MICRO ECON Chp. 6

In the absence of externalities, which market structure produces the socially optimal quantity? A) Perfect competition B) Monopolistic competition C) An oligopoly D) A monopoly E) A monopsony

A) Perfect competition

If the government regulates the monopolist to produce the allocatively efficient quantity and provides a subsidy sufficient to maintain zero economic profits for the firm, what price would the government set and what level of output would the firm produce? A) $1.00 and 50 B) $2.00 and 80 C) $3.00 and 50 D) $3.50 and 50 E) $4.50 and 30

B) $2.00 and 80

A free-rider problem exist when A) a good is excludable in consumption. B) a good is nonexcludable in consumption. C) a good is rival in consumption. D) a good is nonrival in consumption. E) a good is in abundant supply.

B) a good is nonexcludable in consumption.

The diagram describes conditions for a natural monopoly. In order to regulate the monopoly to produce the largest possible output without a loss, government regulators would establish a price of A) $1.00 B) $2.00 C) $2.50 D) $3.00 E) $3.50

C) $2.50

Which of the following is an example of a positive externality? A) Traffic congestion in cities B) Emission controls on power plants C) Immunizations that prevent the spread of diseases D) Tariffs that protect a domestic industry E) Secondhand smoke from cigarettes

C) Immunizations that prevent the spread of diseases

Antitrust laws are intended to A) prevent the entry of firms into imperfectly competitive markets B) ensure that firms produce the allocatively efficient quantity of output C) reduce monopoly profits D) control monopolies and maintain a competitive market environment E) eliminate negative externalities

D) control monopolies and maintain a competitive market environment

Which of the following Gini coefficients indicates that a country has an equal distribution of income? A) 1 B) 0.7 C) 0.5 D) 0.2 E) 0

E) 0

The higher wages college graduates receive are primarily due to A) discrimination B) differences in working conditions C) on-the-job training D) differences in bargaining power E) differences in human capital

E) differences in human capital

An example of a good that is nonrival and nonexcludable is A) clean water in a stream B) a bicycle C) higher education D) a lighthouse E) an entertainment website requiring a paid subscription

D) a lighthouse

The city council divides a community's residents into three groups: individual young adults, families with children, and older adults. The following table summarizes how much each group is willing to pay for each playground. Amount Groups Are Willing to Pay for Each Playground Number of Individual Families with Older Playgrounds Young Adults Children Adults 1 $400 $2,000 $1,000 2 $300 $1,800 $900 3 $200 $1,600 $800 4 $100 $1,400 $700 5 $0 $1,200 $600 6 $0 $1,000 $500 7 $0 $900 $400 8 $0 $800 $300 The city council must pay $2,250 to build each playground. Which of the following is a characteristic of playgrounds and what is the optimal number of playgrounds for the township to build? A) Playgrounds are nonrival in consumption, and the optimal number of playgrounds is zero. B) Playgrounds are nonrival in consumption, and the optimal number of playgrounds is two. C) Playgrounds are rival in consumption,

C) Playgrounds are rival in consumption, and the optimal number of playgrounds is three.

The closer income distribution moves toward complete equality, the closer the Lorenz curve moves to A) a horizontal line B) a vertical line C) a diagonal line D) the vertical axis E) the horizontal axis

C) a diagonal line

The following graph shows the marginal social cost (MSC), the marginal private cost (MPC), and the marginal social benefit (MSB) of a good. If the government wants the firm to internalize the externality, the government can do so by A) doing nothing B) imposing a per-unit tax of $0.50 C) imposing a per-unit tax of $1.00 D) granting a per-unit subsidy of $0.50 E) granting a per-unit subsidy of $1.50

C) imposing a per-unit tax of $1.00

In the absence of externalities, the perfectly competitive market maximizes economic surplus when A) the market price is above the equilibrium price B) the market price is below the equilibrium price C) the market is at equilibrium D) for the last unit produced, marginal benefit exceeds marginal cost E) the total benefit from all units produced equals the total costs of all units produced

C) the market is at equilibrium

The following graph shows the marginal social cost (MSC), the marginal private cost (MPC), and the marginal social benefit (MSB) of a good. Which of the following indicate the marginal external cost and the socially optimal quantity? A) $3.00 and 40 units B) $2.50 and 60 units C) $2.00 and 40 units D) $1.00 and 20 units E) $1.00 and 80 units

D) $1.00 and 20 units

Assume the government implements a policy that causes a market to produce the socially optimal level of output. Which of the following must be true? A) The government policy must have reduced the level of output produced. B) The government policy must have increased the level of output produced. C) The government policy must have resulted in marginal social benefit being greater than marginal social cost for the last unit produced. D) Equating marginal private benefit and marginal private cost must have resulted in inefficiencies in the market. E) Equating marginal social benefit and marginal social cost must have resulted in inefficiencies in the market.

D) Equating marginal private benefit and marginal private cost must have resulted in inefficiencies in the market.