Chapter 10, 11, and 18 Intro Micro Econ

A public good is both rival in consumption and excludable.

F; it is neither rival in consumption nor excludable.

A common resource is neither rival in consumption nor excludable.

F; it is rival in consumption but not excludable.

For a competitive profit-maximizing firm, the demand curve for a factor is the value-of-the-marginal-product curve for that factor.

True

If there is an increase in the equilibrium wage, there must have been an increase in the value of the marginal product of labor.

True

If the price of output is $4 per unit, what is the value of the marginal product of labor as the firm moves from using four workers to using five workers? a. $4 b. $8 c. $12 d. $56 e. $60

a. $4

A bakery operating in competitive markets sells its output for $20 per cake and hires labor at $10 per hour. To maximize profit, it should hire labor until the marginal product of labor is a. 1/2 cake per hour. b. 2 cakes per hour. c. 10 cakes per hour. d. 15 cakes per hour.

a. 1/2 cake per hour.

A negative externality generates a. a social cost curve that is above the supply curve (private cost curve) for a good. b. a social cost curve that is below the supply curve (private cost curve) for a good. c. a social value curve that is above the demand curve (private value curve) for a good. d. none of the above.

a. a social cost curve that is above the supply curve (private cost curve) for a good.

A private good is a. both rival in consumption and excludable. b. neither rival in consumption nor excludable. c. rival in consumption but not excludable. d. not rival in consumption but excludable.

a. both rival in consumption and excludable.

A decrease in the demand for fish a. decreases the value of the marginal product of fishermen, reduces their wage, and reduces employment in the fishing industry. b. increases the value of the marginal product of fishermen, increases their wage, and increases employment in the fishing industry. c. decreases the value of the marginal product of fishermen, reduces their wage, and increases employment in the fishing industry. d. increases the value of the marginal product of fishermen, increases their wage, and decreases employment in the fishing industry.

a. decreases the value of the marginal product of fishermen, reduces their wage, and reduces employment in the fishing industry.

If a factor exhibits diminishing marginal product, hiring additional units of the factor will a. generate ever smaller amounts of output. b. cause a reduction in output. c. have no effect on output. d. increase the marginal product of the factor.

a. generate ever smaller amounts of output.

When the government levies a tax on a good equal to the external cost associated with the good's production, it ________ the price paid by consumers and makes the market outcome ________ efficient. a. increases, more b. increases, less c. decreases, more d. decreases, less

a. increases, more

A positive externality (that has not been internalized) causes the a. optimal quantity to exceed the equilibrium quantity. b. equilibrium quantity to exceed the optimal quantity. c. equilibrium quantity to equal the optimal quantity. d. equilibrium quantity to be either above or below the optimal quantity.

a. optimal quantity to exceed the equilibrium quantity.

Which categories of goods are excludable? a. private goods and club goods b. private goods and common resources c. public goods and club goods d. public goods and common resources

a. private goods and club goods

A free rider is a person who a. receives the benefit of a good but avoids paying for it. b. produces a good but fails to receive payment for the good. c. pays for a good but fails to receive any benefit from the good. d. fails to produce goods but is allowed to consume goods.

a. receives the benefit of a good but avoids paying for it.

An increase in the price of automobiles shifts the demand for autoworkers to the a. right and increases the wage. b. left and decreases the wage. c. right and decreases the wage. d. left and increases the wage.

a. right and increases the wage.

A corrective tax on pollution a. sets the price of pollution. b. sets the quantity of pollution. c. determines the demand for pollution rights. d. reduces the incentive for technological innovations to further reduce pollution.

a. sets the price of pollution.

An individual firm's demand for a factor of production a. slopes downward due to the factor's diminishing marginal product. b. slopes downward because an increase in the production of output reduces the price at which the output can be sold in a competitive market, thereby reducing the value of the marginal product as more of the factor is used. c. slopes upward due to the factor's increasing marginal product. d. is perfectly elastic (horizontal) if the factor market is perfectly competitive.

a. slopes downward due to the factor's diminishing marginal product.

The government auctions off 500 units of pollution rights. They sell for $50 per unit, raising total revenue of $25,000. This policy is equivalent to a corrective tax of _____ per unit of pollution. a. $10 b. $50 c. $450 d. $500

b. $50

What is the marginal product of labor as the firm moves from using three work ers to using four workers? a. 0 b. 2 c. 12 d. 14

b. 2

Bob and Tom live in a university dorm. Bob values playing loud music at a value of $100. Tom values peace and quiet at a value of $150. Which of the following statements is true about an efficient solution to this externality problem if Bob has the right to play loud music and if there are no transaction costs? a. Bob will pay Tom $100, and Bob will stop playing loud music. b. Tom will pay Bob between $100 and $150, and Bob will stop playing loud music. c. Bob will pay Tom $150, and Bob will continue to play loud music. d. Tom will pay Bob between $100 and $150, and Bob will continue to play loud music.

b. Tom will pay Bob between $100 and $150, and Bob will stop playing loud music.

