Econ Test 3

In the case of a technology spillover, internalizing a positive externality will cause the supply curve of an industry to a.shift to the right. b.shift to the left. c.become more elastic. d.remain unchanged.

a.shift to the right.

Which of the following statements is correct? a. Corrective taxes are often preferred over direct regulation because they typically reduce externalities at a lower cost. b. Corrective taxes distort economic incentives. c. Corrective taxes are often preferred over direct regulation because they typically reduce externalities at a faster rate. d. Both a) and b) are correct.

a. Corrective taxes are often preferred over direct regulation because they typically reduce externalities at a lower cost.

The difference between a corrective tax and a tradable pollution permit is that a. a corrective tax sets the price of pollution and a permit sets the quantity of pollution. b. a corrective tax creates a more efficient outcome than a permit. c. a corrective tax sets the quantity of pollution and a permit sets the price of pollution. d. a permit creates a more efficient outcome than a corrective tax.

a. a corrective tax sets the price of pollution and a permit sets the quantity of pollution.

A negative externality arises when a person engages in an activity that has a. an adverse effect on a bystander who is not compensated by the person who causes the effect. b. an adverse effect on a bystander who is compensated by the person who causes the effect. c. a beneficial effect on a bystander who pays the person who causes the effect. d. a beneficial effect on a bystander who does not pay the person who causes the effect.

a. an adverse effect on a bystander who is not compensated by the person who causes the effect.

Internalizing a positive consumption externality will cause the market demand curve to a. shift to the right (downwards). b. shift to the left (upwards). c. become vertical. d. become horizontal.

a. shift to the right (downwards).

Since air pollution creates a negative externality, a. social welfare will be enhanced when some, but not all air pollution is eliminated. b. social welfare is optimal when all air pollution is eliminated. c. governments should encourage private firms to consider only private costs. d. the free market result maximizes social welfare.

a. social welfare will be enhanced when some, but not all air pollution is eliminated.

Trevor's Tire Company produced and sold 500 tires. The average cost of production per tire was $50. Each tire sold for a price of $65. Trevor's Tire Company's total profits are a.$7,500. b.$25,000. c.$32,500. d.$67,500.

a.$7,500.

A positive externality occurs when a.Jack receives a benefit from John's consumption of a certain good. b.Jack receives personal benefits from his own consumption of a certain good. c.Jack's benefit exceeds John's benefit when they each consume the same good. d.Jack's receives a loss from John's consumption of a certain good.

a.Jack receives a benefit from John's consumption of a certain good.

The term market failure refers to a.a market that fails to allocate resources efficiently. b.an unsuccessful advertising campaign which reduces demand. c.ruthless competition among firms. d.a firm that is forced out of business because of losses.

a.a market that fails to allocate resources efficiently.

Which of the following expressions is correct? a.accounting profit = total revenue - explicit costs b.economic profit = total revenue - implicit costs c.economic profit = total revenue - explicit costs d.Both a and b are correct.

a.accounting profit = total revenue - explicit costs

The average fixed cost curve a.always declines with increased levels of output. b.always rises with increased levels of output. c.declines as long as it is above marginal cost. d.declines as long as it is below marginal cost.

a.always declines with increased levels of output.

The value of a business owner's time is an example of a.an opportunity cost. b.a fixed cost. c.an explicit cost. d.total revenue.

a.an opportunity cost.

The cost of producing the typical unit of output is the firm's a.average total cost. b.opportunity cost. c.variable cost. d.marginal cost.

a.average total cost.

The firm's efficient scale is the quantity of output that minimizes a.average total cost. b.average fixed cost. c.average variable cost. d.marginal cost.

a.average total cost.

If long-run average total cost decreases as the quantity of output increases, the firm is experiencing a.economies of scale. b.diseconomies of scale. c.coordination problems arising from the large size of the firm. d.fixed costs greatly exceeding variable costs.

a.economies of scale.

Total cost can be divided into two types of costs: a.fixed costs and variable costs. b.fixed costs and marginal costs. c.variable costs and marginal costs. d.average costs and marginal costs.

a.fixed costs and variable costs.

