Econ 101 Exam 3

a traffic light at an intersection is a public good a private good a club good a common good

a public good

an example of a private good would be a library book a rose garden an internet radio subscription a sleeping bag

a sleeping bag

Which of the following is an example of the free-rider problem? Both Zoe and Zach receive low-cost dental care at the local dental school, so neither of them pay the full cost of the care Alfred receives a free lunch from the local "Meals of Wheels" program because of his low monthly income. Yet his next door neighbor, Alice, is not eligible for the free lunch Bruce owns Buster, a large dog who barks whenever anyone walks near his house. Betty lives next to Bruce, and Buster's barking can be heard whenever anyone walks near her house, too. Thus, Betty receives free protection from burglars because of Buster's barking Sam purchases a burger at a fast food restaurant and gets a second burger free because the restaurant is having a buy one, get one free sale

Bruce owns Buster, a large dog who barks whenever anyone walks near his house. Betty lives next to Bruce, and Buster's barking can be heard whenever anyone walks near her house, too. Thus, Betty receives free protection from burglars because of Buster's barking.

Suppose that flu shots create a positive externality equal to $8 per shot. Further suppose that the government offers a $6-per-shot subsidy to producers. What is the relationship between the equilibrium quantity and the socially optimal quantity of flu shots produced? They are equal The equilibrium quantity is greater than the socially optimal quantity The equilibrium quantity is less than the social optimal quantity There is not enough information to answer the question

The equilibrium quantity is less than the socially optimal quantity

Suppose that an MBA degree creates no externality because the benefits of an MBA are internalized by the student in the form of higher wages. If there are no government subsidies for MBAs, then which of the following statements is correct? The equilibrium quantity of MBAs will equal the socially optimal quantity of MBAs The equilibrium quantity of MBAs will be greater than the socially optimal quantity of MBAs The equilibrium quantity of MBAs will be less than the socially optimal quantity of MBAs There is not enough information to answer the question

The equilibrium quantityt of MBAs will equal the soically optimla quantity of MBAs

excludability is the property of a good whereby one person's use diminishes other peoples' use a person can be prevented from using it the government rations the quantity of a good that is available the resource is congestible

a person can be prevented from using it

on holiday weekends thousands of people picnic in state parks. Some picnic areas become so overcrowded the benefit or value of picnicking diminishes to zero. An overcrowded picnic area is an example of private good a club good a Tragedy of the Commons public good

a Tragedy of the Commons

The term market failure refers to a market that fails to allocate resources efficiently an unsuccessful advertising campaign which reduces demand ruthless competition among firms a firm that is forced out of business because of losses

a market that fails to allocate resources efficiently

which of the following statements about a well-maintained yard best conveys the general nature of the externality? a well-maintained yard conveys a positive externality because it increases the home's market value a well-maintained yard conveys a negative externality because it increases the property tax liability of the owner a well-maintained yard conveys a positive externality because it increases the value of adjacent properties in the neighborhood a well-maintained yard cannot provide any type of externality

a well-maintained yard conveys a positive externality because it increases the value of adjacent properties in the neighborhood

if all firms have the same costs of production, then in long-run equilibrium, price exceeds average total cost for all firms price exceeds marginal cost for all firms some firms may earn positive economic profits all firms have zero economic profits and just cover their opportunity costs

all firms have zero economic profits and just cover their opportunity costs

The ocean remains one of the largest unregulated resources for each of the following reasons except many countries have access to the ocean it is difficult to get international cooperation among countries that hold different values the oceans are so vast that enforcing any agreements would be difficult all of the above

all of the above

by driving onto a congested road for which no toll is charged, a driver contributes to the overuse of a common resource contributes to a negative-externality problem is inflicting additional time cost on all of the other drivers all of the above

all of the above

which of the following is a way to address an externality problem? command and control solution corrective tax corrective subsidy all of the above

all of the above

in the long run, a firm will enter a competitive industry if total revenue exceeds total cost the price exceeds average total cost the firm can earn economic profits all of the above are correct

all of the above are correct

a lighthouse is typically considered to be a public good because the owner of the lighthouse is able to exclude beneficiaries from enjoying the lighthouse there is rarely another lighthouse nearby to provide competition a nearby port authority cannot avoid paying fees to the lighthouse owner all passing ships are able to enjoy the benefits of the lighthouse without paying

all passing ships are able to enjoy the benefits of the lighthouse without paying