A positive externality generates a. a social cost curve that is above the supply curve (private cost curve) for a good. b. a social value curve that is above the demand curve (private value curve) for a good. c. a social value curve that is below the demand curve (private value curve) for a good. d. none of the above.

b. a social value curve that is above the demand curve (private value curve) for a good.

If the production of a good yields a negative exter- nality, then the social-cost curve lies ________ the supply curve, and the socially optimal quantity is ________ than the equilibrium quantity. a. above, greater b. above, less c. below, greater d. below, less

b. above, less

An increase in the supply of labor a. increases the value of the marginal product of labor and increases the wage. b. decreases the value of the marginal product of labor and decreases the wage. c. increases the value of the marginal product of labor and decreases the wage. d. decreases the value of the marginal product of labor and increases the wage.

b. decreases the value of the marginal product of labor and decreases the wage.

A technological advance that increases the marginal product of labor shifts the labor- ________ curve to the ________. a. demand, left b. demand, right c. supply, left d. supply, right

b. demand, right

A negative externality (that has not been internalized) causes the a. optimal quantity to exceed the equilibrium quantity. b. equilibrium quantity to exceed the optimal quantity. c. equilibrium quantity to equal the optimal quantity. d. equilibrium quantity to be either above or below the optimal quantity.

b. equilibrium quantity to exceed the optimal quantity.

Which of the following is an example of a publicgood? a. residential housing b. national defense c. restaurant meals d. fish in the ocean

b. national defense

A public good is a. both rival in consumption and excludable. b. neither rival in consumption nor excludable. c. rival in consumption but not excludable. d. not rival in consumption but excludable.

b. neither rival in consumption nor excludable.

Which categories of goods are rival in consumption? a. private goods and club goods b. private goods and common resources c. public goods and club goods d. public goods and common resources

b. private goods and common resources

Tradable pollution permits a. set the price of pollution. b. set the quantity of pollution. c. determine the demand for pollution rights. d. reduce the incentive for technological innovations to further reduce pollution.

b. set the quantity of pollution.

The most efficient pollution control system would ensure that a. each polluter reduce its pollution an equal amount. b. the polluters with the lowest cost of reducing pollution reduce their pollution the greatest amount. c. no pollution of the environment is tolerated. d. the regulators decide how much each polluter should reduce its pollution.

b. the polluters with the lowest cost of reducing pollution reduce their pollution the greatest amount.

If both input and output markets are competitive and firms are profit maximiz ing, then in equilibrium, each factor of production earns a. an equal share of output. b. the value of its marginal product. c. the amount allocated by the political process. d. an amount equal to the price of output times total output.

b. the value of its marginal product.

If firms are competitive and profit-maximizing, the demand curve for labor is determined by a. the opportunity cost of workers' time. b. the value of the marginal product of labor. c. offsetting income and substitution effects. d. the value of the marginal product of capital.

b. the value of the marginal product of labor.

Public goods are a. efficiently provided by market forces. b. underprovided in the absence of government. c. overused in the absence of government. d. a type of natural monopoly.

b. underprovided in the absence of government.

Which of the following is not true with regard to workers who have a high value of marginal product? These workers a. are usually highly paid. b. usually have little capital with which to work. c. have skills that are in relatively scarce supply. d. produce output for which there is great demand.

b. usually have little capital with which to work.

Approximately what percentage of U.S. national income is paid to workers, as opposed to owners of capital and land? a. 25 percent b. 45 percent c. 65 percent d. 85 percent

c. 65 percent

A person who regularly watches public television but fails to contribute to public television's fundraising drives is known as a. a common rider. b. a costly rider. c. a free rider. d. an unwelcome rider.e. excess baggage.

c. a free rider.

The Tragedy of the Commons is a parable that illustrates why a. public goods are underproduced. b. private goods are underconsumed. c. common resources are overconsumed. d. club goods are overconsumed.

c. common resources are overconsumed.

An increase in the demand for a firm's output a. increases the prosperity of the firm but decreases the prosperity of the factors hired by the firm. b. decreases the prosperity of the firm but increases the prosperity of the factors hired by the firm. c. increases the prosperity of both the firm and the factors hired by the firm. d. decreases the prosperity of both the firm and the factors hired by the firm.

c. increases the prosperity of both the firm and the factors hired by the firm.

Common resources are a. efficiently provided by market forces. b. underprovided in the absence of government. c. overused in the absence of government. d. a type of natural monopoly.

c. overused in the absence of government.

