AP Micro Unit 6 Practice questions, AP Microeconomics Unit 6, AP Microeconomics Unit 6 Test

There are negative externalities associated with the use of a freeway in a major city at rush hour because during this time

drivers slow down other drivers because of the high traffic volume

A chemical plant pollutes a river that serves as the water supply for a nearby town. From an economist's point of view, pollution from the plant should be reduced until the

marginal benefit from the cleaner water is equal to the marginal cost of making the water cleaner

When consumption of a good generates a positive externality, which of the following must be true at the market equilibrium?

marginal social benefit is greater than the marginal private benefit

You are told that the Gini coefficient of income inequality has risen from .35 to .85. Which of the following is a likely cause of this change?

market power in the factor and output markets has increased

Private supply of public goods is most likely to result in

less than the efficient level of output, due to the free-rider problem

Antitrust legislation is designed to make it illegal for a firm to monopolize an industry. Which of the following best states the economic rationale for this legislation?

A monopolist produces too little of the good, charging consumers a price that exceeds the marginal cost of production.

Which of the following will cause an unregulated monopolist to produce a more allocatively efficient level of output?

A subsidy that increases as output increases

In which of the following cases is the government's action appropriate for reducing inefficiency?

A toll on a congested bridge

Which of the following is likely to result in allocative inefficiency?

An oligopoly market structure

In a perfectly competitive free market economy, a wage gap between two workers can be explained by difference in all of the following EXCEPT their

Tastes for luxury goods

Refer to the diagram above where curves a through d are for four different countries. Which country most likely demonstrates a purely free-market solution to income distribution?

Country D

There are negative externalities associated with the use of a freeway in a major city at rush hour because during this time:

Drivers slow down other drivers because of the high traffic volume

Assume that the original supply and demand curves of a commodity are S and D, respectively. Also assume that the government imposes an excise tax (per unit tax) of t dollars on the commodity, which shifts the supply curve to S1. The deadweight loss created by the tax is equal to:

GKI

Which of the following best represents a positive externality?

Enjoying watching birds at a neighbor's bird feeder

Which of the following is a progressive tax?

Higher income taxpayers pay a higher percent of their income in tax

Characteristics of a pure public good include which of the following? Nonpaying consumers cannot be excluded from consuming the good. Consumption by any one person does not reduce the availability of the good to others. The amount consumed depends on the price paid.

I and II only

based on the information in the Lorenz Curve below, which of the following is true?

Income is more equally distributed in Country X than in Country Z.

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 the best example of the free-rider problem?

It is difficult to exclude those who do not pay for a good from enjoying the benefits of the good.

Which of the following is true of the marginal cost of providing a pure public good to one more consumer?

It is equal to zero.

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

Marginal Social benefit equals marginal social cost

A chemical plant pollutes a river that serves as the water supply for a nearby town. From an economist's point of view. Pollution from the plant should be reduced until:

Marginal benefit from the cleaner water is equal to the marginal cost of making the water cleaner.

Pollution abatement will improve efficiency if the:

Marginal cost of abatement is less than the Marginal benefit of abatement

National defense is a good example of a pure public good because it is:

Nonrival and nonexcludable

If firms in a perfectly competitive industry have been dumping toxic waste free of charge into a river, government action to ensure a more efficient use of resources would have which of the following effects on the industry's output and product price?

Output: decrease Price: increase

To correct for positive externalities, the government should:

Pay a subsidy equal to the marginal external benefit.

The graph above shows the cost and revenue curves for a natural monopoly. Consider the following two policies for regulating this natural monopoly. Policy I: Require the monopoly to set quantity and price where demand equals marginal cost. Policy II: Require the monopoly to set quantity and price where demand equals average total cost. Which of the following is true of these policies?

Policy I might require the payment of a subsidy to the firm.

Public goods are typically provide by the government, because private markets tend to:

Produce less than the socially optimum quantity

Given the position of the marginal social cost curve, one can conclude that the:

Production of good X creates a negative externality

All of the following are sources of inequality in the distribution of personal income EXCEPT

Progressive income taxes

The socially optimal quantity and the per-unit tax that will achieve the socially optimal quantity are which of the following?

Q2 and P3-P1

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

Public goods are underproduced in competitive market because the free-rider problem causes which of the following?

Reduced market demand

A Lorenz curve can be used by economists to do which of the following?

