Economics Test 3 Study Guide

A firm will shut down in the short run if revenue is not sufficient to cover all of its fixed costs of production.

False

Concerts in arenas are not excludable because it is virtually impossible to prevent someone from seeing the show.

False

National Public Radio would be considered a club good.

False

One person's use of common resources does not reduce the enjoyment other people receive from the resource.

False

Pollution is a negative externality, but it is not appropriate to view the problem of pollution as a common-resource problem.

False

A congestion toll imposed on a highway driver to force the driver to take into account the increase in travel time she imposes on all other drivers is an example of internalizing the externality.

True

A free-rider is someone who receives the benefit of a good but avoids paying for it.

True

A good that is excludable but not rival is known as a club good.

True

A restaurant, which operates in a perfectly competitive market, is evaluating whether it should serve breakfast on adaily basis. It would choose to do this when its revenues cover its variable costs.

True

An example of an explicit cost would be the wages that a business owner pays her employees.

True

An example of the "Tragedy of the Commons" is litter in the picnic area of a local park.

True

Diminishing marginal product exists when the production function becomes flatter as inputs increase.

True

If Dave and Jesse are the only two fishermen in town and neither is bothered by the other's fishing, the lake they fish in is not a common resource.

True

In the long run, when price is less than average total cost for all possible levels of production, a firm in a competitive market will choose to exit (or not enter) the market.

True

Markets may fail to allocate resources efficiently when property rights are not well established.

True

One possible solution to the problem of protecting a common resource is to convert that resource to a private good

True

One solution to the "Tragedy of the Commons" is to turn the common resource into a private good.

True

Private goods and club goods have in common that they are excludable, but are different in that private goods are rival while club goods are not rival in consumption.

True

Private parties may choose not to solve an externality problem if the transaction costs are large enough.

True

The free-rider problem arises when the number of beneficiaries is large and exclusion of any of them is impossible.

True

The government can internalize externalities by taxing goods that have negative externalities and subsidizing goods that have positive externalities.

True

When a firm experiences economies of scale, long-run average total cost falls as the quantity of output increases.

True

When goods are available free of charge, the market forces that normally allocate resources in our economy are absent.

True

You and your friends eat potato chips in your bedroom. For you and your friends, the potato chips are rival in consumption.

True

On a 100-acre farm, a farmer is able to produce 3,000 bushels of wheat when he hires 2 workers. He is able to produce4,400 bushels of wheat when he hires 3 workers. Which of the following possibilities is consistent with the property ofdiminishing marginal product? a. The farmer is able to produce 5,600 bushels of wheat when he hires 4 workers. b. The farmer is able to produce 5,800 bushels of wheat when he hires 4 workers. c. The farmer is able to produce 6,000 bushels of wheat when he hires 4 workers. d. Any of the above could be correct.

a. The farmer is able to produce 5,600 bushels of wheat when he hires 4 workers.

Under which of the following scenarios would a park be considered a club good? a. Visitors to the park must pay an admittance fee, but there are always plenty of empty picnic tables. b. Visitors to the park must pay an admittance fee and frequently all of the picnic tables are in use. c. Visitors can enter the park free of charge and there are always plenty of empty picnic tables. d. Visitors can enter the park free of charge, but frequently all of the picnic tables are in use.

a. Visitors to the park must pay an admittance fee, but there are always plenty of empty picnic tables.

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

Three business people meet for lunch at an Indian restaurant. They decide that each person will order an item off themenu, and they will share all dishes. They will split the cost of the final bill evenly among each of the people at the table. When the food is delivered to the table, each person faces incentives similar to the a. consumption of a common resource good. b. production of a public good. c. consumption of a club good. d. production of a private good.

a. consumption of a common resource good.

Neither public goods nor common resources are a. excludable, but only public goods are not rival in consumption. b. excludable, but only common resources are not rival in consumption. c. rival in consumption, but only public goods are not excludable. d. rival in consumption, but only common resources are not excludable.

a. excludable, but only public goods are not rival in consumption.

The failure of markets to adequately protect the environment can viewed either as a problem of a. externalities or as a problem of common resources. b. externalities or as a problem of private goods. c. the overprovision of public goods or as a problem of the under-provision of private goods. d. club goods or as a problem that arises when the quantity of excludable goods exceeds the socially-efficient quantity.

a. externalities or as a problem of common resources.

In the short-run, a firm's supply curve is equal to the a. marginal cost curve above its average variable cost curve. b. marginal cost curve above its average total cost curve. c. average variable cost curve above its marginal cost curve. d. average total cost curve above its marginal cost curve.

a. marginal cost curve above its average variable cost curve.

