Micro Final

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An external benefit implies that private markets will provide ____ and an external cost implies that private markets will provide _____ of the good (relative to the social optimum).

too little; too much

tragedy of the commons

the amount by which union wages exceed nonunion wages

union wage premium

$120

Pat works for a landscape contractor, generating gross revenues of $50 per hour. Non-labor variable costs total $10 per hour. Pat loves to garden, and would be willing to work for $15 per hour. Assume that the labor market is perfectly competitive. Pat's reservation price for an hour of work is _______ per hour.

$15

Curly and Moe are considering living alone or being roommates and splitting the rent for the next twelve months. A one bedroom, one bath apartment is $500 per month while a two bedroom, one bath apartment is $800. The one difficulty they have is that Moe snores very loudly. Curly estimates the cost of poor sleep due to Moe's snoring at $150 per month. Moe could obtain a snore-eliminating device for $50 per month. The actual monthly gain in surplus to Curly and Moe from living together after addressing the snoring problems in the least costly way is

$150

Leo is a welfare recipient who qualifies for two means-tested cash benefits. If he does not earn any income, he receives $225 from each benefit. For each dollar he earns (which his employer is required to report to the welfare agency), each benefit is reduced by 75 cents until the benefit equals zero. If Leo earns $150 he will receive total benefits in the amount of

$225

Leo is a welfare recipient who qualifies for two means-tested cash benefits. If he does not earn any income, he receives $225 from each benefit. For each dollar he earns (which his employer is required to report to the welfare agency), each benefit is reduced by 75 cents until the benefit equals zero. In the absence of earnings, Leo will receive __________ in from each, for a total of ____ in benefits.

$225; $450

$4.50

Pat works for a landscape contractor, generating gross revenues of $50 per hour. Non-labor variable costs total $10 per hour. Pat loves to garden, and would be willing to work for $15 per hour. Assume that the labor market is perfectly competitive. For each hour that Pat works, the landscape company's net benefits are

$40 minus Pats wage

Matt is offered a job driving the campus shuttle bus from 4 P.M. to 6 P.M. each Monday. His reservation wage for this job is $7/hour. If the campus transportation director offers Matt $50/hour, how much economic surplus will he enjoy as a result of accepting the job?

$43

Leo is a welfare recipient who qualifies for two means-tested cash benefits. If he does not earn any income, he receives $225 from each benefit. For each dollar he earns (which his employer is required to report to the welfare agency), each benefit is reduced by 75 cents until the benefit equals zero. If Leo only values income and not how the income was acquired, then he must earn __________ to be as well off as when he earns __________ and receives benefits.

$450; nothing

Leo is a welfare recipient who qualifies for two means-tested cash benefits. If he does not earn any income, he receives $225 from each benefit. For each dollar he earns (which his employer is required to report to the welfare agency), each benefit is reduced by 75 cents until the benefit equals zero. uppose Leo earns $10. He will lose _____ from each benefit, for a total loss of ____.

$7.50;$15.00

Jen is offered a job answering the phone in the State U economics department during lunchtime, from noon to 1 P.M., Tuesdays and Thursdays. Her reservation wage for this job is $15/hour. Now suppose the department chair announces that the $150/week earnings from the job will be divided equally among Jen and 299 other students in the department. How much economic surplus will Jen enjoy each week if she accepts the job?

-$29.50

-$6.50

According to the textbook, after adjusting for differences in human capital stocks between union and nonunion workers, the union wage premium is approximately

10%

25000

The marginal product of the 14th worker is 8 and the firm sells its output for $4 per unit. If labor is the only variable cost, the value of the 14th worker's marginal product is

The major implication of the _______ is that individuals can solve many externalities if they can buy and sell the right to generate the externality.

Coase Theorem

A property rights solution to the problem of poaching of elephants for their ivory would be to A. assign the property rights of the elephant herds to specific tribes. B. increase enforcement efforts against poachers. C. ban the importation of ivory. D. tax ivory products.

According to the textbook, the best possible solution to the problem of poverty would seem to be A. a combination of a negative income tax and public employment. B. maintaining the current system. C. a negative income tax with the tax credit equal to the poverty threshold. D. complete elimination of all efforts to assist the poor.

Early settlers in the town of Dry Gulch drilled wells to pump as much water as they wanted from the single aquifer beneath the town. (An aquifer is an underground body of water.) As more people settled in Dry Gulch, the aquifer level fell and new wells had to be drilled deeper at higher cost. Residents of Dry Gulch have a private incentive to ____ water because _____ A. over use; external costs aren't considered. B. under use; it is a scarce resource. C. over use; it is a scarce resource. D. under use; it is characterized by increasing marginal costs.

