Econ midterm 2 Ch. 8-12

Which of the following is NOT an externality?

Jordan has lung cancer from smoking cigs

natural market power is created by ________, and arises due to _________

market forces; controlling a key resource

Tax incidence refers to​ ____________.

who bears the burden of a tax.

Can countries that do not have an absolute advantage in the production of a good benefit from trade?

yes

Is the entire burden of the tax always borne by those on whom it is​ imposed?

Not​ necessarily, since the burden of the tax depends on price elasticity.

An exporter under free trade, consumer surplus will decrease compared to that in the absence of free trade

the consumer surplus

legal market power is created by_________, and arises due to_________-

the gov; patents

how do labor-saving technologies differ from labor-complementary technologies?

Labor-saving technologies decrease the marginal product of​ labor, while​ labor-complementary technologies increase the marginal product of labor. B. ​Labor-saving technologies result in lower wages and less​ employment, while​ labor-complementary technologies result in higher wages and more employment. Your answer is not correct. C. ​Labor-saving technologies substitute for existing labor​ inputs, while​ labor-complementary technologies augment existing labor inputs.

the optimal action of the monopolist differs from a perfectly competitive industry because

Price = marginal cost = marginal revenue

What does this equation do? Profits = (P-ATC) * Q

it calculates economic profits for a monopoly

Suppose the production of a particular good causes a negative externality. - based on market forces only, how will this impact the production levels for a factory if negative externalities are present?

it will produce the good above the socially efficient level

In equilibrium, where does monopoly lead to?

less quantity and higher prices compared to the perfectly competitive market

A firm is competitive and has no control over its products price, and the declining values for VMPL are a result of diminishing

marginal productivity

Criminals spend vast resources trying to avoid taxes and​ regulations, break​ laws, and undermine bans​ and, in​ turn, authorities spend resources to catch criminals. What does this​ reflect?

problems generated by the underground economy

import

produced abroad, but sold internationally

Example of labor saving technology

radio frequency identification tags in grocery stores

What is the optimal action of the monopolist?

set Price > marginal revenue = marginal cost

A​ three-person city is considering a fireworks display. Anne is willing to pay​ $50 to see the​ fireworks, Bob is willing to pay​ $15, and Charlie is willing to pay​ $15. The cost of the fireworks is​ $60. In terms of​ efficiency, the fireworks display ▼ be offered.

should be

the gains of trade _______ as the trading partners become more alike

shrink

a production function shows

the # of workers employed and the corresponding output levels that will be produced

Command-and-control policy

the government directly regulates the allocation of resources

market-based policy

the government provides incentives for private organizations to internalize the externality

which of the following functions is beyond the scope of economics as far as government intervention is considered?

the make a value judgement on whether government is good or bad

the Case theorem will breakdown when

transactions costs become high

FDA regulations aimed at ensuring that new drugs that are marketed​ do, in​ fact, have the functions they are supposed to have are necessary​ because:

verification by each consumer would be extremely inefficient.

the Case theorem will breakdown when

when property rights are not clearly defined

What are externalities?

Costs (or benefits) of a market activity borne by a third party.

Given that there are costs involved with government intervention in an​ economy, governments still choose to intervene in markets to​ ____________.

reduce poverty

When marginal revenue is positive

Total revenue is rising

export

produced domestically, but sold abroad

In an​ economy, if the government implements a law for individuals that requires them to save at least​ 25% of their annual income in a social savings plan framed by the government. For supporting this​ plan, the government raises revenues by implementing income tax rates that are higher compared to the other countries.

-an increase in costs to the government -an increase in the deadweight losses

what's important to determinant of wage inequality within an economy?

-differences in human capital -discrimination in the job market -differences in compensating wages

the value of marginal product of labor is

-given by the marginal product of labor times the price of the firms output -the contribution of an additional worker to a firm's revenue

human capital is the ____________

-skills and knowledge that people obtain by furthering their schooling -experience that people derive from spending more time on a job

why are there two different views on the effect of taxation on labor supply in the U.S?

