Economics Test 3 Study Guide, Econ Final Exam

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

False

A rational decisionmaker takes an action if and only if the marginal cost exceeds the marginal benefit.

False

A tax on buyers shifts the demand curve to the right.

False

A typical consumer consumes both coffee and donuts. After the consumer's income decreases, the consumer consumes more coffee but fewer donuts than before. For this consumer, coffee is a normal good, but donuts are an inferior good.

False

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

False

Equality means distributing society's resources in the most efficient manner.

False

If a t-shirt manufacturer supplies 1,000 t-shirts per week when the price of t-shirts is $10 and supplies 1,200 t-shirts per week when the price of t-shirts is $12, the price elasticity of supply is 2.

False

In one month, Moira can knit 2 sweaters or 4 scarves. In one month, Tori can knit 1 sweater or 3 scarves. Moira's opportunity cost of knitting scarves is lower than Tori's opportunity cost of knitting scarves.

False

Minimum-wage laws benefit society by creating a surplus of labor.

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

Price will rise to eliminate a surplus.

False

The indifference curves for perfect substitutes are right angles.

False

Trade can make everyone better off except in the case where one person is better at doing everything

False

Wendy is willing to pay $50 for a concert ticket and Bruce would like to receive $25. If the market price is$40 for this transaction, then the total surplus would be $15.

False

When a tax of $1.00 per gallon is imposed on sellers of gasoline, the supply curve for gasoline shifts upward, but by less than $1.00

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 marginal change is a small incremental adjustment to an existing plan of action

True

A price ceiling set above the equilibrium price is not binding

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

A yard sale is an example of a market.

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

An outcome is said to be efficient if an economy is getting all it can from the scarce resources it has available.

True

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

True

Economist Arthur Laffer made the argument that tax rates in the United States were so high that reducing the rates would increase tax revenue.

True

Good assumptions simplify a problem without substantially affecting the answer.

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

International trade may make some individuals in a nation better off, while other individuals are made worse off.

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

The income effect of a price change is the change in consumption that results from the movement to a new indifference curve.

True

The more elastic the supply, the larger the deadweight loss from a tax, all else equal.

True

To produce 100 bushels of wheat, Farmer A requires fewer inputs than does Farmer B. We can conclude that Farmer A has an absolute advantage over Farmer B in producing wheat.

True

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

True

When an increase in the price of one good lowers the demand for another good, the two goods are called complements.

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

Donald produces nails at a cost of $350 per ton. If he sells the nails for $500 per ton, his producer surplus is a. $150. b. $350. c. $500. d. $850.

a. $150.

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.

If the price elasticity of supply is 0.8, and price increased by 5%, quantity supplied would a. increase by 4%. b. increase by 6.25%. c. decrease by 4%. d. decrease by 6.25%

a. increase by 4%.

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.

Goods with many close substitutes tend to have a. more elastic demands. b. less elastic demands. c. price elasticities of demand that are unit elastic. d. income elasticities of demand that are negative.

a. more elastic demands.

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.

An increase in income will cause a consumer's budget constraint to a. shift outward, parallel to its initial position. b. shift inward, parallel to its initial position. c. pivot along the horizontal axis. d. pivot along the vertical axis.

a. shift outward, parallel to its initial position.

Which of the following will cause no change in producer surplus? a. the imposition of a nonbinding price ceiling in the market b. buyers expect the price of a good to be higher next month c. the price of a substitute increases d. income increases and buyers consider the good to be inferior

a. the imposition of a nonbinding price ceiling in the market

Which of the following is not a determinant of demand? a. the price of a resource that is used to produce the good b. the price of a complementary good c. the price of the good next month d. the price of a substitute good

a. the price of a resource that is used to produce the good

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.

The theory of consumer choice examines how a. firms make profit-maximizing decisions. b. consumers make utility-maximizing decisions. c. wages are determined in competitive labor markets. d. prices are determined in competitive goods markets.

b. consumers make utility-maximizing decisions.

When the price of an eBook is $15.00, the quantity demanded is 400 eBooks per day. When the price falls to $10.00,the quantity demanded increases to 700. Given this information and using the midpoint method, we know that the demand for eBooks is a. inelastic. b. elastic. c. unit elastic. d. perfectly inelastic.

b. elastic.