A local playground equipment company plans to operate out of its current factory, which is estimated to last 30 years. All cost decisions it makes during the 30-year period are long-run decisions are short-run decisions involve only maintenance of the factory are zero because the cost decisions were made at the beginning of the business

are short-run decisions

for a competitive firm, total revenue equals average revenue total revenue equals marginal revenue total cost equals marginal revenue average revenue equals marginal revenue

average revenue equals marginal revenue

when a firm is experiencing economies of scale, long-run average total cost is minimized average total cost is greater than long-run marginal cost average total cost is less than long-run marginal cost marginal cost is minimized

average total cost is greater than long-run marginal cost

if marginal cost is greater than average total cost, then profits are increasing economies of scale are becoming greater average total cost remains constant average total cost is increasing

average total cost is increasing

When a firm is experiencing diseconomies of scale, long-run average total cost is minimized average total cost is greater than long-run marginal cost average total cost is less than long-run marginal cost marginal cost is minimized

average total cost is less than long-run marginal cost

suppose the government has enacted policies to influence the amount of good x that is supplied. These policies are most likely to improve the allocation of resources if good x is basic research a congested toll road spinach clothing

basic research

most taxes distort incentives and move the allocation of resources away from the social optimum. Why do corrective taxes avoid the disadvantages of most other taxes? corrective taxes apply only to goods that are bad for people's health, such as cigarettes and alcohol because corrective taxes correct for market externalities, they take into consideration the well-being of bystanders corrective taxes provide incentive for the conservation of natural resources corrective taxes do not affect deadweight loss

because corrective taxes correct for market externalities, they take into consideration the well-being of bystanders

When one firm sells its pollution permit to another firm, Both firms benefit the total amount of pollution remains the same the total amount of pollution decreases both a and b are correct

both a and b are correct

private contracts between parties with mutual interests will reduce the well-being of society will lead to market outcomes in which the public interest is sacrificed for personal gain can solve some inefficiencies associated with positive externalities will create negative externalities

can solve some inefficiencies associated with positive externalities

The parable called the Tragedy of the Commons applies to goods such as fire protection and cable TV tornado sirens and basic research clean air and clean water antipoverty programs and national defense

clean air and clean water

a firm that has little ability to influence market prices operates in a competitive market strategic market thin market power market

competitive market

Congressman Smith and Congresswoman Johnson both consider themselves advocates for the national parks and are introducing different bills designed to benefit the parks. Congressman Smith's bill calls for an increase in the entrance fees. Congresswoman Johnson's bill calls for a decrease in the entrance fees. Which of the bills would be more effective at ensuring the quality of the national parks? congressman Smith's bill because it will reduce the overuse of the parks congresswoman Johnson's bill because more visitors means more citizens will value and care for the parks both bills would be equally effective neither bill would be effective

congressman Smith's bill because it will reduce the overuse of the parks

the difference between social cost and private cost is a measure of the loss in profit to the seller as the result of a negative externality cost of an externality cost reduction when the negative externality is eliminated cost incurred by the government when it intervenes in the market

cost of an externality

If the government decides to build a new highway, the first step would be to conduct a study to determine the value of the project. The study is called a budget analysis project analysis reimbursement analysis cost-benefit analysis

cost-benefit analysis

in the long run the market supply must always be horizontal could be upward sloping if the cost of production falls as new firms enter the market could be upward sloping if the cost of production rises as new firms enter the market could be upward sloping if technological improvements lower the cost of producing in the market

could be upward sloping if the cost of production rises as new firms enter the market

a tornado siren is a private good club good common resource public good

public good

A toll collected from each car traveling during rush hour on a congested road is an effective correction to the Tragedy of the Commons for all of the following reasons the toll provides an incentive for commuters except drive at times other than rush hour use public transit rather than driving drive more fuel-efficient cars car-pool

drive more fuel-efficient cars

in the long run a company that produces and sells laundry detergent incurs total costs of $2,500 when output is 1,250 units and $2,750 when output is 1,500 units, For this range of output, the laundry detergent company exhibits economies of scale constant returns to scale diseconomies of scale efficient scale

economies of scale

private goods are both excludable and nonrival in consumption nonexcludable and rival in consumption excludable and rival in consumption nonexcludable and nonrival consumption

excludable and rival in consumption

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 excludable, but not nonrival in consumption not excludable, but rival in consumption excludable and rival in consumption not excludable and nonrival in consumption

excludable, but rival in consumption

which of the following represents the firm's long-run condition for exiting a market? exit if P<MC exit if P<FC exit if P<ATC exit if MR<MC

exit it P<ATC

for any competitive market, the supply curve is closely related to the preferences of consumers who purchase products in that market income tax rates of consumers in that market firms' costs of production in that market interest rates on government bonds

firms' costs of production in that market

some costs do not vary with the quantity of output produced. Those costs are called marginal costs average costs fixed costs explicit costs

fixed costs

total cost can be divided into two types of costs: fixed costs and variable costs fixed costs and marginal costs variable costs and marginal costs average costs and marginal costs

fixed costs and variable costs

the long-run average total cost curve is always flatter than the short-run average total cost curve, but not necessarily horizontal horizontal falling as output increases rising as output increases