In a model of competitive labor markets in the United States, the supply curve would shift to the right if A. the United States relaxed its immigration laws. B. a cultural or social change occurred such that fewer mothers returned to work after their children were born. C. firms replaced human workers with robots. D. firms opened more plants overseas.

Matt is offered a job driving the campus shuttle bus from 4 P.M. to 6 P.M. each Monday. His reservation wage for this job is $7/hour. Suppose the campus transportation director offers Matt $50/hour, and Matt doesn't have to share his income with anyone else. Will Matt accept this job? A. Yes, accepting the job means a positive surplus for Matt. B. No, accepting the job means a negative surplus for Matt. C. Yes, although accepting the job means a negative surplus for Matt, still it's better than having no job. D. No, although accepting the job means a positive surplus for Matt, still it's not the best option for him.

Trends in inequality is focused on the income gap between A. the top 1% and the bottom 20% U.S. families. B. top 1% U.S. families, now and before World War II. C. bottom 20% U.S. families, now and before World War II. D. middle 20% U.S. families, now and before World War II.

Unlike the minimum wage, the Earned Income Tax Credit does not A. cause low-wage workers to be laid off. B. cost the government anything. C. improve the status of the working poor. D. maintain the proper incentives to work.

Which of the following is an example of a positional arms control agreement? A. Campaign spending limits B. Zoning limits on building height in big cities C. Regulating acts of free speech that cause more harm than good D. Speed limits

Which of the following is most likely to be used efficiently? A. A resource that has private property rights B. A resource that benefits everyone C. Government owned resources D. Endangered species

Which of the following is not an example of an activity with external benefits? A. Eating a sandwich in the dining hall B. Planting flowers in the front yard C. Staying home from class when you have the flu D. Having your smoking car repaired

According to the textbook, if all linemen in the NFL took anabolic steroids, the rank ordering of linemen (1st, 2nd, 3rd, etc) would be unchanged. This assumes that A. anabolic steroids have no effect on performance. B. anabolic steroids improve the performance of all NFL linemen by the same amount. C. steroid usage is widespread. D. anabolic steroids are legal.

Arguments against programs that tax income to redistribute wealth include: A. these programs increase the wealth differences between the rich and poor, increasing crime rates. B. these programs penalize people who are productive. C. these programs penalize people who are unable to work through no fault of their own. D. these programs prevent the economy from reaching equilibrium in the labor market.

Early settlers in the town of Dry Gulch drilled wells to pump as much water as they wanted from the single aquifer beneath the town. (An aquifer is an underground body of water.) As more people settled in Dry Gulch, the aquifer level fell and new wells had to be drilled deeper at higher cost. The town council has proposed putting a meter on each household's pump, and charging residents for each gallon of water used. This would A. not change water use. B. price an un-priced resource, increasing incentives to avoid wasting water. C. convert private property to public property. D. reduce total economic surplus.

Firms and individuals do not technically buy and sell the labor input; renting is a more accurate description. Therefore, A. the supply and demand model does not apply. B. the basic model of supply and demand can be applied to competitive labor markets. C. equilibrium will never occur. D. firms will always underpay workers.

Generally the Coase Theorem implies that the initial allocation of a property right A. determines all aspects of the final outcome of the negotiated agreement. B. does not determine which person will be entitled to engage in the externality generating activity, but does determine which person will receive compensation. C. determines which person will be entitled to engage in the externality generating activity, but does not affect which person will receive compensation. D. must be assigned to the person with the greatest costs.

In a competitive labor market, if a firm pays a worker less than that worker's VMP, then in the long run A. the firm will earn positive economic profits. B. competing firms will be able to hire the worker away, driving wages up to VMP. C. the worker will have no incentive to work hard. D. the supply of workers will fall.

In models of labor supply, the opportunity cost of spending an hour enjoying leisure activities is A. the price paid to engage in those activities. B. the hourly wage that could have been earned during that hour. C. zero. D. one-and-a-half times a person's regular wage.

Jen is offered a job answering the phone in the State U economics department during lunchtime, from noon to 1 P.M., Tuesdays and Thursdays. Her reservation wage for this job is $15/hour. f the department chair offers Jen $150/week, and Jen doesn't have to share her income with anyone else. Will Jen accept this job? A. Not enough information. B. Yes, accepting the job means a positive surplus for Jen. C. No, accepting the job means a negative surplus for Jen. D. Yes, although accepting the job means a negative surplus for Jen, still it's better than having no job.

Matt is offered a job driving the campus shuttle bus from 4 P.M. to 6 P.M. each Monday. His reservation wage for this job is $7/hour. Now suppose the director offers Matt $50/hour, but also announces that the earnings from the job will be divided equally among Matt and the 99 other students who live in Matt's dorm. Will Matt still accept this job? A. Yes, accepting the job means a positive surplus for Matt. B. No, accepting the job means a negative surplus for Matt. C. Yes, although accepting the job means a negative surplus for Matt, still it's better than having no job. D. No, although accepting the job means a positive surplus for Matt, still it's not the best option for him.

