Econ test 2

A tax on a good ...

..B. Gives sellers an incentive to produce less of the good than they otherwise would produce

Kelly is willing to pay $68 for a pair of shoes for a wedding. She finds a pair at her favorite outlet shoe store for $58. Kelly's consumer surplus is

A. $10

If a consumer is willing and able to pay $20 for a particular good and if he pays $16 for the good, then for that consumer, consumer surplus amounts to a. $4. b. $16. c. $20. d. $36.

A. $4

Brock is willing to pay $400 for a new suit, but he is able to buy the suit for $350. His consumer surplus is

A. $50

Negative externalities lead markets to produce

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

Deadweight loss measures the loss

A. In a market to buyers and sellers that is not offset by an increase in the government revenue.

In many cases selling pollution permits is a better method for reducing pollution than imposing a corrective tax because

A. It is hard to estimate the market demand curve and thus charge the "right" corrective tax.

Profit-maximizing firms in a competitive market produce an output level where

A. Marginal cost equals marginal revenue

One difference between a perfectly competitive firm and a monopoly is that a perfectly competitive firm produces where

A. Marginal cost equals price, while monopolist provides where price exceeds marginal cost

In a monopolistic competition as well as in a monopoly,

A. Price exceeds marginal revenue for each firm

In a long run, all of a firms cost are variable. In this case the exit criterion for a profit-maximizing firm is to shut down if

A. Price is less than average total cost

Because of the free-rider problem, a. private markets tend to undersupply public goods. b. the federal government spends too many resources on national defense and not enough resources on medical research. c. fireworks displays have become increasingly dangerous. d. poverty has increased.

A. Private markets tend to undersupply public goods

The Tragedy of the Commons results when a good is

A. Rival in consumption and not excludable

When price is below average variable cost, a firm in a competitive market will

A. Shut down and incur fixed costs

When a free-rider problem exists,

A. The market will devote to few resources to the production of the good

The Laffer curve relates

A. The tax rate to tax revenue raised by the tax

Total cost can be divided into two types of costs:

A: fixed cost and variable cost

Let L represent the number of workers hired by a firm, and let Q represent that firm's quantity of output. Assume two points on the firm's production function are (L = 12, Q = 122) and (L = 13, Q = 132). Then the marginal product of the 13th worker is a. 8 units of output. b. 10 units of output. c. 122 units of output. d. 132 units of output.

B. 10 units of output

The government provides public goods such as anti-poverty programs because

B. Free-riders make it difficult for private markets to supply the socially, optimal quantity

The entry of new firms into a competitive market will

B. Increase market supply and decrease market price

In the long run,

B. Inputs that were fixed in the short run become variable

When property rights are not well established,

B. Markets fail to allocate resources efficiently

Economists normally assume that the goal of a firm is to

B. Maximize its profit

When a good is excludable,

B. People can be prevented from using the good

When a market in a monopolistically competitive, the typical firm in the market is likely to experience a

B. Positive or negative profit in the short run and a zero profit in the long run

A tax on a good

B. RAISES the price that buyers effectively pay and LOWERS the price that sellers effectively receive

Suppose that smoking creates a negative externality. If the government does not interfere in the cigarette market, then

B. The equilibrium quantity of cigarettes smoked will be greater than the socially optimal quantity of cigarettes smoked.

On a graph, consumer surplus is represented by the area

B. below the damand curve and above price

As a monopolist increases the quantity of output it sells, the price consumers are willing to pay for the good

B. decreases

Chuck would be willing to pay $20 to attend a dog show, but he buys a ticket for $15. Chuck values the dog show at

C. $20

If Gina sells a shirt for $40, and her producer surplus from the sale is $32, her cost must have been

C. $8

Average Total Cost (ATC) is calculated as followed

C. ATC = (total cost)/(quantity of output)

The Mansfield Public Library has a large number of books that anyone with a library card may borrow. Anyone can obtain a card for free. Because the number of copies of each book is limited, not everyone can have the same book at the same time. What type of good would the library books be classified as in this case?

