Micro Module 4-6

Refer to Figure 9-6. The size of the tariff on carnations is

$2 per dozen.

The vertical distance between points A and B represents a tax in the market.Refer to Figure 8-4. The per-unit burden of the tax on buyers is graph is A(70,12) B(70,5) and equilibrium (100,8)

$4

Cindy's Car Wash has average variable costs of $2 and average fixed costs of $3 when it produces 100 units of output (car washes). The firms total cost is

$500

An increase in the size of a tax is most likely to increase tax revenue in a market with

inelastic demand and inelastic supply.

Refer to Figure 13-5. Curve D is increasing because

of diminishing marginal product.

When all firms and potential firms in a market have the same cost curves, the long-run equilibrium of a competitive market with free entry and exit will be characterized by firms

operating at the efficient scale.

The provision of a public good generates a

positive externality and the use of a common resource generates a negative externality

Refer to Figure 8-11. The price labeled as P2 on the vertical axis represents the

price of the good before the tax is imposed.

Scenario 14-5 A study sponsored by the Food Consumer Safety Board found that consumption of irradiated tomatoes increased the health of laboratory rats. As a result of national press coverage of the report, the demand for irradiated tomatoes increased dramatically. Organic farmers were able to switch from organic production of tomatoes to irradiated production with no additional cost. Assume that the tomato market satisfies all of the assumptions of perfect competition. Refer to Scenario 14-5. As a result of the increase in the demand for tomatoes, we would predict that in the short run that the

price of tomatoes would rise.

Raimans Shoe Repair produces custom-made shoes. When Mr. Raiman produces 12 pairs per week, the marginal cost of the 12th pair is $84, and the marginal revenue of the 12th pair is $70. What would you advise Mr. Raiman to do?

produce fewer custom-made shoes

When a country that imported a particular good abandons a free-trade policy and adopts a no-trade policy,

producer surplus increases and total surplus decreases in the market for that good.

Suppose the federal government doubles the gasoline tax. The deadweight loss associated with the tax

quadruples

Refer to Figure 8-11. The price labeled as P1 on the vertical axis represents the price

received by sellers after the tax is imposed

To fully understand how taxes affect economic well-being, we must compare the

reduced welfare of buyers and sellers to the revenue raised by the government.

When a tax is levied on a good, the buyers and sellers of the good share the burden,

regardless of how the tax is levied.

Which of the following is not an effective method to reduce negative externalities?

relying on voluntary compliance

The U.S. government protects fish, a common resource, by

selling fishing licenses and regulating fish lengths.

Figure 8-5 Suppose that the government imposes a tax of P3 - P1.Refer to Figure 8-5. The benefit to the government is measured by

tax revenue and is represented by area B+D. (2nd and 3rd areas at the top going down)

Suppose the United States exports cars to Switzerland and imports cheese from France. This situation suggests

the United States has a comparative advantage relative to Switzerland in producing cars, and France has a comparative advantage relative to the United States in producing cheese.

Pete owns a shoe-shine business. His accountant most likely includes which of the following costs on his financial statements?

the cost of the shoe polish

When calculating a firms profit, an economist will subtract only

the opportunity costs from total revenue because these include both the implicit and explicit costs of the firm

Total surplus is

the total value of the good to buyers minus the cost to sellers of providing the good

For a large firm that produces and sells automobiles, which of the following costs would be a variable cost?

the unemployment insurance premium that the firm pays to the state of Missouri that is calculated based on the number of worker-hours that the firm uses, the cost of the steel that is used in producing automobiles, the cost of the electricity of running the machines on the factory floor

Domestic producers of a good become better off, and domestic consumers of a good become worse off, when a country begins allowing international trade in that good and

the world price exceeds the domestic price of the good that prevailed before international trade was allowed.

Table 13-4 Charles's Math Tutoring Number of Workers 0 1 2 3 4 Output (number of students tutored per week) 0 20 45 60 70 Refer to Table 13-4. Charles's math tutoring company experiences diminishing marginal productivity with the addition of the

third worker.

A certain firm manufactures and sells computer chips. Last year it sold 2 million chips at a price of $10 per chip. For last year, the firms

total revenue was $20 million.

Refer to Figure 8-1. Suppose the government imposes a tax of P' - P'''. The area measured by I+J+K+L+M+Y represents

total surplus before the tax.

To achieve the optimal provision of public goods, the

government must either provide the goods or subsidize their production.