Means-tested welfare benefits provide an incentive to A. leave welfare. B. earn unreported or illegal income. C. work. D. accurately disclose earnings.

Moe has just been offered a job that pays much more than other jobs requiring the same skills, education, and hours. Moe can infer that A. the job will be more prestigious. B. the job will involve adverse working conditions. C. the employer is not greedy. D. the job will also offer generous benefits.

Suppose there are ten people playing cards in a room. One of them wants to smoke a cigar; nine of them dislike the smell of cigar smoke. The smoker values the privilege of smoking at $5, and each of the other nine occupants of the room would be willing to pay fifty cents for clean air in the room. The rules governing use of the room state that smoking is not allowed unless everyone agrees to allow smoking. Which outcome is consistent with the Coase Theorem? A. The cigar smoker will not be able to smoke because there are more non-smokers in the room. B. The cigar smoker will pay each other occupant fifty-five cents, and they will agree to allow smoking. C. The cigar smoker will smoke because the external cost of smoking does not need to be taken into consideration. D. The cigar smoker will pay each other occupant a dollar, and they will agree to allow smoking.

Suppose there are ten people playing cards in a room. One of them wants to smoke a cigar; nine of them dislike the smell of cigar smoke. The smoker values the privilege of smoking at $5, and each of the other nine occupants of the room would be willing to pay fifty cents for clean air in the room. The rules governing use of the room state that smoking is not allowed unless everyone agrees to allow smoking. Now suppose that the rules governing the room are that smoking is allowed unless everyone in the room agrees to prohibit it. In that case, A. the non-smoking occupants will pay the cigar smoker to not smoke. B. the cigar smoker will smoke and not have to pay the other occupants for the external cost. C. the cigar smoker will smoke, and will pay each other occupant 50 cents. D. the parties may or may not be able to reach a negotiated agreement depending on the bargaining strength of each.

The degree of income inequality produced by competitive markets, in Professor Rawls' view, is A. minor. B. greater than the amount people would prefer. C. consistent with the ideal amount. D. acceptable.

The reason people in Professor Rawls' thought experiment would choose a uniform distribution of income is A. concern for the welfare of their fellows. B. they fear ending up in a disadvantaged position. C. people are risk seeking. D. it is the easiest distribution to implement.

Which of the following would be subject to the tragedy of the commons? A. Restrooms in a restaurant B. Timber on public lands C. Cattle on a ranch D. Apples in Phoebe's apple farm

better off; just as well off

According to the textbook, limits on private property rights, e.g., zoning laws, are A. market interventions that reduce the size of the economic pie. B. generally unnecessary, as people have an inherent incentive to use private property wisely. C. an attempt to protect or enlarge the total economic surplus. D. designed to help one group and harm another.

According to the textbook, social norms can be viewed as A. a way to establish property rights. B. a tool of the government. C. an informal solution to a positional arms race. D. a useful way to organize marketing campaigns.

According to the textbook, the real mean income of the top 5% of families increased by __________ % from 1980 to 2000. A. 12 B. 20 C. 95 D. 58

Arguments in favor of programs that tax income to redistribute wealth include: A. these programs provide a financial incentive to work harder. B. these programs provide a financial incentive to invest in human capital. C. these programs help to reduce poverty. D. these programs discourage firms from discriminating in their hiring.

Assume that to be labeled a nerd (someone who studies a lot and has high grades) in high school or college is a social negative. According to the textbook, A. this is a cruel and unfair stereotype. B. those who study hard would be better off it this negative stereotype was eliminated. C. the negative stereotype serves to discourage some students from studying hard thus increasing the payoff to those who do. D. the negative stereotype serves to comfort those who don't study and make poor grades.

Brady owns a beachfront lot with a small house. During hurricanes, he refuses to leave. Afterward he applies for federal assistance to rebuild and files insurance claims for damages. By doing so, Brady is A. pursuing life, liberty and the pursuit of happiness. B. imposing an external cost on himself. C. imposing an external cost on rescue workers, taxpayers, and insurance policy holders.

The reason nonunion firms do not always drive the union firms out of business is A. markets are not competitive. B. consumers look for the union label. C. union firms hire more selectively, employing workers with greater human capital. D. union firms cut corners in other areas.

Curly and Moe are considering living alone or being roommates and splitting the rent for the next twelve months. A one bedroom, one bath apartment is $500 per month while a two bedroom, one bath apartment is $800. The one difficulty they have is that Moe snores very loudly. Curly estimates the cost of poor sleep due to Moe's snoring at $150 per month. Moe could obtain a snore-eliminating device for $50 per month. The least costly solution to the externality present in this situation is for A. Curly to endure Moe's snoring. B. both to live alone. C. Moe to eliminate his snoring. D. Moe to pay Curly for his discomfort.

