Micro Econ Final

A firm's total profit equals its marginal revenue minus its marginal cost

False

Barking dogs cannot be considered an externality because externalities must be associated with some form of market exchange

False

Common resources and public goods have in common that they are not excludable and they are not rival in consumption

False

Corrective taxes cause deadweight losses, reducing economic efficiency

False

Diminishing marginal productivity implies decreasing total product

False

If the cross-price elasticity of demand for two goods is negative, then the two goods are substitutes

False

If the demand for a good falls when income falls, then the good is called an inferior good

False

If the rich pay more in taxes than the poor, the tax system must be progressive

False

Monopolistic competition is characterized by many buyers and sellers, product differentiation, and barriers to entry

False

Most economists prefer regulation to taxation because regulation corrects market inefficiencies at a lower cost than taxation does

False

Surpluses drive price up, while shortages drive price down

False

The law of demand states that, other things equal, when the price of a good rises, the quantity demanded of the good rises, and when the price falls, the quantity demanded falls

False

Economists normally assume that the goal of a firm is to minimize its explicit costs

False

According to the ability-to-pay principle, it is fair for people to pay taxes based on the amount of government services that they receive

false

The word "economy" comes from the Greek word oikonomos, which means

"one who manages a household."

Suppose one county in Missouri decides it wants to reduce alcohol consumption, so the county passes a law that raises the price of a bottle of beer by $1. As a result, people drive to other counties to drink alcohol, which results in an increase in drunk driving. This illustrates the principle that people respond to incentives

True

The U.S. income tax is a progressive tax

True

The marginal tax rate serves as a measure of the extent to which the tax system discourages people from working

True

The midpoint method is used to calculate elasticity between two points because it gives the same answer regardless of the direction of the change

True

The theory of consumer choice illustrates that people face tradeoffs, which is one of the Ten Principles of Economics

True

Vertical equity refers to a tax system in which individuals with higher incomes pay more in taxes than individuals with lower incomes

True

When goods are available free of charge, the market forces that normally allocate resources in our economy are absent

True

​If an industry exhibits economies of scale, one larger firm may be able to produce goods at a lower long-run average cost than two smaller firms

True

A monopolistically competitive firm is operating in the short run at the optimal level of output and is earning zero economic profits. Which equation must be true?

ATC = P > MR = MC

Aristotle writes, "What is common to many is taken least care of, for all men have greater regard for what is their own than for what they possess in common with others." In this statement, Aristotle is referring to the free-rider problem that occurs when a person receives the benefit of a good without paying for it

false

Economic profit is greater than or equal to accounting profit

false

In the long run,

inputs that were fixed in the short run become variable

"The government should choose policies deemed to be just, as evaluated by an impartial observer behind a 'veil of ignorance.'" This statement is most closely associated with which political philosophy?

liberalism

All remedies for externalities share the goal of

moving the allocation of resources toward the socially optimal equilibrium

Free entry means that

no legal barriers prevent a firm from entering an industry

When Adam's income increases, he purchases more tickets to Broadway musicals than he did before his income increased. For Adam, Broadway musicals are a(n)

normal good

Which of the following market structures emphasizes mutual interdependence among firms?

oligopoly

When a good is rival in consumption,

one person's use of the good diminishes another person's ability to use it

If your wage increases from $10 per hour to $15 per hour, then your

opportunity cost of an hour of leisure increases by $5 per hour

Assume that your roommate is very messy. Suppose she gets a $25 benefit from being messy but imposes a $50 cost on you. The Coase theorem would suggest that an efficient solution would be for you to

pay your roommate at least $25 but no more than $50 to clean up after herself

Antitrust laws have economic benefits that outweigh the costs if they

prevent mergers that would decrease competition and raise the costs of production

A natural correction to employer discrimination in market economies is the

profit motive

You wear either shorts or sweatpants every day. You notice that sweatpants have gone on sale, so your demand for

shorts will decrease

Price elasticity of demand along a linear, downward-sloping demand curve decreases as price falls

True

When the price of good A is $50, the quantity demanded of good A is 500 units. When the price of good A rises to $70, the quantity demanded of good A falls to 400 units. Using the midpoint method, the price elasticity of demand for good A is

0.67, and an increase in price will result in an increase in total revenue for good A

If the price elasticity of demand for a good is 0.5, then a 5 percent increase in price results in a

2.5 percent decrease in the quantity demanded

A tax accounting firm produces 500 tax returns units when the market price is $150 per return and produces 700 tax returns when the market price is $170 per tax return. Using the midpoint method, for this range of prices, the price elasticity of supply is about

2.67

Which of the following is a characteristic of a natural monopoly?

