necessarily correct.

none of the above is necessarily correct

The change in the price of one good has no effect on the quantity demanded of another good. These goods are:

normal goods

A risk-adverse individual would always

take a sure $10 rather than a 10% chance at $100

the pure monopolist has no supply curve because

the price set at any particular quantity level depends on the market demand curve

A market supply curve reveals:

the quantity of output that producers are willing to produce and sell at each possible market price

At every output level, a firm's short run average total cost (SRATC) equals or exceeds its long run average cost (LRAC) because

there are at least as many possibilities for substitution between factors of production in the long run as in the short run

The market demand for sirloin steak is probably more elastic than the market demand for all meat because

there are more substitutes for sirloin steak than for all meats