Applied Business Economics Exam 3

The social value of the 4th unit of output that is produced is

$26

The market equilibrium quantity of output is

3 Units

A good that is rival in consumption is one that someone can be prevented from using if they did not pay for it.

False

13

Impose a tax of $16 per unit on plastics

Which of the following is an example of a positive externality?

Your neighbor plants a nice garden in front of his house.

Which of the following statements is characteristic of utilitarianism?

An extra dollar of income provides higher marginal utility to a person in the lowest income bracket than a person in the highest income bracket.

Suppose that Jamal is moving to a state where personal incomes are distributed randomly. If Jamal believed in liberalism, he would prefer

An income distribution that is relatively equal

The demand curve for gasoline slopes downward and the supply curve for gasoline slopes upward. The production of the 300th gallon of gasoline entails the following: -A private cost of $2.93 -A social cost of $3.14 -A value to consumers of $3.24 The production of the 300th gallon of gasoline entails an...

External cost of $0.21

If the government wanted to tax or subsidize this good to achieve the socially optimal level of output, it would

Introduce a subsidy of $4 per unit.

The only qualification to receive government assistance under a negative income tax is

Low income

Majority rule will produce the outcome more preferred by the median voter, as demonstrated by the

Median voter theorem

The overuse of antibiotics leads to the development of antibiotic-resistant diseases. Therefore, the socially optimized quantity of antibiotics is represented by point

Q2

Which of the following statements accurately characterizes the effects of minimum-wage laws?

The effects of minimum-wage laws depend strongly on the elasticity of labor demand.

Which of the following statements if NOT correct?

Without government intervention, the market will undersupply products that produce negative externalities.

Suppose the cost to build the park is $24 per acre and that the residents have agreed to split the cost of building the park equally. If the residents vote to determine the size of the park to build, basing their decision solely on their own willingness to pay (and trying to maximize their own surplus), what is the largest park size for which the majority of residents would vote "yes?"

1 acre

The provision of a public good generates a

Positive externality, and the use of a common resource generates a negative externality.

The Pennsylvania Turnpike is a tolled freeway running through the state of Pennsylvania. Motorists must pay tolls at various points along the Turnpike based on the distance they traveled on the freeway. Suppose that despite the tolls, many motorists in the urban areas use the Turnpike causing traffic to slow during peak times. What type of good would the Turnpike be classified as in this case?

Private good

People cannot be prevented from using a good if the good is a

Public good or a common resource

Informational asymmetry is a difference in

Relevant knowledge

Which of the following pairs of goods includes a good that is excludable and rival in consumption as well as a good that is not excludable and not rival in consumption?

Tablet computer, national defense

Suppose that cookie producers create a positive externality equal to $2 per dozen. What is the relationships between the equilibrium quantity and the socially optimal quantity of cookies to be produced?

The equilibrium quantity is less than the socially optimal equilibrium.

Suppose the Company A's railroad cars pass through Farmer B's corn fields. The railroad causes an externality to the farmer because the railroad cars emit sparks that cause $1,500 in damage to the farmer's crops. There is a special soy-based grease that the railroad could purchase that would eliminate the damaging sparks. The grease costs $1,200. Suppose that the farmer has the right to compensation for any damage that his crops suffer. Assume that there are no transaction costs. Which of the following characterizes the efficient outcome?

The railroad will purchase the grease for $1,200 and pay the farmer nothing because no crop damage will occur.

A goal of libertarians is to provide citizens with equal opportunities rather than to ensure equal outcomes.

True

Government can be used to solve externality problems that are too costly for private parties to solve.

True

One existing government program that works much like a negative income tax is the Earned Income Tax Credit.

True

One way that employers respond to the moral-hazard problem is by monitoring their employees.

True

Which group (or groups) would be the most upset by wide variation in the income distribution?

Utilitarian and liberals

A society consists of three individuals: Nalah, Justin, and Piper. In terms of income and utility, Nalah is currently best-off, Justin ranks in the middle, and Piper is worst-off. Which of the following statements is correct?

Utilitarianism suggests that government policies should strive to maximize the sum of everyone's utility.

Under which of the following scenarios would a park be considered a common resource?

Visitors can enter the park free of charge, but frequently all of the picnic tables are in use.

It is commonly argued that national defense is a public good. Nevertheless, the weapons used by the U.S. military are produced by private firms. We can conclude that

Weapons are rival in consumption and excludable, but national defense is not rival in consumption and not excludable.