In some 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. b.selling pollution permits create a net increase in pollution. c.Corrective taxes distort incentives. d.Corrective taxes provide greater flexibility to firms that can reduce pollution at a low cost.

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

Which of the following is the best example of a variable cost? a.monthly wage payments for hired labor b.annual property tax payments for a building c.monthly rent payments for a warehouse d.annual insurance payments for a warehouse

a.monthly wage payments for hired labor

Total revenue equals a.price x quantity. b.price/quantity. c.(price x quantity) - total cost. d.output - input.

a.price x quantity.

In a certain city, the local government regulates the destruction of historic buildings and provides tax breaks to owners of historic buildings who restore them. These government policies a.reflect the fact that restored historic buildings convey a positive externality. b.reflect the fact that the destruction of historic buildings conveys a positive externality. c.are likely to worsen the market failure that is associated with historic buildings and the restoration of such buildings. d.are likely to decrease the well-being of society as a whole.

a.reflect the fact that restored historic buildings convey a positive externality.

Explicit costs a.require an outlay of money by the firm. b.include all of the firm's opportunity costs. c.include the value of the business owner's time. d.Both b and c are correct.

a.require an outlay of money by the firm.

Which of the following statements is correct? a. Government should tax goods with either positive or negative externalities. b. Government should tax goods with negative externalities and subsidize goods with positive externalities. c. Government should subsidize goods with either positive or negative externalities. d. Government should tax goods with positive externalities and subsidize goods with negative externalities.

b. Government should tax goods with negative externalities and subsidize goods with positive externalities.

In the presence of positive externalities, the invisible hand of the marketplace leads to a. a socially optimal market outcome. b. a less than socially optimal market outcome. c. a more than socially optimal market outcome. d. a market outcome that cannot be predicted.

b. a less than socially optimal market outcome.

The difference between social cost and private cost is a measure of the a. loss in profit to the seller as the result of a negative externality. b. cost of an externality. c. loss in benefit to buyers when the negative externality is eliminated. d. cost incurred by the government when it intervenes in the market.

b. cost of an externality.

With pollution permits, the supply curve for pollution rights is a. perfectly elastic (horizontal). b. perfectly inelastic (vertical). c. upward sloping. d. downward sloping.

b. perfectly inelastic (vertical).

Internalizing a negative production externality will cause the supply curve faced by an industry to a. shift to the right (downwards). b. shift to the left (upwards). c. become vertical. d. become horizontal.

b. shift to the left (upwards).

In the presence of negative externalities, a. the social cost of a good is smaller than the private cost by the amount of the external cost. b. the social cost of a good is greater than the private cost by the amount of the external cost. c. the social cost of a good is smaller than the private cost by the amount of the external benefit. d. the social cost of a good is greater than the private cost by the amount of the external benefit.

b. the social cost of a good is greater than the private cost by the amount of the external cost.

If education produces positive externalities, we would expect a.the government to tax education. b.the government to subsidize education. c.people to realize the benefits, which would increase the demand for education. d.colleges to relax admission requirements.

b.the government to subsidize education.

An externality is a. the costs that parties incur in the process of agreeing and following through on a bargain. b. the uncompensated impact of one person's actions on the well-being of a bystander. c. the proposition that private parties can bargain without cost over the allocation of resources. d. a market equilibrium tax

b. the uncompensated impact of one person's actions on the well-being of a bystander.

The Three Amigo's company produced and sold 500 dog beds. The average cost of production per dog bed was $50. Each dog be sold for a price of $65. The Three Amigo's total costs are a.$7,500. b.$25,000. c.$32,500. d.$67,500.

b.$25,000.

When the social cost curve is above a product's supply curve, a.the government has intervened in the market. b.a negative externality exists in the market. c.a positive externality exists in the market. d.the distribution of resources is unfair.

b.a negative externality exists in the market.

Foregone investment opportunities are an example of a.an explicit cost. b.an implicit cost. c.revenues. d.profits

b.an implicit cost.

When marginal cost exceeds average total cost, a.average fixed cost must be rising. b.average total cost must be rising. c.average total cost must be falling. d.marginal cost must be falling.

b.average total cost must be rising.