Roger owns a small health store that sells vitamins in a perfectly competitive market. If vitamins sell for $12 per bottle and the average total cost per bottle is $11.50 at the profit-maximizing output level, then in the long run a. more firms will enter the market. b. some firms will exit from the market. c. the equilibrium price per bottle will rise d. average total costs will rise.

a. more firms will enter the market.

Which of the following statements is correct? a. The efficient provision of private goods is intrinsically more difficult than the efficient provision of public goods. b. The efficient provision of public goods is intrinsically more difficult than the efficient provision of private goods. c. Private markets provide quantities of public goods that exceed the socially-efficient quantities of those goods. d. Private decision makers utilize quantities of common resources that fall short of the socially-efficient quantities of those resources.

b. The efficient provision of public goods is intrinsically more difficult than the efficient provision of private goods.

Which of the following is not a typical solution to the "Tragedy of the Commons?" a. taxing the use of the common resource b. turning the common resource into a club good c. turning the common resource into a private good d. regulating the use of the common resource

b. turning the common resource into a club good

Under which of the following scenarios would a park be considered a public good? a. Visitors to the park must pay an admittance fee, but there are always plenty of empty picnic tables. b. Visitors to the park must pay an admittance fee and frequently all of the picnic tables are in use. c. Visitors can enter the park free of charge and there are always plenty of empty picnic tables. d. Visitors can enter the park free of charge, but frequently all of the picnic tables are in use.

c. Visitors can enter the park free of charge and there are always plenty of empty picnic tables.

Resources tend to be allocated inefficiently when goods a. are private goods. b. are rival in consumption and excludable. c. are available free of charge. d. are available only at very high prices.

c. are available free of charge.

On hot summer days, electricity-generating capacity is sometimes stretched to the limit. At these times, electric companies may ask people to voluntarily cut back on their use of electricity. On these days, electricity is a. excludable, but nonrival in consumption. b. not excludable, but rival in consumption. c. excludable and rival in consumption. d. not excludable and nonrival in consumption.

c. excludable and rival in consumption.

Imagine a 2,000-acre park with picnic benches, trees, and a pond. Suppose it is publicly owned, and people are invitedto enjoy its beauty. When the weather is nice, it is difficult to find parking, and the trash cans overflow with foodwrappers on summer afternoons. Otherwise, it is a great place. The park is a common resource because a. people can be prevented from using it. b. access is limited due to driving distances. c. if too many people use it, one person's use diminishes other peoples' use. d. anyone can use it without affecting anyone else.

c. if too many people use it, one person's use diminishes other peoples' use.

Private decisions about consumption of common resources and production of public goods usually lead to an a. efficient allocation of resources and external effects. b. efficient allocation of resources and no external effects. c. inefficient allocation of resources and external effects. d. inefficient allocation of resources and no external effects.

c. inefficient allocation of resources and external effects.

The Tragedy of the Commons a. occurs most often with public goods. b. is only applicable to shared grazing rights among sheep herders. c. is eliminated when property rights are assigned to individuals. d. occurs when social incentives are in line with private incentives.

c. is eliminated when property rights are assigned to individuals.

Markets fail to allocate resources efficiently when a. demanders and suppliers cannot agree on a price. b. goods are rival in consumption and excludable. c. property rights are not well established. d. too many buyers and sellers exist in the same market.

c. property rights are not well established.

Which of the following is not a way for the government to solve the problem of excessive use of common resources? a. regulation b. taxes c. turning the common resource into a public good d. turning the common resource into a private good

c. turning the common resource into a public good

Kate is a florist. Kate can arrange 20 bouquets per day. She is considering hiring her husband William to work for her. Together Kate and William can arrange 35 bouquets per day. What is William's marginal product? a. 55 bouquets b. 35 bouquets c. 22.5 bouquets d. 15 bouquets

d. 15 bouquets

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.

The sign on a church in your neighborhood reads "All are welcome at Sunday Service." Because the church has limited seating and is usually full, the Sunday Service is a. a private good. b. a public good. c. a club good. d. a common resource.

d. a common resource.

Which of the following would be considered a private good? a. a ferry boat ride to an island with open seating b. a public beach c. fish in the ocean d. a swimming suit

d. a swimming suit

A traffic light at an intersection is a. rival and excludable in consumption. b. not rival but excludable in consumption. c. rival but not excludable in consumption. d. not rival and not excludable in consumption.

d. not rival and not excludable in consumption.