The MICRO Economy Today- Chapters 13, 14, 15

If the social costs of an economic activity are $200 and the private costs are $200, then the external costs of the activity are ________, and market failure _______.

$0; does not occur

If entry barriers into a monopolized market are kept low,

A market is contestable.

An example of a negative externality in consumption is

A passenger on a train littering.

In general, a firm's efficiency decision will result in

A pollution-causing production process if that process minimizes costs.

An external cost is borne by

A third party to the market transaction.

Which of the following industries was substantially deregulated over the last several decades?

Airlines.

Given the typical income elasticity for food, a 10 percent increase in income will lead to

An increase in food demand of less than 10 percent.

Natural monopolies fail to minimize

Average total cost.

When the government requires a firm to pay an emission charge in proportion to its pollution,

Both average total costs and marginal costs rise.

When the CAB allowed airlines to charge high prices on longer, more efficient routes as long as they maintained service on shorter, unprofitable routes, it was allowing.

Cross-subsidization

If government failure did not exist,

Deregulation would be unnecessary.

The marginal cost to society of reducing pollution increases as the level of pollution reduction increases because of the law of

Diminishing returns.

The use of marginal cost pricing in Figure 27.1 will result in

Economic losses.

When the regulatory process itself becomes a drag on economic growth, society experiences

Efficiency costs of regulation.

A polluting company can be billed in proportion to its pollution through

Emission charges.

When a firm experiences positive economic profits over the long run,

Equity may not be achieved.

Supply restrictions in the farming industry occur in all of the following forms except

Export subsidies.

The marginal benefit of reducing pollution

Falls as the environment gets cleaner.

The long-run average total cost curve of a natural monopolist

Falls continuously as more output is produced.

Government intervention that fails to improve economic outcomes is known as

Government failure.

An unregulated natural monopoly can lead to

Higher prices for consumers.

Producers can be encouraged to internalize external costs by

Imposing pollution fines or higher user fees.

If the government imposed a green tax on gasoline, ceteris paribus, the price of gasoline should

Increase

For a natural monopoly, marginal cost

Is always below average total cost in the relevant range of production.

An unregulated natural monopoly can lead to all of the following except

Low prices for consumers.

Refer to Figure 28.2. Assume this firm initially has marginal costs equal to Private MC1 and is polluting. If the government decides to use emission charges to reduce pollution, the firm's MC curve will shift to

MC3 and the rate of output will decrease.

Which of the following is not an advantage of direct income support to farmers?

Market prices and total farm income increases.

In the absence of a subsidy, production efficiency by a natural monopolist will

Never be achieved.

Suppose the quality of service provided by a newly regulated firm begins to deteriorate soon after the regulation is enforced. Which of the following types of regulation is most likely being used?

Output regulation.

To maximize profits, an unregulated natural monopolist would choose which combination of price and output in Figure 27.1?

P2, Q2.

If regulation of the monopolist called for marginal cost pricing in Figure 27.1, the regulatory agency should set the price at

P4.

In Figure 27.2, regulation designed to achieve allocative efficient pricing for the natural monopoly will result in a price of

PA.

The Agricultural Adjustment Act of 1933 was based on the belief that farm incomes would improve if

Parity prices were restored.

What is meant by price efficiency?

Price is equal to marginal cost.

Cross-subsidization occurs when

Profits on one product are used to subsidize low prices on another product.

In 2001 the U.S. Congress did all of the following except

Reduce acreage set-asides.

Which of the following is not the case when social costs are greater than private costs?

Resources are allocated efficiently.

The collapse of AT&T's natural monopoly in long-distance telephone service was caused by

Satellite technology that made it easier and less expensive for new companies to provide long-distance service.

If a natural monopoly was broken into several smaller competing firms,

Society would be worse off because the economies of scale would be destroyed.

All of the following are necessary conditions for pure laissez-faire except

Some firms have market power.

A major drawback of providing subsidies to private companies that are natural monopolies is that

Taxpayers dislike this use of their tax dollars.

Prior to the deregulation of the railroad industry, there was little incentive to invest in new technology or equipment. This is an example of

The inefficiencies of regulation

The optimal rate of pollution occurs where

The marginal benefit equals the marginal cost of pollution abatement.

According to the text, which of the following is a form of water pollution?

Thermal pollution.

An In the News article is titled "Air Pollution Kills." From a social perspective, this suggests that

Too much output is being produced by the polluting firms.

Which of the following is an example of government failure?

Too much regulation resulting in wasted resources.

Select the letter of the diagram in Figure 29.4 that best represents the effect of each event on the United States wheat market, ceteris paribus: The federal government decides to no longer purchase wheat from farmers.

c.