If a firm experiences constant returns to scale at all output levels, then its long-run average total cost curve would a.slope downward. b.be horizontal. c.slope upward. d.slope downward for low output levels and upward for high output levels.

b.be horizontal.

Emission controls on automobiles are an example of a a.corrective tax. b.command-and-control policy to increase social efficiency. c.policy that reduces pollution by allocating resources through market mechanisms. d.policy to reduce congestion on urban freeways.

b.command-and-control policy to increase social efficiency.

Average total cost tells us the a.total cost of the first unit of output, if total cost is divided evenly over all the units produced. b.cost of a typical unit of output, if total cost is divided evenly over all the units produced. c.cost of the last unit of output, if total cost does not include a fixed cost component. d.variable cost of a firm that is producing at least one unit of output.

b.cost of a typical unit of output, if total cost is divided evenly over all the units produced.

The difference between social cost and private cost is a measure of the a.loss in profit to the seller as the result of a negative externality. b.cost of an externality. c. cost reduction when the negative externality is eliminated. d.cost incurred by the government when it intervenes in the market.

b.cost of an externality.

If an aluminum manufacturer does not bear the entire cost of the smoke it emits, it will a.emit a lower level of smoke than is socially efficient. b.emit a higher level of smoke than is socially efficient. c.emit an acceptable level of smoke. d.not emit any smoke in an attempt to avoid paying the entire cost.

b.emit a higher level of smoke than is socially efficient.

Market failure can be caused by a.too much competition. b.externalities. c.low consumer demand. d.scarcity.

b.externalities.

A command-and-control policy is another term for a a.pollution permit. b.government regulation. c.corrective tax. d.Both a and b are correct.

b.government regulation

In the long run, a.inputs that were fixed in the short run remain fixed. b.inputs that were fixed in the short run become variable. c.inputs that were variable in the short run become fixed. d.variable inputs are rarely used.

b.inputs that were fixed in the short run become variable.

Economies of scale occur when a.long-run average total costs rise as output increases. b.long-run average total costs fall as output increases. c.average fixed costs are falling. d.average fixed costs are constant.

b.long-run average total costs fall as output increases.

A negative externality will cause a private market to produce a.less than is socially desirable. b.more than is socially desirable. c.exactly the quantity that is socially desirable. d.less than the same market would produce in the presence of a positive externality.

b.more than is socially desirable.

All remedies for externalities share the goal of a.moving the allocation of resources toward the market equilibrium. b.moving the allocation of resources toward the socially optimal equilibrium. c.increasing the allocation of resources. d.decreasing the allocation of resources.

b.moving the allocation of resources toward the socially optimal equilibrium.

The things that must be forgone to acquire a good are called a.implicit costs. b.opportunity costs. c.explicit costs. d.accounting costs.

b.opportunity costs.

Which of the following is the most effective way to internalize a technology spillover? a.taxes b.patents c.government regulations d.free markets

b.patents

Technology spillover is one type of a.negative externality. b.positive externality. c.subsidy. d.producer surplus.

b.positive externality.

Positive externalities a.result in a larger than efficient equilibrium quantity. b.result in smaller than efficient equilibrium quantity. c.result in an efficient equilibrium quantity. d.can be internalized with a corrective tax.

b.result in smaller than efficient equilibrium quantity.

In the absence of externalities, the "invisible hand" leads a market to maximize a.producer profit from that market. b.total benefit to society from that market. c.both equality and efficiency in that market. d.output of goods or services in that market.

b.total benefit to society from that market.

Profit is defined as a.net revenue minus depreciation. b.total revenue minus total cost. c.average revenue minus average total cost. d.marginal revenue minus marginal cost.

b.total revenue minus total cost.

What is the difference between command-and-control policies and market-based policies toward externalities? a. Command-and-control policies provide incentives for private decisionmakers to solve the problems on their own, whereas market-based policies regulate behavior directly. b. Command-and-control policies rely on taxes, whereas market-based policies rely on quotas. c. Command-and-control policies regulate behavior directly, whereas market-based policies provide incentives for private decisionmakers to change their behavior. d. Command-and-control policies are efficient, whereas market-based policies are inefficient.

c. Command-and-control policies regulate behavior directly, whereas market-based policies provide incentives for private decisionmakers to change their behavior.