C. Common resources

Goods that are rival in consumption include both

C. Commons resources and private goods

The decrease in total surplus that results from a market distortion, such as a tax, is called a

C. Deadweight loss

If a competitive firm is currently producing a level of output at which marginal cost exceeds marginal revenue, then

C. Decreasing output would increase the firms profit

A tax is levied on the buyers of a good shifts the

C. Demand curve downward (or to the left)

When adding another unit of labor leads to an increase in output that is smaller than the increases in output that resulted from adding previous units of labor, the firm is experiencing

C. Diminishing marginal production

In a perfectly competitive market, the process of entry and exit will end when

C. Economic profits are zero

Suppose planting flowers shrubs creates a positive externality equal to $7 per shrub. Further suppose that the local government offers a $7 per-shrub subsidy to planters. The number of shrubs that are planted is then

C. Equal to the socially optimal quantity

Research into new technologies provides a

C. Positive externality, and too few resources are devoted to research as a result

For a firm, the production function represents the relationship between

C. Quantity of inputs and quantity of output

When firms have an incentive to exit a competitive market, their exit will

C. Raise the profits of the firms that remain in market

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

C. The equilibrium quantity is less than the social optimal quantity

Suppose that a STEEL FACTORY emits a certain amount of air pollution, which constitutes a negative externality. If the market does not internalize the externality

C. The market equilibrium quantity will not be the socially optimal quantity

What happens to the total surplus in a market when the government imposes a tax?

C. Total surplus decrease

We can say that the allocation of resources is efficient if

C. Total surplus is maximized

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

D. $500

Because monopoly firms do not have to compete with other firms, the outcome in a market with a monopoly is often a. Not in the best interest of society b. One that fails to maximize total economic well-being c. Inefficient d. All of the above are correct

D. All of the above

A seller in a competitive market a. can sell all he wants at the going price, so he has little reason to charge less b. Will lose all his customers to order sellers if he raises his price c. Considers the market price to be a "take it or leave it" price d. All of the above

D. All the above

Which of the following is NOT an example of barrier to entry?

D. An entrepreneur opens a popular new restaurant

Each of the follows is likely to be successful way for the government to solve the problem of overuse of a common resource EXCEPT

D. Asking individuals to voluntarily reduce their use of the resources

For a competitive firm,

D. Average revenue equals marginal revenue

The economic inefficiency of a monopolist can be measured by the

D. Deadweight loss

A drought in California destroys many red grapes. As a result of the drought, the consumer surplus in the market for red grapes

D. Decreases, and the consumer surplus in the market for red wine decreases

Which of the following statements regarding a competitive firm is correct?

D. For all firms, average revenue equals the price of the good

In an externality is present in a market, economic efficiency may be enhanced by

D. Government intervention

In both perfect competitive and monopolistic competition, each firm

D. Has many competitors

The marginal product of labor is equal to the

D. Increase in labor necessary to generate a one unit increase in output

When an externality is present, the market equilibrium is

D. Inefficient, and the equilibrium does not maximize the total benefit to society as a whole

If the use of a commons resource is not regulated,

D. It will be overused

When a single firm can supply a product to an entire market at a lower cost than could two or more firms, the industry is called a

D. Natural monopoly

Goods that are excludable include both

D. Private goods and club goods

Which of the following conditions distinguishes monopolistic competition from perfect competition?

D. Product differentiation

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

D. Regardless of how the Tex is levied

A firm in a competitive market currently produces and sells 500 doorknobs for a price of $10 per doorknob. Which of the following events would decrease the firms average revenue?

D. The market price of doorknobs falls below $10

Who among the following is a free rider?

D. Wilma watches many public television programs, but she has never sent in a contribution to the station

Which of the following is NOT a reason for the existence of a monopoly?

D. diseconomies of scale

When new firms have an incentive to enter a competitive market, their entry will

b. drive down profits of existing firms in the market.

A monopolist produces

b. less than the socially efficient quantity of output but at a higher price than in a competitive market.

Marginal cost tells us the

c. amount by which total cost rises when output is increased by one unit.

Taxes cause deadweight losses because taxes ..

d. All the above are correcr

Which of the following would NOT be considered a private good? A. A sweater B. a slice of pizza C. a Toyota Prius D. Cable TV service

d. cable TV service