Average total cost declines over large regions of output

Suppose that Bieber and Rihanna are duopolists in the music industry. In May, they agree to work together as a monopolist, charging the monopoly price for their music and producing the monopoly quantity of songs. By June, each singer is considering breaking the agreement. What would you expect to happen next?

Bieber and Rihanna will each break the agreement. Both singers' profits will decrease

Which of the following statements is correct?

Both equity and efficiency are important goals of the tax system

Suppose that the labor market for life guards is initially in equilibrium. Then the marginal productivity of life guards increases. What happens to the equilibrium wage and quantity of life guards?

Both the equilibrium wage and quantity increase

Which of the following provides the best explanation for diseconomies of scale?

Coordination problems

A tax provision that works much like a negative income tax is the

Earned Income Tax Credit (EITC)

Suppose the number of buyers in a market decreases and a technological advancement occurs also. What would we expect to happen in the market?

Equilibrium price would decrease, but the impact on equilibrium quantity would be ambiguous

A paper mill in North Carolina dumps waste into the Pigeon River and as a result, people in Tennessee cannot use the water. What type of market failure is most likely involved?

Externalities

Which of the following is a principle concerning how people interact?

Markets are usually a good way to organize economic activity

Candice is planning her activities for a hot summer day. She would like to go to the local swimming pool and see the latest blockbuster movie, but because she can only get tickets to the movie for the same time that the pool is open she can only choose one activity. This illustrates the basic principle that

People face tradeoffs

Which of the following examples best describes the signaling theory of education?

The hiring manager offers a job to a recent college graduate because education is correlated with natural ability

Which of the following best describes the idea of excess capacity in monopolistic competition?

The output produced by a typical firm is less than what would occur at the minimum point on its ATC curve

What do clean air in New York City and elephants in Africa have in common?

They are both common resources

Suppose that cigarette smokers create a negative externality. Further suppose that the government imposes a tax on cigarettes equal to the per-unit externality. What is the relationship between the after-tax equilibrium quantity and the socially optimal quantity of cigarettes?

They are equal

A monopolist that can practice perfect price discrimination will not impose a deadweight loss on society

True

An example of the "Tragedy of the Commons" is litter in the picnic area of a local park

True

Because nothing can be done about sunk costs, they are irrelevant to decisions about business strategy

True

Deadweight losses and administrative burdens are key factors considered when determining the efficiency of the tax system

True

Giffen goods violate the law of demand

True

In general, demand curves for luxuries tend to be price elastic

True

Laws that are passed that either require or forbid certain behaviors are examples of command-and-control policies

True

George and Brad are waiters at a local restaurant. The female customers prefer to be seated at the tables that George waits on because they think George is better looking than Brad. If George earns more than Brad because of his better looks, this is an example of

a beauty premium

Construction work is much riskier than working as a server at a restaurant. As a result, we'd expect a difference in wages between the two jobs. The difference is known as

a compensating differential

Which of the following events can cause the labor-supply curve to shift?

an increase in the rate of immigration

The Tragedy of the Commons will be evident when a growing number of sheep grazing on the town commons leads to a destruction of the grazing resource. To correct for this problem, the town could

auction off a limited number of sheep-grazing permits

Demand is said to be unit elastic if quantity demanded

changes by the same percent as price

Which of the following is a way to address an externality problem?