Jane owns a dog whose barking annoys Jane's neighbor John. Suppose that the benefit of owning the dog is worth $500 to Jane and that John bears a cost of $700 from the barking. A possible private solution to this problem is that a. John pays Jane $450 to get rid of the dog. b. Jane pays John $650 for his inconvenience. c. John pays Jane $650 to get rid of the dog. d. There is no private solution that would improve this situation.

c. John pays Jane $650 to get rid of the dog.

Which of the following statements is not correct? a.Fixed costs are constant. b.Variable costs change as output changes. c.Average fixed costs are constant. d.Average total costs are typically U-shaped.

c.Average fixed costs are constant.

An externality is an example of a. a corrective tax. b. a tradable pollution permit. c. a market failure. d. Both a and b are correct.

c. a market failure.

In the presence of negative externalities, the invisible hand of the marketplace leads to a. a socially optimal market outcome. b. a less than socially optimal market outcome. c. a more than socially optimal market outcome. d. a market outcome that cannot be predicted.

c. a more than socially optimal market outcome.

In a market economy, government intervention a. will always improve market outcomes. b. reduces efficiency in the presence of externalities. c. may improve market outcomes in the presence of externalities. d. is necessary to control individual greed.

c. may improve market outcomes in the presence of externalities.

When externalities exist, buyers and sellers a. neglect the external effects of their actions and the market equilibrium is efficient. b. do not neglect the external effects of their actions and the market equilibrium is efficient. c. neglect the external effects of their actions and the market equilibrium is not efficient. d. do not neglect the external effects of their actions and the market equilibrium is not efficient.

c. neglect the external effects of their actions and the market equilibrium is not efficient.

Private markets don't account for externalities because a. externalities don't occur in private markets. b. buyers and sellers in private markets are only interested in social well-being. c. self-interested buyers and sellers have no incentive to consider the effects of their behavior on others. d. externalities only occur as a result of government intervention.

c. self-interested buyers and sellers have no incentive to consider the effects of their behavior on others.

Kelly has decided to start his own business giving sailing lessons. To purchase equipment for the business, Kelly withdrew $1,000 from his savings account, which was earning 3% interest, and borrowed an additional $2,000 from the bank at an interest rate of 7%. What is Kelly's annual opportunity cost of the financial capital that has been invested in the business? a.$30 b.$140 c.$170 d.$300

c.$170

Tsintah weaves traditional Navaho rugs. She weaves and sells 50 rugs. Her average cost of production per rug is $50. She sells each rug for a price of $65. Tsintah's total revenues are a.$750. b.$2,500. c.$3,250. d.$5,750.

c.$3,250.

Sonia opened a yoga studio where she teaches classes and sells yoga clothing. Fixed costs for Sonia's yoga studio include the cost of the (i)tank tops. (ii)wages paid to the other yoga instructors. (iii)lease on the studio space. (iv)insurance that the landlord requires Sonia to carry for the studio. a.(i) only b.(i) and (ii) only c.(iii) and (iv) only d.(i), (ii), (iii), and (iv)

c.(iii) and (iv) only

Economists normally assume that the goal of a firm is to (i)sell as much of its product as possible. (ii)set the price of the product as high as possible. (iii)maximize profit. a.(i) and (ii) only b.(ii) and (iii) only c.(iii) only d.(i), (ii), and (iii)

c.(iii) only

What is the difference between command-and-control policies and market-based policies toward externalities? a.Command-and-control policies provide incentives for private decisionmakers to solve the problems on their own, whereas market-based policies regulate behavior directly. b.Command-and-control policies rely on taxes, whereas market-based policies rely on quotas. c.Command-and-control policies regulate behavior directly, whereas market-based policies provide incentives for private decisionmakers to change their behavior. d.Command-and-control policies are efficient, whereas market-based policies are inefficient.

c.Command-and-control policies regulate behavior directly, whereas market-based policies provide incentives for private decisionmakers to change their behavior.

Which of the following would not be considered a negative externality? a.Smelter, Inc. creates steel and pollution. b.Your friend buys a new puppy that barks every night. c.You have an adverse reaction to a medication your doctor prescribed for you. d.Your neighbor plays loud music that you dislike through stereo speakers set up on his deck.

c.You have an adverse reaction to a medication your doctor prescribed for you.