Curly just graduated from State U and has three job offers: teaching at a prestigious private high school nine months a year with summers off, working forty hours a week at a bank in a small city, and working more than sixty hours a week for a high-powered investment firm on Wall Street (in New York City). Suppose all of the jobs paid exactly the same annual salary, and that most people prefer leisure to work, all else equal. If that were the case, A. there would be a shortage of high school teachers. B. there would be a surplus of Wall Street investment advisors. C. there would be a surplus of high school teachers. D. people would naturally sort themselves into the job that best suits their talents.

In a competitive labor market, it is observed that the equilibrium wage rate and employment level have both risen. One can infer that A. the supply of labor has increased. B. the demand for labor has fallen. C. the demand for labor has increased. D. the supply of labor has decreased.

In the case of either a positive or negative externality, it will always be true that, relative to the social optimum, A. the market price will be too low. B. the market price will be too high. C. the market price will send an inaccurate signal of true cost or benefit. D. the quantity provided by the market will be too large.

In the market for labor, the demand function describes A. the number of workers who are willing to work at each wage. B. the output of workers who are paid a given wage. C. the number of workers a firm is willing to hire at each wage. D. the demand for the firm's output.

Josie has an undergraduate degree in economics and has been working as a utility rate analyst at the local electricity utility. If she continues on her present career path, the present value of her lifetime earnings is $250,000. If she takes two years off and gets an MS degree in economics, the present value of her lifetime earnings is $275,000. The annual cost of an MS degree in economics is $15,000 and the interest rate is 8%. he discounted (present value) cost of Josie's graduate degree in economics is _______. A. $30,000 B. more than $30,000 C. more than $15,000 but less than $30,000 D. $15,000

Laws that regulate the behavior of firms and of individuals are often enacted in order to A. eliminate all negative externalities. B. convert private benefits into positive externalities. C. correct resource misallocation due to externalities. D. redistribute income more equitably.

Leo is a welfare recipient who qualifies for two means-tested cash benefits. If he does not earn any income, he receives $225 from each benefit. For each dollar he earns (which his employer is required to report to the welfare agency), each benefit is reduced by 75 cents until the benefit equals zero. If Leo values income and not the source of the income, then if he can only earn $400 he will choose to A. work. B. not work and refuse the benefits. C. not work and accept the benefits. D. work part time.

Leo is a welfare recipient who qualifies for two means-tested cash benefits. If he does not earn any income, he receives $225 from each benefit. For each dollar he earns (which his employer is required to report to the welfare agency), each benefit is reduced by 75 cents until the benefit equals zero. When Leo's earnings are less than $300, each extra dollar he earns causes his total income (earnings plus benefits) to A. fall by 25 cents. B. rise by 50 cents. C. fall by 50 cents. D. rise by 75 cents.

Matt is offered a job driving the campus shuttle bus from 4 P.M. to 6 P.M. each Monday. His reservation wage for this job is $7/hour. Now suppose the director offers Matt $50/hour, but also announces that the earnings from the job will be divided equally among Matt and four other students. Will Matt still accept this job? A. No, because the other students are free riders. B. No, because it is not fair for Matt to do the work and then have to share the wage. C. Yes, because $50 divided by five is greater than Matt's reservation wage. D. Yes, because Matt believes in the Rawlsian theory of justice.

Suppose that in most car accidents between cars of unequal size, the smaller car sustains the most damage and its occupants suffer the most injury. In answering the following questions, assume that, on average, smaller cars generate less air pollution and that every person in the economy drives at least one car. As the average size of cars increases, the incentive to buy a smaller car A. also increases due to cost savings at the fuel pump. B. also increases to offset the external cost of air pollution. C. decreases because of the increased risk of injury in an accident. D. remains the same because car purchases depend on individual preferences.

Suppose that the EPA has proposed strict controls on the amount of sulfur diesel fuel contains. These controls were designed to fully offset the cost of pollution generated by diesel fuel vehicles. The effect of the regulation is estimated to increase the equilibrium price of a gallon of diesel fuel by 10 cents. Assuming that the supply of diesel fuel has a positive slope and demand has a negative slope, the quantity of diesel fuel sold after imposition of the regulation will A. remain the same. B. increase. C. decrease. D. decrease only if diesel fuel is a normal good.

Suppose that voters in Party A are both wealthier and more likely to make campaign contributions than Party B voters. One could then predict that A. Party A will be more likely to favor spending limits. B. both parties will favor campaign spending limits equally. C. Party B will be more likely to favor campaign spending limits. D. both parties will oppose campaign spending limits.

Suppose the elasticity of labor demand is less than 1 in absolute value. Imposing a minimum wage in the labor market will A. increase the incomes of all current workers. B. result in no unemployment. C. increase the size of the firms' total wage bill. D. make few workers better off.