If one person's consumption of a good diminishes other people's use of the good, the good is said to be a. a common resource. b. a club good. c. rival in consumption. d. excludable.

c. rival in consumption

A common resource is a. both rival in consumption and excludable. b. neither rival in consumption nor excludable. c. rival in consumption but not excludable. d. not rival in consumption but excludable.

c. rival in consumption but not excludable.

To internalize a positive externality, an appropriate public policy response would be to a. ban the good creating the externality. b. have the government produce the good until the value of an additional unit is zero. c. subsidize the good. d. tax the good.

c. subsidize the good.

When markets fail to allocate resources efficiently, the ultimate source of the problem is usually a. that prices are not high enough so people overconsume. b. that prices are not low enough so firms overproduce. c. that property rights have not been well established. d. government regulation.

c. that property rights have not been well established.

The value of the marginal product of labor is a. the price of the output times the wage of labor. b. the wage of labor times the quantity of labor. c. the price of the output times the marginal product of labor. d. the wage of labor times the marginal product of labor.

c. the price of the output times the marginal product of labor.

An externality is a. the benefit that accrues to the buyer in a market. b. the cost that accrues to the seller in a market. c. the uncompensated impact of one person's actions on the well-being of a bystander. d. the compensation paid to a firm's external consultants.e. none of the above.

c. the uncompensated impact of one person's actions on the well-being of a bystander.

If this profit-maximizing firm sells its output in a competitive market for $3 per unit and hires labor in a competitive market for $8 per hour, then this firm should hire a. one worker. b. two workers. c. three workers. d. four workers. e. five workers.

c. three workers.

The Coase theorem does NOT apply if a. there is a significant externality between two parties. b. the court system vigorously enforces all contracts. c. transaction costs make negotiating difficult. d. both parties understand the externality fully.

c. transaction costs make negotiating difficult.

Bob and Tom live in a university dorm. Bob values playing loud music at a value of $100. Tom values peace and quiet at a value of $150. Which of the following statements is true? a. It is efficient for Bob to continue to play loud music. b. It is efficient for Bob to stop playing loud music only if Tom has the property right to peace and quiet. c. It is efficient for Bob to stop playing loud music only if Bob has the property right to play loud music. d. It is efficient for Bob to stop playing loud music regardless of who has the property right to the level of sound.

d. It is efficient for Bob to stop playing loud music regardless of who has the property right to the level of sound.

An increase in the demand for apples will cause all but which of the following? a. an increase in the price of apples b. an increase in the value of the marginal product of apple pickers c. an increase in the wage of apple pickers d. a decrease in the number of apple pickers employed

d. a decrease in the number of apple pickers employed

Which of the following are potential solutions to the problem of air pollution? a. auction off pollution permits b. grant rights of the clean air to citizens so that firms must purchase the right to pollute c. regulate the amount of pollutants that firms can put in the air d. all of the above

d. all of the above

The gas-guzzler tax that is placed on new vehicles that get very poor mileage is an example of a. a tradable pollution permit. b. an application of the Coase theorem. c. an attempt to internalize a positive externality. d. an attempt to internalize a negative externality.

d. an attempt to internalize a negative externality.

For a competitive, profit-maximizing firm, the value-of-the-marginal-product curve for capital is the firm's a. production function. b. marginal-cost curve. c. supply curve of capital. d. demand curve for capital.

d. demand curve for capital.

If a person can be prevented from using a good, the good is said to be a. a common resource. b. a public good. c. rival in consumption. d. excludable.

d. excludable.

Which of the following is an example of a common resource? a. residential housing b. national defense c. restaurant meals d. fish in the ocean

d. fish in the ocean

The most important factors of production are a. money, stocks, and bonds. b. water, earth, and knowledge. c. management, finance, and marketing. d. labor, land, and capital.

d. labor, land, and capital.

A club good is a. both rival in consumption and excludable. b. neither rival in consumption nor excludable. c. rival in consumption but not excludable. d. not rival in consumption but excludable.

d. not rival in consumption but excludable.

Public goods are difficult for a private market to provide due to a. the public goods problem. b. the rivalness problem. c. the Tragedy of the Commons. d. the free-rider problem.

d. the free-rider problem.

A competitive, profit-maximizing firm should hire workers up to the point where a. the wage, the rental price of capital, and the rental price of land are all equal. b. the marginal product of labor equals zero and the production function is maximized. c. the marginal product of labor equals the wage. d. the value of the marginal product of labor equals the wage.

d. the value of the marginal product of labor equals the wage.

Suppose that requiring motorcycle riders to wear helmets reduces the probability of a motorcycle fatality from 0.3 percent to 0.2 percent over the lifetime of a mo torcycle rider and that the cost of a lifetime supply of helmets is $500. It is efficient for the government to require riders to wear helmets if human life is valued at a. $100 or more. b. $150 or more. c. $500 or more. d. $50,000 or more. e. $500,000 or more.

e. $500,000 or more.