-the effect of a tax on labor supply depends on the amount of deadweight loss created by the tax -it depends on normative questions such as how much to tax or how much government intervention is necessary -the effect of a tax on labor supply depends on the elasticity of labor supply

which of the following are properties of a monopoly?

-there is only one seller -price maker -there are high barriers to entry

The invisible hand fails because of ______

externalities, public goods and common pool resouces

budget deficit is

when tax revenues do not cover government spending

budget surplus is

when tax revenues exceed government spending

why is national defense better off as a natural monopoly?

Industries like national defense experience economies of scale since they have high fixed costs.​ Thus, it is cheaper to have a single firm provide a larger quantity.

Direct regulation is​ ____________.

direct actions by the government to control the amount of an activity.

example of labor-complementary technology

GPS location devices in delivery trucks

When the​ firm's VMPL is plotted in a diagram with the quantity of labor measured along the horizontal​ axis, the resulting curve will be ________ and constitutes the​ firm's_________________

downward sloping; demand curve for labor

Terms of trade is the

exchange rate of goods for goods

what approach would be the least effective way to deal with free riders?

exclude citizens from benefitting from the good or service

Examples of direct regulation include​ ____________.

antismoking laws price floors fishing quotas

why would the supply curve slope upward?

because of an increase in the wage that increases the opportunity cost of leisure

Why would the demand curve slope downward?

because the marginal productivity falls as more workers are employed

Which of the following is a cost associated with government intervention in an economic​ system?

bureaucracies

third degree price discrimination

charging different prices to different demographic market segments

Example of an industry or service that is a natural monopoly is?

city drinking water

when the tariff is eliminated, the quantity supplied by domestic producers _________

decreases

When the VMPL is plotted in a diagram with the number of workers measured along the horizontal axis, the resulting curve is the firm's __________

demand for labor

when the tariff is eliminated, what is the impact on domestic producers, foreign producers, and domestic consumers?

foreign producers and domestic consumers win. Domestic producers lose.

consumer sovereignty suggests that

government should not interfere with consumer choices

when the tariff is eliminated, the quantity demanded by domestic consumers ___________

increases

which of the following arguments is not consistent with paternalism?

individuals make choices that reflect their true preferences and know what is best for them

what is statistical discrimination?

occurs when expectations cause people to discriminate against a certain group

What is taste-based discrimination?

occurs when people's preferences cause them to discriminate against a certain group

Terms of trade are determined

on the basis of opportunity costs

Example of common pool resources

once I kill that bird, then nobody else can

compensating wages are the wage premiums______________

paid to attract workers to occupations to otherwise undesirable jobs

An individual or a firm can internalize an externality by_________

paying the cost of the externality

Paternalism is the view that​ ___________.

people do not always know what is best for​ them, and government should encourage them to make the right choices.

what does a production function look like on the graph?

positive

market power relates to the ability of sellers to affect _______, and arises because of ____________

prices; barriers to entry

The Coase theorem states that

private bargaining will result in an efficient allocation of resources

according to the law of diminishing returns____________

the marginal productivity of an additional unit of labour eventually decreases as the quantity of labor increases

What do barriers to entry permit?

the monopolist to exercise marker power when making quantity and pricing decisions.

An exporter under free trade, producer surplus will increase compared to that in the absence of free trade

the producer surplus

Suppose the government levies tax on a good which has price elasticity of demand of 3.25 and price elasticity of supply of​ 0.7, then the tax incidence will fall more on?

the sellers

the Case theorem will breakdown when

there are large number of agents

What is the key link between externalities, public goods, and common pool resources is?

there is a difference between the private benefits & costs and the social benefits & costs

Which of the following statements is not true regarding the concepts of corruption and the underground​ econ

there is an increase in deadweight loss

what is common pool resources?

they're not excludable, but are viral. Only negative externalities and it imposes on others

What is a Pigouvian tax? or corrective tax

to induce producers of a negative externality to reduce production to the socially optimal level

When marginal revenue is negative

total revenue is falling