econ exam 3

Wanda owns a lemonade stand. She produces lemonade using five inputs: water, sugar, lemons, paper cups, and labor. Her costs per glass are as follows: $0.01 for water, $0.02 for sugar, $0.03 for lemons, $0.02 for cups, and $0.10 for the opportunity cost of her labor. She can sell 300 glasses for $0.50 each. ____ 40. Refer to Scenario 13-7. What are Wanda's total accounting profits?

$126

Scenario 13-9 Jessica makes photo frames. She spends $5 on the materials for each photo frame. She can create one photo frame in an hour. She earns $10 per hour at a part-time job at the local coffee shop. She can sell a photo frame for $30 each.

$15

Refer to Figure 9-5. With trade, producer surplus is

$80.

John lives in an apartment building and gets a $700 benefit from playing his stereo. Mary, who lives next door to John and often loses sleep due to the music coming from John's stereo, bears a $1,000 cost from the noise. At which of the following offers from Mary could both Mary and John benefit from the silencing of John's stereo?

$900

Economists normally assume that the goal of a firm is to earn (i) profits as large as possible, even if it means reducing output. (ii) profits as large as possible, even if it means incurring a higher total cost. (iii) revenues as large as possible, even if it reduces profits.

(i) and (ii) only

Refer to Figure 9-13. With trade, domestic production and domestic consumption, respectively,

. 300 and 900.

The provision of a public good generates a

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

Refer to Table 10-4. The last unit of output for which private value exceeds social cost is the

3rd unit.

Many species of animals are common resources, and many must be protected by law to keep them from extinction. Why is the cow not one of these endangered species even though there is such a high demand for beef?

Cows are privately owned, whereas many endangered species are owned by no one.

Refer to Figure 9-15. The amount of government revenue created by the tariff is

E

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

Mary not catching the flu from Sue because Sue got a flu vaccine

Suppose that flower gardens create a positive externality equal to $1 per plant. What is the relationship between the equilibrium quantity and the socially optimal quantity of plants grown?

The equilibrium quantity is less than the socially optimal quantity.

Suppose that 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.

On holiday weekends thousands of people picnic in state parks. Some picnic areas become so overcrowded the benefit or value of picnicking diminishes to zero. Suppose that the Minnesota State Park Service institutes a variable fee structure. On weekdays when the picnic areas get little use, the fee is zero. On normal weekends, the fee is $8 per person. On holiday weekends, the fee is $14 per person. The fee system corrects a problem known as the

Tragedy of the Commons

Suppose that for a particular business there are no implicit costs. Then

accounting profit will be the same as economic profit.

When marginal cost is less than average total cost

average total cost is falling

Refer to Scenario 9-2. Suppose the world price of cardboard is $45. Then, if Boxland goes from prohibiting international trade in cardboard to allowing international trade in cardboard,

domestic producers of cardboard become worse off and domestic consumers of cardboard become better off.

Some goods can be produced at low cost only if they are produced in large quantities. This phenomenon is called

economies of scale.

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

export 1,500 units of rice

Goods that are not excludable are usually

higher priced than rival goods.

Refer to Figure 9-16. The tariff

increases producer surplus by the area C and decreases consumer surplus by the area C + D + E + F.

Citizens expect the government to provide various goods and services making taxes

inevitable.

The distinction between purchase price and rental price applies to which factor(s) of production?

land and capital only

Both public goods and common resources are

nonexcludable

When a good is excludable,

people can be prevented from using the good

When markets fail, public policy can

potentially remedy the problem and increase economic efficiency

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

Property rights are well established for

private goods.

Which of the following policies is the government most inclined to use when faced with a positive externality?

subsidies

Suppose that smoking creates a negative externality. If the government imposes a per-cigarette tax equal to the per-cigarette externality, then

the after-tax equilibrium quantity of cigarettes smoked will equal the socially optimal quantity of cigarettes smoked.

If education produces positive externalities and the government does not intervene in the market, we would expect

the equilibrium quantity to be lower than the optimal level.

One of the least regulated common resources today is

the ocean.

In the absence of externalities, the "invisible hand" leads a market to maximize

total benefit to society from that market

If the United States threatens to impose a tariff on Honduran blueberries if Honduras does not remove agricultural subsidies, the United States will be

worse off if Honduras doesn't give in to the threat.