Show the distribution of personal income

Assume that all residents of the city of Smallville prefer to have streetlights installed citywide. Which of the best explains why any individual residents to not install the optimal number of streetlights?

Streetlights are nonexcludable

Assuming that all residents of the city of Smallville prefer to have streetlights installed citywide, which of the following best explains why individual residents do not install the optimal number of streetlights?

Streetlights are nonexcludeable

Suppose that at the current output level the marginal social cost of producing a good is greater than its marginal private cost, and that the marginal social benefit associated with production of the good is equal to its marginal private benefit. Which of the following government actions would most likely increase efficiency?

Taxing the production of the good

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

Taxing the use of toxic pesticides by farmers

A Lorenz curve can be used to evaluate which of the following economic issues?

The degree of equity in income distribution

Which of the following best fits the definition of a public good?

The emergency broadcast system

The table below shows the distribution of income in country X in 2010 before and after taxes and transfer payments. Which of the following can be concluded about the effect of the government's tax and transfer policies on income distribution in Country X?

The major transfer of income is from the highest quintile to the two lowest quintiles.

Under an efficient policy to address the problem of pollution created from manufacturing good X, which of the following is true?

The marginal social benefit of pollution reduction equals the marginal social cost of pollution reduction.

The surgeon general has determined that smoking causes cancer and heart disease for both smokers and passive smokers, nonsmokers who breathe smoke-filled air. If cigarette prices are determined in a free market, which of the following will be true?

The price of cigarettes will be too low and the quantity sold will be too high.

Which of the following is true when the production of a good results in negative externalities?

The private market price will be too low.

An industry will produce more than the socially efficient level of output under which of the following conditions?

The production or consumption of a good generates a negative externality.

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.

When cost and benefits are internalized:

Total surplus is maximized

Which of the following is the formula for a Gini coefficient, based on the graph below?

X/(X+Y)

A society that wishes to achieve greater income equality is most likely to have which of the following?

a progressive income tax system and high estate and gift taxes

An increase in the marginal social benefit of consuming a public good should result in

an increase in the optimal quantity of the good

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

average total cost

One justification for government regulation of a monopoly is that the unregulated monopoly

charges a price higher than a competitive market price

Imposing taxes that increase as a firm's pollution increases is often recommended by economists as a means to reduce pollution. The reason for this recommendation is that such taxes would likely

encourage firms to use the most efficient method to reduce pollution

If the production of a good results in a positive externality, the government might be able to improve economic efficiency in this market by

granting a subsidy to private producers

Which of the following characterizes a public good?

if one person uses the good, it does not prevent others from using it

Based on the information in the Lorenz curve above, which of the following is true?

income is more equally distributed in country X than country Z

National defense is an example of a public good because

it is non excludable and nonrival

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

job training for low-skill workers

To correct for positive externalities, the government should

pay a subsidy equal to the marginal external benefit

If an industry ignores the external costs it generates in its production, which of the following will be true at the competitive market equilibrium output?

price will be less than the marginal social cost

The market system fails to produce public goods because

private firms cannot restrict the benefits of such goods to consumers who are willing to pay for them

Public goods are typically provided by the government, because private markets tend to

produce less than the socially optimum quantity

Given the position of the marginal social cost curve, one can conclude that the

production of good X creates a negative externality

Public goods are underproduced in a competitive market because the free-rider problem causes which of the following?

reduced market demand

The sales tax you pay at the local sporting goods store is commonly labeled a

regressive tax

A lorenz curve can be used by economists to do which of the following?

show the distribution of personal income

The government has imposed a tax on the producers of good X and has subsidized the consumers of good Y. If these policies result in the production of the efficient amounts of both goods, it is likely the government is correcting for

spillover costs in producing X and spillover benefits in consuming Y

If positive externalities exist in the market for flu shots, which of the following is true?

subsidizing flu shots will lead to the socially efficient level of output

If the production of good generates a positive externality, the government can increase allocative efficiency by

subsidizing the producer of the good

In the U.S. the federal government redistributes income primarily by

taxing different income levels at different rates

The table above shows the distribution of income in country X in 2010 before and after taxes and transfer payments. Which of the following can be concluded about the effect of the government's tax and transfer policies on income distribution in country X?

the major transfer of income is from the highest quintile to the lowest two quintiles

The free rider problem is associated with

the production of public goods

The basic problem associated with public assistance plans is that

there are conflicts between the goals of eliminating poverty, maintaining work incentives, and restraining program costs