When marginal cost is less than average total cost, a.marginal cost must be falling. b.average variable cost must be falling. c.average total cost is falling. d.average total cost is rising.

c.average total cost is falling.

When a firm is experiencing diseconomies of scale, long-run a.average total cost is minimized. b.average total cost is greater than long-run marginal cost. c.average total cost is less than long-run marginal cost. d.marginal cost is minimized.

c.average total cost is less than long-run marginal cost.

The supply curve for a product reflects the a.willingness to pay of the marginal buyer. b.quantity buyers will ultimately purchase of the product. c.cost to sellers of producing the product. d.seller's profit from producing the product.

c.cost to sellers of producing the product.

A firm's opportunity costs of production are equal to its a.explicit costs only. b.implicit costs only. c.explicit costs + implicit costs. d.explicit costs + implicit costs + total revenue.

c.explicit costs + implicit costs.

Some costs do not vary with the quantity of output produced. Those costs are called a.marginal costs. b.average costs. c.fixed costs. d.explicit costs

c.fixed costs.

A difference between explicit and implicit costs is that a.explicit costs must be greater than implicit costs. b.explicit costs do not require a direct monetary outlay by the firm, whereas implicit costs do. c.implicit costs do not require a direct monetary outlay by the firm, whereas explicit costs do. d.implicit costs must be greater than explicit costs.

c.implicit costs do not require a direct monetary outlay by the firm, whereas explicit costs do.

When externalities are present in a market, the well-being of market participants a. and market bystanders are both directly affected. b. and market bystanders are both indirectly affected. c.is directly affected, and market bystanders are indirectly affected. d.is indirectly affected, and market bystanders are directly affected.

c.is directly affected, and market bystanders are indirectly affected.

An example of an explicit cost of production would be the a.cost of forgone labor earnings for an entrepreneur. b.lost opportunity to invest in capital markets when the money is invested in one's business. c.lease payments for the land on which a firm's factory stands. d.Both a and c are correct.

c.lease payments for the land on which a firm's factory stands.

Total cost is the a.amount a firm receives for the sale of its output. b.fixed cost less variable cost. c.market value of the inputs a firm uses in production. d.quantity of output minus the quantity of inputs used to make a good.

c.market value of the inputs a firm uses in production.

Economists assume that the typical person who starts her own business does so with the intention of a.donating the profits from her business to charity. b.capturing the highest number of sales in her industry. c.maximizing profits. d.minimizing costs.

c.maximizing profits.

An externality is the impact of a.society's decisions on the well-being of society. b.a person's actions on that person's well-being. c.one person's actions on the well-being of a bystander. d.society's decisions on the poorest person in the society.

c.one person's actions on the well-being of a bystander.

The amount of money that a firm receives from the sale of its output is called a.total gross profit. b.total net profit. c.total revenue. d.net revenue.

c.total revenue.

When a negative externality exists in a market, the cost to producers a.is greater than the cost to society. b.will be the same as the cost to society. c.will be less than the cost to society. d.will differ from the cost to society, regardless of whether an externality is present.

c.will be less than the cost to society.

Which of the following is an example of an externality? a. cigarette smoke that permeates an entire restaurant b. a flu shot that prevents a student from transmitting the virus to her roommate c. a beautiful flower garden outside of the local post office d. All of the above are correct.

d. All of the above are correct.

When one firm sells its pollution permit to another firm, a. both firms benefit. b. the total amount of pollution remains the same. c. the total amount of pollution decreases. d. Both a) and b) are correct.

d. Both a) and b) are correct.

Jane owns a dog whose barking annoys Jane's neighbor John. Suppose that the benefit of owning the dog is worth $700 to Jane and that John bears a cost of $500 from the barking. A possible private solution to this problem is that a. There is no private solution that would improve this situation. b. John pays Jane $650 to get rid of the dog. c. John pays Jane $800 to get rid of the dog. d. Jane pays John $600 for his inconvenience.

d. Jane pays John $600 for his inconvenience.