flatter than the short-run average total cost curve, but not necessarily horizontal

which of the following explains why long-run average cost at first decreases as output increases? diseconomies of scale less-efficient use of inputs fixed costs becoming spread out over more units of output gains from specialization of inputs

gains from specialization of inputs

when producers operate in the market characterized by negative externalities, a tax forces them to internalize the externality will give sellers the incentive to account for the external effects of their actions increase demand increase the amount of the commodity exchanged in market equilibrium restrict the producers' ability to take the cost of the externality into account when deciding how much to supply

give sellers the incentive to account for the external effects of their actions

a positive externality is a benefit to the producer of the good is a benefit to the consumer of the good is a benefit to someone other than the producer and consumer of the good results in an optimal level of output

is a benefit to someone other than the producer and consumer of the good

A negative externality is an adverse impact on a bystander causes the product in a market to be under-produced is an adverse impact on market participants is present in markets where the good or service does not have any impact on bystanders

is an adverse impact on a bystander

Which of the following statements is true of the tax on gasoline? the cost of collecting a gasoline tax outweighs the revenues raised by the tax it is preferred to tolls as the best solution to road congestion it discourages driving on noncongested roads, even though there is no congestion externality for these roads both b and c are correct

it discourages driving on noncongested roads, even though there is no congestion externality for these roads

national defense is a classic example of a public good because there is no market for private security services it is difficult to exclude people from receiving the benefits from national defense once it is provided everyone agrees that some level of national defense is important, but only the government knows the optimal amount there are no private firms willing to supply defense goods such as tanks and weapons

it is difficult to exclude people from receiving the benefits from national defense once it is provided

the total cost to the firm of producing zero units of output is zero in both the short run and the long run its fixed cost in the short run and zero in the long run its fixed cost in both the short run and the long run its variable cost in both the short run and the long run

its fixed cost in the short run and zero in the long run

Total cost is the amount a firm receives for the sale of its output fixed cost less variable cost market value of the inputs a firm uses in production quantity of output minus the quantity of inputs used to make a good

market value of the inputs a firm uses in production

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 more firms will enter the market some firms will exit from the market the equilibrium price per bottle will rise average total costs will rise

more firms will enter the market

Willie's Wading Adventures sells hip waders for fishing and duck hunting in a perfectly competitive market. If hip waders sell for $100 each and average total cost per unit is $95 at the profit-maximizing output level, then in the long run more firms will enter the market some firms will exit from the market the equilibrium price per unit will rise average total costs will fall

more firms will enter the market

which of the following goods is the best example of a public good? garbage-collection services that are provided by a municipal government music that is broadcast over the airwaves by a privately-owned FM radio station electricity that is provided to farmhouses by a rural elective cooperative cable TV services that are provided by a privately-owned firm that is regulated by the government of the city in which it operates

music that is broadcast over the airwaves by a privately-owned FM radio station

the national defense of the United States is not rival because my enjoyment of the national defense does not diminish your enjoyment of the national defense of the United States my enjoyment of the national defense does diminish your enjoyment of the national defense of the Unites States once the nation is defended, it is impossible to prevent any single person from enjoying the benefit of this defense once the nation is defended, it is possible to prevent any single person from enjoying the benefit of this defense

my enjoyment of the national defense does not diminish your enjoyment of the national defense of the United States

corrective taxes are typically advocated to correct for the effects of positive externalities negative externalities patents all of the above

negative externalities

A cost imposed on someone who is neither the consumer nor the producer is called a corrective tax command and control policy positive externality negative externality

negative externality

knowledge is an example of a public good private good common resource club good

public good

When externalities exist, buyers and sellers neglect the external effects of their actions, but the market equilibrium is still efficient do not neglect the external effects of their actions, and the market equilibrium is efficient neglect the external effects of their actions, and the market equilibrium is not efficient do not neglect the external effects of their actions, and the market equilibrium is not efficient

neglect the external effects of their actions, and the market equilibrium is not efficient

in a competitive market, no single buyer or seller can influence the price of the product there are only a small number of sellers the goods offered by the different sellers are unique accounting profit is driven to zero as firms freely enter and exit the market

no single buyer of seller can influence the price of the product

externalities can be corrected by each of the following except self-interest moral codes and social sanctions charity normal market adjustments

normal market adjustments

in calculating accounting profit, accountants typically don't include long-run costs sunk costs explicit costs of production opportunity costs that do not involve an outflow of money

opportunity costs that do not involve an outflow of money

when buyers in a competitive market take the selling price as given, they are said to be market entrants monopolists free riders price takers

price takers

goods that are excludable include both club goods and public goods public goods and common resources common resources and private goods private goods and club goods

private goods and club goods

which of the following types of goods are rival in consumption? private goods and club goods private goods and common resources public goods and club goods public goods and common resources