In the case of either and external ____________ or an external ___________, the invisible hand fails to generate the efficient outcome because buyers and sellers only take their self-interests into account

cost, benefit

To derive the labor demand curve for a particular market, one A. adds up the value of marginal product curves at all labor usage levels. B. adds up the marginal product curves at the various wage rates. C. adds up the value of marginal product curves at the various wage rates. D. adds up the available workers at the various wage rates.

Unkind jokes and sarcastic remarks about whether someone has had Botox injections are A. a sign of immaturity. B. inefficient. C. an attempt to limit the amount of cosmetic procedures by social norms. D. an example of a positional arms race.

Which of the following factors is not part of one's stock of human capital? A. I.Q. B. Years of education C. The current level of unemployment D. Ability to concentrate

Which of the following investments is an example of a positional arms race? A. Watching your friend training for a Big East football game. B. Renting movies for the weekend. C. Studying hard for the economics test if the professor grades on a curve. D. Playing golf for fun.

Which of the following is an example of an activity with an external cost? A. Raising honeybees where neighbors on all sides grow apples B. Keeping the front yard clean C. Speeding on the Interstate D. Having to buy batteries for the new remote that came with a TV

Your economics professor has announced the following grading policy: For each exam, the highest score in the class will be entered as a 100%; all other scores will be entered as the percent of that top score. For example, if the highest test score is a 50 out of 100, it will be counted as a perfect paper, and exams with a score of 40 out of 100 will be entered as an 80%. The final grade for the course will be determined using these adjusted percentages, with 90% and above an A, 80% and above a B, 70% and above a C and below 70% not passing. The students all get together and decide not to study for the next exam because if nobody does extremely well, they will all do okay. This plan A. requires everyone to follow their dominant strategy. B. will be stable because there are no incentives to deviate. C. will be unstable because there is an incentive to break the agreement. D. is a commitment device, and thus stable.

Your economics professor has announced the following grading policy: For each exam, the highest score in the class will be entered as a 100%; all other scores will be entered as the percent of that top score. For example, if the highest test score is a 50 out of 100, it will be counted as a perfect paper, and exams with a score of 40 out of 100 will be entered as an 80%. The final grade for the course will be determined using these adjusted percentages, with 90% and above an A, 80% and above a B, 70% and above a C and below 70% not passing. You would expect that, as the semester progressed, students in this class who cared primarily about good grades would A. study less and less to maintain low standards and still earn high grades. B. forget about the grading scheme, and learn to study for the sake of learning. C. engage in a positional arms race, studying more and more. D. maintain a stable agreement to not study for exams.

ccording to the textbook, union membership has A. remained constant since the 1950's. B. expanded into white collar professions. C. declined by approximately 50% since the 1950's. D. become common in the South.

he positive correlation between economic success and well-defined private property rights is A. a statistical anomaly, and not a causal relationship. B. an example of capitalist greed and exploitation. C. due to the observation that, when resources are owned, they are not treated as if they have a marginal cost of zero. D. only evident in the Western world.

According to Professor Rawls, if income was given to a group of people and those people had no idea of their talents, they would likely prefer an income distribution that rewarded

everyone

a labor union in the labor market is analogous to a _________ in the output market

cartel

come earlier

commons

difference in wage rates associated with differences in working conditions are called

compensating wage differentials

the labor market model that predicts an equilibrium wage equal to VMP applies to only

competitive labor markets

from the perspective of an externality, most communities have zoning laws to

control external costs

In order to maximize profits or minimize losses, a firm facing a perfectly competitive labor market must hire workers until the extra revenue from the last worker equals the extra ______________

cost

Suppose that the EPA has proposed strict controls on the amount of sulfur diesel fuel contains. These controls were designed to fully offset the cost of pollution generated by diesel fuel vehicles. The effect of the regulation is estimated to increase the equilibrium price of a gallon of diesel fuel by 10 cents. Assuming that the supply of diesel fuel has a positive slope and demand has a negative slope one can infer that the EPA determined that the external ______of using diesel fuel is _______than 10 cents.

cost; greater

Charlie is getting a divorce. He selects a female lawyer at a large law firm because he believes they are more aggressive in obtaining favorable settlements in divorce cases. Charlie's behavior is an example of _____ discrimination.

customer

According to the textbook, Aid to Families with Dependent Children encouraged A. women to have an excessive number of children. B. men and women to stay together to raise children. C. men to return home to the mother and children. D. the breakup of families since the presence of a man terminated benefits.

Assume that the average male wage rate is 20% higher than the average female wage rate. One can infer that A. this is evidence of discrimination. B. employers undervalue female employees. C. customers overvalue male employers. D. this is evidence of discrimination only if all factors affecting productivity are equal.