An externality is the impact of

one persons actions on the well-being of a bystander.

Technology spillover is one type of

positive externality

Markets fail to allocate resources efficiently when

property rights are not well established.

A sidewalk runs across Milton's front yard near the street. By law, anyone has the right to use the sidewalk. When Milton shovels the sidewalk after a heavy snow, he is providing a

public good.

Which of the following is most likely to face extinction?

tigers living in the wild

Private solutions may not be possible due to the costs of negotiating and enforcing these solutions. Such costs are called

transaction costs

Which of the following characteristics of competitive markets is necessary for firms to be price takers? (i)There are many sellers. (ii)Firms can freely enter or exit the market. (iii)Goods offered for sale are largely the same.

(i) and (iii) only

Donald produces nails at a cost of $350 per ton. If he sells the nails for $500 per ton, his producer surplus is

150

Refer to Table 13-4. What is the marginal product of the second worker?

25

Refer to Table 13-6. Each worker at the Wooden Chair Factory costs $12 per hour. The cost of each machine is $20 per day regardless of the number of chairs produced. If the factory produces at a rate of 35 chairs per hour, what is the total labor cost per hour?

48

Refer to Table 14-14. What is Bob's total fixed cost?

5

Refer to Figure 9-6. The imposition of a tariff on carnations

decreases the number of carnations imported by 200.

Negative externalities lead markets to produce

greater than efficient output levels and positive externalities lead markets to produce smaller than efficient output levels.

Refer to Figure 9-6. Before the tariff is imposed, this country

imports 400 carnations. (1 unit to the right of Equilibrium)

A positive externality

is a benefit to a market bystander.

Corrective taxes are typically advocated to correct for the effects of

negative externalities.

Property rights are well established for

private goods.

Which of the following represents the firms short-run condition for shutting down?

shut down if TR < VC

Refer to Figure 7-20. If 6 units of the good are produced and sold, then

the sum of consumer surplus and producer surplus is maximized.

Refer to Figure 10-11. The graph represents a market in which

there is a positive externality.

Refer to Table 14-13. What is Diana's economic profit at the profit maximizing point?

278

Refer to Figure 9-11. Producer surplus plus consumer surplus in this market after trade is graph is P0 above P1. A over B, D to the right of B, and C under B

A + B + C + D

Why do elephants face the threat of extinction while cows do not?

Cattle are owned by ranchers, while elephants are owned by no one.

All else equal, what happens to consumer surplus if the price of a good increases?

Consumer surplus decreases.

Scenario 8-1 Erin would be willing to pay as much as $100 per week to have her house cleaned. Ernestos opportunity cost of cleaning Erin's house is $70 per week. Refer to Scenario 8-1. Assume Erin is required to pay a tax of $15 when she hires someone to clean her house. Which of the following is true?

Erin will continue to hire Ernesto to clean her house, but her consumer surplus will decline.

Which of the following statements is correct?

If average total cost is rising, then marginal cost is greater than average total cost.

Refer to Figure 9-1. Relative to the no-trade situation, trade with the rest of the world results in

Scotland consumers paying a higher price for wool.

When a tax is levied on buyers of a good,

a wedge is placed between the price buyers pay and the price sellers effectively receive.

Explicit costs

b.enter into the accountants measurement of a firms profit. c. enter into the economists measurement of a firms profit. both are correct

Henry is willing to pay 45 cents, and Janine is willing to pay 55 cents, for 1 pound of bananas. When the price of bananas falls from 50 cents a pound to 40 cents a pound,

both Janine and Henry experience an increase in consumer surplus.

Refer to Figure 10-13. Each unit of plastics that is produced results in an external

cost of $8

The exit of existing firms from a competitive market will

decrease market supply and increase market price.

Refer to Figure 7-12. When the price falls from P2 to P1, producer surplus

decreases by an amount equal to A+B.

Refer to Figure 7-2. When the price rises from P1 to P2, consumer surplus graph is P2 above P1 and Q2 before Q1

decreases by an amount equal to B+C.

Scenario 13-12 If Farmer Brown plants no seeds on his farm, he gets no harvest. If he plants 1 bag of seeds, he gets 5 bushels of wheat. If he plants 2 bags, he gets 9 bushels. If he plants 3 bags, he gets 12 bushels. A bag of seeds costs $120, and seeds are his only cost. Refer to Scenario 13-12. Farmer Brown's production function exhibits

diminishing marginal product

Elephants are endangered, but cows are not because

elephants are a common resource, while cows are private goods.