command and control solution corrective tax corrective subsidy

The U-shape of the long-run average total cost curve is primarily due to:

economies and diseconomies of scale

In the long run a company that produces and sells popcorn incurs total costs of $1,050 when output is 90 canisters and $1,200 when output is 120 canisters. The popcorn company exhibits

economies of scale because average total cost is falling as output rises

Suppose that quantity demand falls by 30% as a result of a 5% increase in price. The price elasticity of demand for this good is

elastic and equal to 6

Elephants are endangered, but cows are not because

elephants are a common resource, while cows are private goods

A free-rider problem exists for any good that is not

excludable

A pizza is

excludable and rival in consumption

The bowed shape of the indifference curve reflects the consumer's

greater willingness to give up a good that he already has in large quantity

The equilibrium quantity in markets characterized by oligopoly is

higher than in monopoly markets and lower than in perfectly competitive markets

Economics is the study of

how society manages its scarce resources

Consider the market for capital equipment. Suppose the price of firms' output increases. Holding all else constant, the equilibrium rental price of capital equipment will

increase

If the value of the marginal product of labor is less than the wage, then the firm could

increase profit by reducing the amount of labor hired

Externalities tend to cause markets to be

inefficient

If the income effect counteracts the substitution effect, we know that the good in question is a(n)

inferior good

Suppose good X has a negative income elasticity of demand. This implies that good X is

inferior good

In a market economy,

supply and demand determine prices and prices, in turn, allocate the economy's scarce resources.

The analysis of competitive firms sheds light on the decisions that lie behind the

supply curve

On a vacation to China, you find yourself eating every meal at the local Burger King rather than buying a meal from one of the street vendors. Your traveling companion claims that you are irrational, since you never eat Burger King hamburgers when you are home, and Burger King's hamburgers cost more than the meals prepared and sold by China's street vendors. An economist would most likely explain your behavior by suggesting that

the Burger King brand name suggests consistent quality

What economic argument suggests that if transactions costs are sufficiently low, the post-bargaining equilibrium is economically efficient regardless of how property rights are distributed?

the Coase theorem

The deadweight loss associated with a tax on a commodity is generated by

the consumers who choose to not consume the commodity that is taxed

If a good is a Giffen good, then

the demand curve is upward sloping

A very hot summer in Charlotte will cause

the demand for jackets to decrease

Suppose that elementary education creates a positive externality. If the government does not subsidize education, then

the equilibrium quantity of education will be less than the socially optimal quantity of education

Country A's tax system is more efficient than Country B's tax system if

the same amount of revenue is raised in both countries, but the cost to taxpayers is smaller in Country A than in Country B

Suppose that gasoline prices increase dramatically this month. Lola commutes 100 miles to work each weekday. Over the next few months, Lola drives less on the weekends to try to save money. Within the year, she sells her home and purchases one only 10 miles from her place of employment. These examples illustrate the importance of

the time horizon in determining the price elasticity of demand

The marginal product of labor is all of these EXCEPT:

total product divided by total labor

A profit-maximizing firm in a competitive market will decrease production when marginal cost exceeds average revenue

true

The business-stealing externality states that entry of new firms impose a cost on existing firms because they lose customers

true

The theory of consumer choice

underlies the concept of the demand for a particular good

Without government intervention, public goods tend to be

underproduced and common resources tend to be overconsumed

Miguel receives a pay raise at his part-time job from $7.50 to $9 per hour. He used to work 10 hours per week, but now he decides to work 12 hours per week. For this price range, his labor supply curve is

upward sloping

An externality is said to be internalized

when individuals take external costs and benefits into account in their decision making

Tax incidence refers to

who bears the tax burden.

Tradable pollution permits

will be more valuable to firms that can reduce pollution only at high costs

​Sebastian decides to open a tree farm. When deciding to open his own business, he turned down two separate job offers of $25,000 and $30,000 and withdrew $20,000 from his savings. Sebastian's savings account paid 3 percent interest. He also borrowed $20,000 from his brother, whom he pays 2 percent interest per year. He spent $15,000 to purchase supplies and earned $50,000 in revenue during his first year. Which of the following statements is correct?

​Sebastian's economic profit is $4,000, and his accounting profit is $34,600