Balanced, across the board income growth characterizes the period of the A. 1980's. B. entire 20th century. C. 1960's to 1990's. D. mid 1940's to the early 1970's.

Curly just graduated from State U and has three job offers: teaching at a prestigious private high school nine months a year with summers off, working forty hours a week at a bank in a small city, and working more than sixty hours a week for a high-powered investment firm on Wall Street (in New York City). Suppose all of the jobs currently offer exactly the same annual salary, and that most people prefer leisure to work, all else equal. In order to attract workers, A. the private high school will have to offer a higher salary than the others. B. the bank will have to offer a higher salary than the Wall Street firm. C. the Wall Street firm will be able to offer a lower salary than the others. D. the Wall Street firm will have to offer a higher salary than the others.

Curly just graduated from State U and has three job offers: teaching at a prestigious private high school nine months a year with summers off, working forty hours a week at a bank in a small city, and working more than sixty hours a week for a high-powered investment firm on Wall Street (in New York City). The annual salary for each of these offers is probably: A. lowest for the Wall Street job, middling for the bank job, and highest at the high school. B. lowest for the bank job, middling on Wall Street, and highest at the high school. C. lowest at the high school, middling on Wall Street, and highest for the bank job. D. lowest at the high school, middling for the bank job, and highest on Wall Street.

If a labor market does not meet the conditions of a perfectly competitive market A. wages will be higher than in a competitive labor market. B. the invisible hand will force the labor market to behave as if it were perfectly competitive. C. workers will unionize to force competition. D. wages may be either higher or lower than they would be in a competitive market.

Inga and Ron both work for the same firm on the same career ladder. Each has the same stock of human capital except for one difference: Inga has worked at the firm for 10 continuous years but Ron has had two leaves of absence mixed in with his 10 years of experience with the firm. One would expect A. Inga and Ron to earn the same income. B. Ron to earn more than Inga. C. Inga to earn twice as much as Ron. D. Inga to earn more than Ron.

Josie has an undergraduate degree in economics and has been working as a utility rate analyst at the local electricity utility. If she continues on her present career path, the present value of her lifetime earnings is $250,000. If she takes two years off and gets an MS degree in economics, the present value of her lifetime earnings is $275,000. The annual cost of an MS degree in economics is $15,000 and the interest rate is 8%. Josie should A. get the MS degree because her lifetime earning will increase $25,000. B. get the MS degree because more education is always better than less education. C. not get the MS degree because $30,000 is greater than $25,000. D. not get the MS degree if the present value of cost exceeds the present value of benefit.

Kyle works for a perfectly competitive firm where he receives a wage rate of $15. One can infer that A. Kyle's marginal product is at least $15. B. the price of the firm's output is at least $15. C. Kyle's reservation wage is exactly $15. D. Kyle's value of marginal product is at least $15.

Lunch in Jamie's dorm is an all-you-can-eat buffet, served from 11 a.m. until 1 p.m. By noon the buffet is picked over, and by 12:30 there are few popular items left. The garbage bins, though, are full of food. If the cafeteria changed its policy so that students had to pay for each item chosen, students would A. continue to make the same selections as before, but waste less. B. select only the most expensive items in the buffet. C. experience diminishing marginal utility for food at a faster rate. D. make food selections to equalize the marginal utility per dollar for each item.

Males major in engineering much more frequently than females. Starting salaries for engineers (male or female) are very high. As a result, the observed wage gap for all college grads is __________ than wage gaps in specific majors because of __________. A. larger; employer discrimination B. smaller; academic discrimination C. larger; customer discrimination D. larger; choices made by male and female students

Suppose that in most car accidents between cars of unequal size, the smaller car sustains the most damage and its occupants suffer the most injury. In answering the following questions, assume that, on average, smaller cars generate less air pollution and that every person in the economy drives at least one car. Suppose the size of all cars increased by 25%. Car accidents between two cars would cause ______ and air pollution would ______. A. less injury; increase B. greater injury; increase C. neither greater nor less injury; remain the same D. neither greater nor less injury; increase

Suppose that the EPA has proposed strict controls on the amount of sulfur diesel fuel contains. These controls were designed to fully offset the cost of pollution generated by diesel fuel vehicles. The effect of the regulation is estimated to increase the equilibrium price of a gallon of diesel fuel by 10 cents. Suppose that demand for diesel fuel is perfectly inelastic and supply has a positive slope. The effect of the regulation will _______ than if demand were not perfectly inelastic. A. increase price and quantity by more B. Increase price by less and reduce quantity by more C. decrease price and quantity by more D. increase price by more and reduce quantity by less

The inefficiency induced by all positional arms races is that A. the rankings don't change. B. the increase in performance diminishes on the margin. C. the increase in performance is negative. D. spending on performance enhancements escalates without end.