Which of the following is not a characteristic of a competitive market?

entry is limited

A cable television broadcast of a movie is

excludable and not rival in consumption

Refer to Figure 9-20. With trade, Vietnam will

export 1,500 units of rice

Refer to Figure 13-7. Which of the figures represents the marginal cost curve for a typical firm? Select one: a. Figure 1 b. Figure 2 c. Figure 3 d. Figure 4

figure 1

David's firm experiences diminishing marginal product for all ranges of inputs. The total cost curve associated with David's firm

gets steeper as output increases.

Refer to Table 14-7. If the firm is currently producing 14 units, what would you advise the owners?

increase quantity to 16 units

When a factory is operating in the short run,

it cannot adjust the quantity of fixed inputs.

In order to maximize profits in the short run, a firm should produce where

marginal cost equals marginal revenue.

In a market economy, government intervention

may improve market outcomes in the presence of externalities.

Timmys Trophies operates in a perfectly competitive market. If trophies sell for $20 each and average total cost per trophy is $15 at the profit-maximizing output level, then in the long run

more firms will enter the market.

A negative externality will cause a private market to produce

more than is socially desirable.

Table 14-12 Bill's Birdhouses Refer to Table 14-12. What is the marginal cost of the 5th unit? (total cost $285, price $80)

$68

Refer to Figure 8-11. The tax revenue that the government collects equals

(P3-P1)*Q1

Refer to Table 13-9. The average variable cost of producing 4 posters is

2.50

Refer to Figure 7-19. If the price were P3, consumer surplus would be represented by the area

A. (its at the top of the graph)

Refer to Figure 9-11. Producer surplus in this market before trade is

B + C. area above and below the horizontal line furthest left

When the nation of Brownland first permitted trade with other nations, domestic producers of wheat experienced an increase in producer surplus of $4 million and total surplus in Brownland's wheat market increased by $1 million. We can conclude that

Brownland became an exporter of wheat.

Figure 8-5 Suppose that the government imposes a tax of P3 - P1.The tax causes a reduction in producer surplus that is represented by area graph is (P4, P3, P2, P1) and (Q2, Q1)

D+H

Refer to Figure 9-15. With the tariff, the domestic price and domestic quantity demanded are

P2 and Q3.

Refer to Figure 10-4. If all external costs were internalized, then the market's equilibrium output would be

Q2

Which of the following would be considered a private good?

a bottle of natural mineral water

A city street is

a common resource when it is congested, but it is a public good when it is not congested.

When a country moves away from a free trade position and imposes a tariff on imports, it causes

a decrease in total surplus in the market

Which of the following is an example of general knowledge, as opposed to specific knowledge that can be patented?

a mathematical theorem

Which of the following expressions is correct?

accounting profit = economic profit + implicit costs

Negative externalities occur when one person's actions

adversely affect the well-being of a bystander who is not a party to the action.

Phil owns 10 acres of beautiful wooded land. When Phil decides to move to be closer to his grandchildren, he donates the land to the state with the understanding that the land will be used as a state park. Phil wants an efficient way to prevent overcrowding at the park, so he should require

an entry fee be charged on summer weekend days when many people tend to visit the park

In the long-run equilibrium of a competitive market, the number of firms in the market adjusts until the market demand is satisfied at a price equal to the minimum of

average total cost of the marginal firm.

Refer to Figure 10-19. Each additional unit of the good that is produced yields an external (58,125) (73,110) ((94,89)

benefit of $36.

Two types of private solutions to the problem of externalities are

charities and the Golden Rule.

Emission controls on automobiles are an example of a

command-and-control policy to increase social efficiency.

Dog owners do not bear the full cost of the noise their barking dogs create and often take too few precautions to prevent their dogs from barking. Local governments address this problem by

making it illegal to "disturb the peace."

An FM radio signal is an example of a good that is

nonrival in consumption.

Mrs. Smith operates a business in a competitive market. The current market price is $7.50. At her profit-maximizing level of production, the average variable cost is $8.00, and the average total cost is $8.25. Mrs. Smith should

shut down in the short run and exit in the long run.

A common theme among examples of market failure is

some item of value does not have an owner with the legal authority to control it.

According to the Coase theorem, private parties can solve the problem of externalities if

the cost of bargaining is small.