private goods and common resources

which of the following statements about private goods and public goods is correct? private goods and public goods are both excludable private goods and public goods are both rival in consumption private goods are not excludable and public goods are excludable private goods are rival in consumption and public goods are not excludable

private goods are rival in consumption and public goods are not excludable

according to the Coase theorem, private markets will solve externality problems and allocate resources efficiently as long as the externalities that are present are positive, not negative government assigns property rights to the harmed party private parties can bargain with sufficiently low transaction costs businesses determine and appropriate level of production

private parties can bargain with sufficiently low transaction costs

an externality results in an equilibrium that does not maximize the total benefits to society causes demand to exceed supply strengthens the role of the "invisible hand" in the marketplace affects buyers but not seller

results in an equilibrium that does no maximize the total benefits to society

at all levels of production higher than the point where the marginal cost curve crosses the average variable cost curve, average variable cost rises remains unaffected falls all of the above are possible depending on the shape of the marginal cost curve

rises

if one person's use of a good diminishes another person's enjoyment of it, the good is rival in consumption excludable normal exhaustible

rival in consumption

The Tragedy of the Commons occurs because government property is most heavily used by the wealthy everyone deserves an equal share of government property social and private incentives differ established property rights create competition

social and private incentives differ

suppose the socially-optimal quantity of good x is 2,500 units and the market-equilibrium quantity of good x is 3,000 units. When 2,500 units of good x are produced, the external cost of good x exceeds the private value of good x external cost of good x equals the private value of good x social cost of good x exceeds the private value of good x social cost of good x equals the private values of good x

social cost of good x equals the private value of good x

which of the following policies is the government most inclined to use when faced with a positive externality? taxation permits subsidies usage fees

subsidies

A paper plant produces water pollution during the production process. If the government forces the plant to internalize the negative externality, then the supply curve for paper would shift to the right supply curve for paper would shift to the left demand curve for paper would shift to the right demand curve for paper would shift to the left

supply curve for paper would shift to the left

Harry's Hotdogs is a small street vendor business owned by Harry Huggins. Harry is trying to get a better understanding of his costs by categorizing them as fixed or variable. Which of the following costs are most likely to be considered fixed costs? the cost of mustard the cost of hotdog buns wages paid to workers who sell hot dogs the cost of bookkeeping services

the cost of bookkeeping services

suppose that beef producers create a negative externality. What is the relationship between the equilibrium quantity of beef and the socially optimal quantity of beef? they are equal the equilibrium quantity is greater than the socially optimal quantity the equilibrium quantity is less than the socially optimal quantity there is not enough information to answer the question

the equilibrium quantity is greater than the socially optimal quantity

Which of these assumptions is often realistic for a firm in the short run? the firm can vary both the size of its factory and the number of workers it employs the firm can vary the size of its factory but not the number of workers it employs the firm can vary the number of workers it employs but not the size of its factory the firm can vary neither the size of its factory not the number of workers it employs

the firm can vary the number of workers it employs but not the size of its factory

which of the following is an example of a positive externality? a college student buys a new car when she graduates the mayor of a small town plants flowers in the city park local high school teachers have pizza delivered every Friday for lunch an avid fisherman buys new fishing gear for his next fishing trip

the mayor of a small town plants flowers in the city park

suppose that flu shots create a positive externality equal to $9 per shot. Further suppose that the government offers a $9-per-shot subsidy to producers. What is the relationship between the equilibrium quantity and the socially optimal quantity of flu shots produced? they are equal the equilibrium quantity is greater than the socially optimal quantity the equilibrium quantity is greater than the socially optimal quantity the equilibrium quantity is less than the socially optimal quantity there is not enough information to answer the question

they are equal

The market value of the inputs a firm uses is called total cost variable cost marginal cost fixed cost

total cost

under which of the following scenarios would a park be considered a common resource? visitors to the park must pay an admittance fee, but there are always plenty of empty picnic tables visitors can enter the park free of charge and there are always plenty of empty picnic tables visitors can enter the park free of charge, but frequently all of the picnic tables are in use

visitors can enter the park free of charge, but frequently all of the picnic tables are in use

a sunk cost is one that changes as the level of output changes in the short run was paid in the past and will not change regardless of the present decision should determine the rational course of action in the future has the most impact on profit-making decisions

was paid in the past and will not change regardless of the present decision

In markets, the invisible hand allocates resources efficiently in all cases when the buyers and sellers are the only interested parties when there are positive externalities, but not when there are negative externalities when there are negative externalities, but not when there are positive externalities

when the buyers and sellers are the only interested parties

if the market elasticity of demand for potatoes is -0.3 in a perfectly competitive market, then the individual farmer's elasticity of demand will also be -0.3 depends on how large a crop the farmer produces will range between -0.3 and -0.1 will be infinite

will be infinite