The optimal quantity of a negative externality is zero if A. it kills many people. B. it is costly to negotiate a Coasean solution. C. people vote against it in a democratic election. D. the marginal cost of reducing it is zero.

To completely eliminate the concern about public assistance reducing the poor's incentive to work, the government could A. provide training assistance rather than cash or in-kind transfers. B. give churches and nonprofit organization the responsibility for administering the programs. C. give everyone a fixed cash transfer. D. give the assistance as wages in exchange for public sector employment.

To say that a given welfare program is means-tested indicates that A. in order to qualify, one must have the means. B. the size of the payment reflects the mean value of consumption based on family size. C. in order to qualify, one must show that one means to find a job. D. the more income one earns, the smaller the size of the benefit.

Which of the following is not a reason why union firms can successfully compete with nonunion firms? A. Employee morale may be higher at union firms. B. Communication between management and workers is more formal and hence improved at union firms. C. Labor turnover is lower at union firms. D. Union firms are legally protected from price competition from nonunion firms.

Which of the following is not true of labor unions? A. They seek to increase members' wages. B. They seek to increase medical benefits paid to members. C. They bargain for safer working conditions. D. They encourage management to take steps to maximize profits.

Which one of the following government actions is intended to generate positive externalities? A. Free speech laws B. Speed limits on the highways C. Requiring autos to meet minimum emissions regulations D. Subsidies for planting trees on hillsides

the presence of an external benefit that is not corrected results in

deadweight loss

Private incentives in markets with external benefits lead to _____; private incentives in markets with external costs lead to _____.

deadweight loss; deadweight loss

if demand for the product you make were to suddenly decline you would expect the equilibrium price of the product to fall, causing a __________ in the VMP of each worker

decrease

decrease economic surplus

A minimum wage law prohibits employers from paying workers less than a specified hourly wage. If the minimum wage is above the equilibrium wage there will be _______ of labor

excess supply

a decrease in demand for a firm's output results in a ________ in labor ___________

decrease; demanded

if the external benefit of an activity is added to the private benefits, then the ____________ curve shifts ___________

demand; right

in a competitive labor market, the equilibrium wage rate is determined by the intersection of labor _________ and labor ____________

demand; supply

the demand function curve for workers is _________ on the demand for the product that they make

dependent

When calculating the worthiness of a college education, one must use __________ values because the costs and benefits __________.

discounted; accumulated over time

From the individual's standpoint, participating in a positional arms race is a __________ from society's point of view, it is __________.

dominant; inefficient

an arbitrary preference by an employer for one group of workers over another

employer discrimination

a reduction in the worker's marginal productivity would result in a reduction in the

equilibrium wage rate

external cost

If the elasticity of demand for labor is greater than one, then imposing a minimum wage will cause the firm's total wage bill to

fall

In competitive labor markets, _____ demand labor and ______ supply labor

firms; workers

if the marginal cost of reducing pollution is positive, the optimal amount is _________ than zero

greater

the existence of a negative externality will result in a __________ than optimal level of production

greater

taken together, factors like education, training, experience, intelligence, and work habits are known as

human capital

a benefit in the form of a good or service

in kind payment

food stamps and medicaid are examples of

in kind transfer

when the government transfers resources to the poor in the form of a good or service

in kind transfer

Acme Market increased wages for their cashiers from $7/hr to $9/hr. Pat, a cashier at Acme, now works 30hrs/week instead of the 25hrs/week hours Pat used to work before the wage increase. On the other hand Chris, also a cashier at Acme decreased his work time by 5hrs/week after the wage increase and started to spend more time watching TV. Chris's behavior can be best explained as the _______ of high wage rates.

income effect

If a perfectly competitive firm finds that the productivity of its workers has increased, then

labor demanded increases

a group of workers who collectively bargain with employers for higher wages and better working conditions

labor union

Suppose males place less importance on the social approval of their job and more on the income they receive. The gender wage gap would therefore be __________ than if this difference did not exist because of __________.

larger; choices made by workers

the value of marginal product curve is downward sloping because

law of diminishing marginal product

For a given occupation, jobs with a large social approval factor will pay _________ the average salary while jobs with a large social disapproval factor will pay __________.

less than; more

the general rule governing the hiring of workers is to equate

marginal labor costs to marginal labor benefits

what is the extra output received from the hiring of an extra worker

marginal product

the value of marginal product equals

marginal product times net price

current welfare programs in the United States are

means tested

Ben and Ashley are identical in every way except for one: Ashley has an IQ score 10 points higher than Ben. All else equal, human capital theory would predict Ashley will earn ________ than Ben

jobs in which there is a higher risk of injury or death will pay ________ than otherwise similar jobs

Consumer discrimination exists when consumers are willing to pay __________ for a good or service produced by the favored group, even though the quality of the good or service is __________.