Suppose researchers at the University of Wisconsin discover a new vitamin that increases the milk production of dairycows. If the demand for milk is relatively inelastic, the discovery will a. raise both price and total revenues. b. lower both price and total revenues. c. raise price and lower total revenues. d. lower price and raise total revenues

b. lower both price and total revenues.

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

Suppose Larry, Moe, and Curly are bidding in an auction for a mint-condition video of Charlie Chaplin's first movie. Each has in mind a maximum amount that he will bid. This maximum is called a. a resistance price. b. willingness to pay. c. consumer surplus. d. producer surplus.

b. willingness to pay.

Which of the following is an example of a positive, as opposed to normative, statement? a. Inflation is more harmful to the economy than unemployment is. b. If welfare payments increase, the world will be a better place. c. Prices rise when the government prints too much money. d. When public policies are evaluated, the benefits to the economy of improved equality should be considered more important than the costs of reduced efficiency.

c. Prices rise when the government prints too much money.

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.

Producer surplus equals the a. value to buyers minus the amount paid by buyers. b. value to buyers minus the cost to sellers. c. amount received by sellers minus the cost to sellers. d. amount received by sellers minus the amount paid by buyers.

c. amount received by sellers minus the cost to sellers.

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.

If the government removes a tax on a good, then the price paid by buyers will a. increase, and the price received by sellers will increase. b. increase, and the price received by sellers will decrease. c. decrease, and the price received by sellers will increase. d. decrease, and the price received by sellers will decrease.

c. decrease, and the price received by sellers will increase.

When indifference curves are bowed inward, the marginal rate of substitution is a. the same at all points along an indifference curve. b. increasing as the consumer moves to the right along an indifference curve. c. decreasing as the consumer moves to the right along an indifference curve. d. constant.

c. decreasing as the consumer moves to the right along an indifference curve.

A tax imposed on the sellers of a good will lower the a. price paid by buyers and lower the equilibrium quantity. b. price paid by buyers and raise the equilibrium quantity. c. effective price received by sellers and lower the equilibrium quantity. d. effective price received by sellers and raise the equilibrium quantity.

c. effective price received by sellers and lower the equilibrium quantity.

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.

The deadweight loss from a tax a. does not vary in amount when the price elasticity of demand changes. b. does not vary in amount when the amount of the tax per unit changes. c. is larger, the larger is the amount of the tax per unit. d. is smaller, the larger is the amount of the tax per unit.

c. is larger, the larger is the amount of the tax per unit.

A key determinant of the price elasticity of supply is the a. number of close substitutes for the good in question. b. extent to which buyers alter their quantities demanded in response to changes in prices. c. length of the time period. d. extent to which buyers alter their quantities demanded in response to changes in their incomes.

c. length of the time period.

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.

The local bakery makes such great cinnamon rolls that consumers do not respond much at all to a change in the price. If the owner is only interested in increasing revenue, she should a. lower the price of the cinnamon rolls. b. leave the price of the cinnamon rolls unchanged. c. raise the price of the cinnamon rolls. d. reduce costs

c. raise the price of the cinnamon rolls.

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

A seller's willingness to sell is a. measured by the seller's cost of production. b. related to her supply curve, just as a buyer's willingness to buy is related to his demand curve. c. less than the price received if producer surplus is a positive number. d. All of the above are correct.

d. All of the above are correct.

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

Which of the following will cause a decrease in producer surplus? a. the imposition of a nonbinding price ceiling in the market b. buyers expect the price of a good to be higher next month c. the price of a substitute increases d. income increases and buyers consider the good to be inferior

d. income increases and buyers consider the good to be inferior

If the government removes a binding price ceiling from a market, then the price received by sellers will a. decrease, and the quantity sold in the market will decrease. b. decrease, and the quantity sold in the market will increase. c. increase, and the quantity sold in the market will decrease. d. increase, and the quantity sold in the market will increase.

d. increase, and the quantity sold in the market will increase.

A competitive market is a market in which a. an auctioneer helps set prices and arrange sales. b. there are only a few sellers. c. the forces of supply and demand do not apply. d. no individual buyer or seller has any significant impact on the market price.

d. no individual buyer or seller has any significant impact on the market price.

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.