Negative externalities occur when one person's actions a. cause another person to lose money in a stock market transaction. b. cause their employer to lose business. c. reveal their preference for foreign produced goods. d. adversely affect the well-being of a person (or persons) who is not party to a market exchange.

d. adversely affect the well-being of a person (or persons) who is not party to a market exchange.

Positive externalities occur when one person's actions a. enhance the profitability of a business. b. reinforce the value of a market exchange. c. are restricted by legal action of governments. d. beneficially affect the well-being of another person (or persons) who is not party to a market exchange.

d. beneficially affect the well-being of another person (or persons) who is not party to a market exchange.

In the presence of positive externalities, a. the social value of a good is smaller than the private value by the amount of the external cost. b. the social value of a good is greater than the private value by the amount of the external cost. c. the social value of a good is smaller than the private value by the amount of the external benefit. d. the social value of a good is greater than the private value by the amount of the external benefit

d. the social value of a good is greater than the private value by the amount of the external benefit

In the absence of negative externalities, the external cost of a good is ________ and the social cost is ________ the private cost. a. positive; greater than b. positive; the same as c. zero; greater than d. zero; the same as

d. zero; the same as

In the absence of positive externalities, the external benefit of a good is ________ and the social value is ________ the private value. a. positive; greater than b. positive; the same as c. zero; greater than d. zero; the same as

d. zero; the same as

In the long run, a firm that produces and sells textbooks gets to choose a.how many workers to hire. b.the size of its factories. c.which short-run average-total-cost curve to use. d.All of the above are correct.

d.All of the above are correct.

Most economists prefer corrective taxes to regulation as a way to correct the problem of pollution because a.the market-based solution is less costly to society. b.the market-based solution can result in a greater reduction in pollution. c.the market-based solution raises revenue for the government. d.All of the above are correct.

d.All of the above are correct.

Which of the following is an example of an externality? a.cigarette smoke that permeates an entire restaurant b.a flu shot that prevents a student from transmitting the virus to her roommate c.a beautiful flower garden outside of the local post office d.All of the above are correct.

d.All of the above are correct.

When one firm sells its pollution permit to another firm, a.both firms benefit. b.the total amount of pollution remains the same. c.the total amount of pollution decreases. d.Both a and b are correct

d.Both a and b are correct

Variable cost divided by quantity produced is a.average total cost. b.marginal cost. c.profit. d.None of the above is correct.

d.None of the above is correct.

Fixed costs can be defined as costs that a.vary inversely with production. b.vary in proportion with production. c.are incurred only when production is large enough. d.are incurred even if nothing is produced.

d.are incurred even if nothing is produced.

Corrective taxes a.encourage consumers to avoid sales taxes by shopping online. b.are frequently used to discourage imports. c.are less efficient than direct regulation. d.give factory owners an economic incentive to reduce pollution.

d.give factory owners an economic incentive to reduce pollution.

If an externality is present in a market, economic efficiency may be enhanced by a.increased competition. b.weakening property rights. c.better informed market participants. d.government intervention.

d.government intervention.

When an externality is present, the market equilibrium is a.efficient, and the equilibrium maximizes the total benefit to society as a whole. b.efficient, but the equilibrium does not maximize the total benefit to society as a whole. c.inefficient, but the equilibrium maximizes the total benefit to society as a whole. d.inefficient, and the equilibrium does not maximize the total benefit to society as a whole.

d.inefficient, and the equilibrium does not maximize the total benefit to society as a whole.

Corrective taxes that are imposed upon the producer of a nasty smell can be successful in reducing that smell because the tax makes the producer a.externalize the positive externality. b.externalize the negative externality. c.internalize the positive externality. d.internalize the negative externality.

d.internalize the negative externality.

Constant returns to scale occur when a firm's a.marginal costs are constant as output increases. b.long-run average total costs are decreasing as output increases. c.long-run average total costs are increasing as output increases. d.long-run average total costs do not vary as output increases.

d.long-run average total costs do not vary as output increases.

Average total cost is equal to a.output/total cost. b.total cost - total quantity of output. c.average variable cost + total fixed cost. d.total cost/output.

d.total cost/output.

If a firm produces nothing, which of the following costs will be zero? a.total cost b.fixed cost c.opportunity cost d.variable cost

d.variable cost