more; same

if the market equilibrium quantity if greater than the socially optimal quantity, one can infer that the production of this good has a ____________ externality

negative

when part of the cost of an activity falls on people not pursuing the activity

negative externality

involves giving all citizens a substantial lump sum payment that is reduced at a rate of less than 100% as income is earned

negative income tax

if the equilibrium quantity is equal to the social optimal quantity, one can infer that the production of this good has _____________ externality

Curly and Moe are considering living alone or being roommates and splitting the rent for the next twelve months. A one bedroom, one bath apartment is $500 per month while a two bedroom, one bath apartment is $800. The one difficulty they have is that Moe snores very loudly. Curly estimates the cost of poor sleep due to Moe's snoring at $150 per month. Moe could obtain a snore-eliminating device for $50 per month. Curly would be willing to pay _____ per month to eliminate Moe's snoring.

no more than $100

when one's performance is judge relative to other's performance and not by absolute standard, players will ______ invest in performance enhancements

over

Individuals have ____ control over the human capital that they bring to the labor market because some human capital is innate and some is the result of hard work

partial

occurs when an increase is one player's performance reduces the expected reward of the other players

positional externality

if the market equilibrium quantity is less than the socially optimal quantity, one can infer that the production of this good has a ______________ externality

positive

when some fraction of the benefit of an activity is received by people not participating in the activity

positive externality

for most people, baking cinnamon rolls generates _____________ externality, and burning tires generates _______________ externality

positive; negative

since the cost of obtaining more of any resource is _____________, viewing any resource's price at zero leads to _____________

positive; overutilization

the level of income the federal government uses to define being poor

poverty threshold

a resource that has common property rights is one that treated as though it has a

price of zero

Suppose coal mining produces a negative externality in the form of polluted streams. One can deduce that the unregulated ___________ of coal produced is too ____________

quantity, high

The value of marginal product for the last worker hired is $20 and the wage rate is $25. The firm should ________ its labor usage

reduce

Assume that the town of Pleasantville has two local TV stations. If one of them invests in the newest weather forecasting technology, one can predict that to maintain its __________ standing, the other station will upgrade its radar technology

relative

relative standard

Pat works for a landscape contractor, generating gross revenues of $50 per hour. Non-labor variable costs total $10 per hour. Pat loves to garden, and would be willing to work for $15 per hour. Assume that the labor market is perfectly competitive. The difference between the net revenue generated by Pat and Pat's reservation price will eventually be captured by Pat in the form of

rent

A firm is unlikely to hire a worker if the worker's contribution to the firm's ______ is less than his or her wage.

revenue

technological advances shift the demand for labor to the _________ if the technology is a ___________ labor, but the ____________ if it is a _____________

right, complement; left, substitute

the tragedy of the commons is an example of

smart for one, dumb for all

imposing a minimum wage in the labor market makes ________ workers ______ off

some; worse

in the united states, private property rights are

subject to limitations

n order to achieve a socially optimal level of output, production that generates positive externalities should be

subsidized

Acme Market increased wages for their cashiers from $7/hr to $9/hr. Pat, a cashier at Acme, now works 30hrs/week instead of the 25hrs/week hours Pat used to work before the wage increase. On the other hand Chris, also a cashier at Acme decreased his work time by 5hrs/week after the wage increase and started to spend more time watching TV. Pat's behavior can be best explained as the ________ of high wage rates.`

substitution effect

if the external cost of an activity is added to the private costs, then the _____________ curve shifts ____________

supply; left

In order to achieve a socially optimal level of output, activities that generate negative externalities should be

taxed

upward sloping

the optimal number of workers for a perfectly competitive firm to hire occurs when the wage rate equals the _____________ of the last worker

value of marginal product

The Earned Income Tax Credit program operates like a

wage subsidy

Suppose there are ten people playing cards in a room. One of them wants to smoke a cigar; nine of them dislike the smell of cigar smoke. The smoker values the privilege of smoking at $5, and each of the other nine occupants of the room would be willing to pay fifty cents for clean air in the room. The rules governing use of the room state that smoking is not allowed unless everyone agrees to allow smoking. The Coase Theorem would predict that if the property right to smoke belongs to the cigar smoker, then there ________ smoking in the room. If the property right to clean indoor air belongs to the room occupants, then there ________ smoking in the room.

will be; will be

__________________ labor market is one in which small difference in human capital translate into large differences in wages

winner take all

n professional baseball, some players earn over $6 million per year while the average salary is $1.2 million. The explanation for this rests with

winner take all

Primary and secondary school teachers earn less than others with similar educational requirements. Part of the difference is due to

work schedule

Suppose that welders working on offshore oil rigs earn 25% more than welders working on land based oil rigs. The difference in earnings is best explained by differences in

working conditions

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