Unit 6 Topic Questions

If government regulators set price such that a natural monopolist earns only normal profits, price will be set equal to

average total cost

In a perfectly competitive labor market, an increase in an effective minimum wage will result in

fewer workers being hired

The government must provide public goods such as national defense because

it is generally impossible to exclude individuals who value public goods but do not pay for them

If a positive externality exists in the consumption of a good, the private market equilibrium quantity will be

less than the socially optimal quantity, since the marginal social benefit exceeds the marginal private benefit

Antitrust laws are designed to maintain a competitive market environment by

limiting practices that increase a firm's market power

A progressive income tax is characterized by

marginal tax rates that increase as income increases

In a given year, Jennifer earns $50,000 and spends $40,000. During the same period, Steve earns $30,000 and spends $27,000. If Jennifer and Steve both must pay a 10 percent sales tax on goods purchased, the sales tax is

regressive with respect to income

The market inefficiency of a negative production externality will be eliminated if a policy is put in place that results in which of the following outcomes?

the marginal social benefit of production is equal to the marginal social cost

The table above shows the total cost and the total benefit of cleaning up pollution in a community. Which of the following cleanup levels is socially optimal?

2

Which of the following is an example of a pure public good?

A hurricane warning siren

Which of the following actions is most likely to reduce the degree of income inequality within a society?

Introducing progressive inheritance taxes on accumulated wealth

Which of the following is most likely to reduce inequality in a country's distribution of income?

Job training for low-skill workers

In the absence of externalities, which of the following is true of a competitive market in equilibrium?

Marginal social benefit equals marginal social cost.

Which of the following will most likely lead to a more equal distribution of income?

More progressive income taxes

Which of the following is the best example of a pure public good?

National defense

Which pair of characteristics is associated with a pure public good?

Nonrival consumption and a free-rider problem

Which of the following is the best example of a negative externality?

Oil leakages from drilling platforms in the Gulf of Mexico

The graph above shows the price and cost condition for a natural monopoly. The amount of lump-sum subsidy required to regulate the monopoly to produce the allocatively efficient quantity is given by the area

P2P3JK

Which of the following statements about income inequality is true?

Raising taxes on savings and providing subsidies to low-income households will lead to more equal after-tax and transfer incomes.

Which of the following is a government policy that is intended to address a market failure?

Taxing the use of toxic pesticides by farmers

The Lorenz curve is used to show which of the following?

The degree of inequality in the distribution of income within a country

The graph above depicts the marginal social cost (MSC), marginal private cost (MPC), and marginal social benefit (MSB) associated with the production of a good that generates an externality. Based on the information in the graph, which of the following is true?

There is a negative externality because marginal social cost exceeds marginal private cost.

Assume that many boats have free and open access to fishing in the waters of a country. Which of the following statements is true?

There will be a tendency for fishing operations to overfish, reduce the stock of fish, and limit the future availability of fish for succeeding generations.

Assume a profit-maximizing monopoly and firms in a perfectly competitive market have identical cost and revenue conditions. In which market will a binding price ceiling result in a more efficient outcome and why?

The monopoly will become more efficient because the deadweight loss will decrease.

Assume accountants and teachers have identical marginal revenue product schedules. Which of the following provides an explanation for why accountants receive higher starting salaries than school teachers?

The supply of accountants is low relative to the supply of teachers.