microecon exam 3

The Tragedy of the Commons can be corrected by

assigning property rights to individuals

The fundamental reason that marginal cost eventually rises as output increases is because of

diminishing marginal product

When price is greater than marginal cost for a firm in a competitive market,

there are opportunities to increase profit by increasing production.

Producers have little incentive to produce a public good because

there is a free-rider problem

. Public schools, parks, libraries, and roads are paid for largely through tax revenue because

these goods create a free-rider problem.

excludable and rival in consumption

a wristwatch

firms in a competitive industry are earning positive economic profits. All else equal, in the long run, we would expect the number of firms in the industry to

increase

a production cost that has already been committed and cannot be recovered, they use the term

sunk cost

marginal revenue greater than marginal cost

produce more units

How long does it take a firm to go from the short run to the long run

It depends

Which parable describes the problem of wild animals that are hunted to the point of extinction?

The Tragedy of the Commons

Which of these assumptions is often realistic for a firm in the short run?

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

a tax where two people with the same total income would pay taxes of the same amount, and a high-income person would pay a higher fraction of income in taxes than a low-income person

a progressive tax

The resources that a taxpayer devotes to complying with the tax laws are a type of

administrative burden and deadweight loss.

Average total cost is very high when a small amount of output is produced because

average fixed cost is high

constant returns to scale

average total cost is constant as output rises

If marginal cost is equal to average total cost, then

average total cost is minimized.

The principle that people should pay taxes based on the benefits they receive from government services is called the

benefits principle.

marginal revenue =

change in total revenue / change in quantity

visitors to the park have to pay, but there are many empty picnic tables

club good

fire protection is a

club good, because it is excludable but not rival in consumption

public good but is busy

common resource

Goods that are rival in consumption but not excludable would be considered

common resources

Vertical equity states that taxpayers with a greater ability to pay taxes should

contribute a larger amount than those with a lesser ability to pay

a study to determine the value of the project

cost-benefit analysis.

When marginal cost is rising, average variable cost

could be rising or falling

If the total cost curve gets steeper as output increases, the firm is experiencing

diminishing marginal product

In designing a tax system, policymakers have two objectives that are often conflicting. They are

efficiency and equity

Elephants are endangered, but cows are not because

elephants are a common resource, while cows are private goods.

Taxes on specific goods such as cigarettes, gasoline, and alcoholic beverages are called

excise taxes

private and club goods are

excludable

average fixed costs =

fixed cost / output quantity

the total cost curve begin at the origin because

fixed costs are positive when output is zero

Competitive markets are characterized by

free entry and exit by firms

National defense is provided by the government because

free-riders make it difficult for private markets to supply the socially optimal quantity

Because the marginal tax rate rises as income rises,

higher income families, in general, pay a larger percentage of their income in taxes.

A tax that is higher for men than for women violates the criterion of

horizontal equity

The ability-to-pay principle claims that a person should pay taxes according to

how well that person can shoulder the tax burden

Horizontal equity in taxation refers to the idea that people

in equal conditions should pay equal taxes

The largest source of income for the federal government is

individual income taxes

economies of scale

long-run average total cost falls as the quantity of output increases

When a firm experiences diseconomies of scale,

long-run average total cost increases as output increases

Economies of scale occur when a firm's

long-run average total costs are decreasing as output increases

The most efficient tax possible is a

lump-sum tax

The competitive firm's short-run supply curve is its

marginal cost curve, but only the portion above the minimum of average variable cost

to maximize profits

marginal revenue equals marginal cost

Economists assume that the typical person who starts her own business does so with the intention of

maximizing profits

If a road is congested, then use of that road by an additional person would lead to a

negative externality

The intersection of a firm's marginal revenue and marginal cost curves determines the level of output at which

profit is maximized

If there is an increase in market demand in a perfectly competitive market, then in the short run

profits will rise

When the marginal tax rate exceeds the average tax rate, the tax is

progressive

The phenomenon of free riding is most closely associated with which type of good?

public goods

When firms have an incentive to exit a competitive market, their exit will

raise the profits of the firms that remain in the market.

Entry into a market by new firms will increase the

supply of the good

. The overuse of a common resource relative to its economically efficient use is called

the Tragedy of the Commons

The claim that all citizens should make an "equal sacrifice" to support government programs is usually associated with

the ability-to-pay principle

When calculating a firm's profit, an economist will subtract only

the opportunity costs from total revenue

In the long run, a profit-maximizing firm will choose to exit a market when

total revenue is less than total cost

When firms are neither entering nor exiting a perfectly competitive market,

total revenue must equal total cost for each firm and economic profits must be zero.

Without government intervention, public goods tend to be

underproduced and common resources tend to be over consumed.

If a firm operating in a competitive industry shuts down in the short run, it can avoid paying

variable costs