Microeconmics Exam 2 Chap 5-11
is it possible for accounting profit to be positive and economic profit to be negative?
Yes, this could occur if explicit costs were modest and implicit costs were high.
An individual or a firm can internalize an externality by ___________.
paying the cost of the externality.
An example of a proportional tax is the ___________
Medicare Tax
All firms in a perfectly competitive market are said to be ____
Price Takers
A non market price imposition is ____
Price control
Given that there are costs involved with the government intervention in an economy, governments still choose to intervene in market to _____
address externalizes
A linear PPC would show _____, and a PPC that is curved away from the origin would show ____
constant opportunity costs increasing opportunity costs
As a consequence of the current short-run conditions in this industry, it may be expected that firms will ____ this market
enter
Given this information, the senator's comment is _____, since these types of costs ____ affect current and future decisions
flawed, should not
Because the nonprofit hospitals of may bury minimize the long run average cost of treating patients,they operate at the patient level (that is, the size) which corresponds to the average cost curve's ____ point
minimum
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.
Imagine you are a buyer ina double oral auction with a reservation value of $16 and there is a seller asking for $10. If you accept this offer you will gain ___
$6
How does a consumer's budget set differ from his budget constraint?
A budget set refers to all of the possible bundles of foods and services a consumer can purchase, while a budget constant is limited tot eh bundles he ca purchase using all of his income.
The "hundred billion dollars" that Senator Nelson is referring to known as _____
A sunk cost
For Joe, which production points are efficient? (Check all that apply.)
A, B
Social surplus is maximized when the
Al of the abov
How do economic profits and losses allocate resources in an economy?
All of the above
Which of the following equations represents the firm's average variable cost?
B. 0.1q.
Based on your understand of how the invisible hand works, what do you think should bed done to correct this problem
Cab fares should be allowed to increase
In a perfectly competitive market, a seller ________ choose to raise the price of its good since all sellers in the market produce________, so raising the price would result in ________
Cannot, identical Goods Losing all its customer
Which of the following is not an important determinant of wage inequality within an economy?
Differences in connections to influential people.
under which of the following examples is it likely that the accounting profit is positive and the economic profit is negative?
If you open an amusement park in the middle of New York City
Now suppose the apartment builiding passes a rule that says residents are not allowed to play music their neighbors can hear if any of the neighbors object. As before, Jones and Smith can bargain at zero cost. According to the coase Theorem, ____ to compensate for the ____
Jones will pay $60 to Smith Negative externality
Which of the following is not an externality?
Jordan has lung cancer from smoking cigarettes.
What are the types of goods that are causing the shift in the balance of imports and exports in the United States?
Manufactured goods have played an important role in the shift, even though the number of manufactured goods has increased.
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.
Which of the following shows the arc elasticity method of calculating the price elasticity of demand?
Q2-Q1/(Q2+Q1)/2/P2-P1/(P2+P1)/2
This problem tell us that one if the sources of economies of scale is ____
Specialization
The figure at right shows a production possibilities curve LOADING... (PPC) for Joe. He can spend his time making pizzas or chocolate cakes. For Joe, which production points are attainable? (Check all that apply.)
a, b, d, e
Suppose a CEO of a firm that manufactures surgical equipment has a production plant in Alabama where it employs highly skilled labor. The CEO of the firm is considering moving its production facilities from Alabama to Guangzhou in China in an attempt to lower labor costs. When the CEO compares wages in China and in the United States, she notices that the average wage in China is significantly lower than the average American wage. What factors would the textbook argue the CEO should consider when she decides whether or not to move production to China? (Check all that apply.)
all expect "china's record on human rights"
Suppose that an individual who buys only wine (W) and cheese (C) is currently maximizing his total benefits. From this, we know that: MB Subscript Upper W divided by Upper P Subscript Upper W equals MB Subscript Upper C divided by Upper P Subscript Upper C MBW/PW = MBC/PC Now suppose the price of wine wine falls, all else constant. From the "equal bang for the buck" rule, we can predict that he responds by increasing his consumption of wine . Given the consumer's response to a decrease in the price of wine wine, we can say that the solution of the buyer's problem ___________.
all of the above
social surplus is maximized when the _______
all of the above
At this movement of firms occurs, comic profits for the typical firm will ____
approach zero
Is it true that a country needs to have an absolute advantage in the production of a good in order to benefit from trade in that good? Countries that do not have an absolute advantage in the production of a good ___ benefit from trade
can
Externalities are called market failures because they ___________.
cause markets to produce suboptimal social outcomes.
You are the County Commissioner of Hazard County. There is a popular lake for fishing located in eastern Hazard County on county-owned park land, which is open to the public. Recently, the Reed brothers have started using large nets to catch large amounts of fish, severely depleting the amount of fish left for other fishermen. The fish in the lake are an example of a _____ Common pool resources are ___ in rivalry in ___ i excitability THe over fishing by the Reed brothers is an example of ____ What approach would be the lest effective way to deal with the over fishing problem
common pool resources high, low tragedy of the commons limit who is allowed to fish in the lake
Which of the following is a cost associated with government intervention in an economic system?
corruption
How will the invisible hand move corn prices in response to each of the following: A weather pattern that produces a bumper corn crop This will ____ corn prices by shifting the supply curve ___
decrease, rightward
When economist of a dead wight loss, they are referring to a ___ in ___ caused by a market distortion
decrease,social surplus
Consumer sovereignty suggests that ____________.
government should not interfere with consumer choices.
This price adjustment would eliminate the mismatch by ___ market participants to change their behavior
incentivizing
An example of a progressive tax is the __________.
income tax
A change in consumer tastes away from hot dogs toward corn dogs This will ___ corn prices by shifting the demand curve for corn ____
increase, rightward
A change in consumer tastes away from hot dogs toward corn dogs This will ___ corn prices by shifting the demand curve for corn _____
increase, rightward
A rise in the price of what THis will ___ corn prices by shifting the demand curve for corn ____
increase, rightward
A rise in the price of wheat This will ___ corn prices by shifting the demand curve for corn ____
increase, rightward
According to your graph, when some sellers exit a competitive market, the equilibrium price ____, and the equilibrium quantity ____
increases, decreases
The substitution effect of a decrease in the price of one good always ___ the amount of that good in the individuals new consumption choice (bundle) and ___ the amount of the other good
increases, decreases
Because this firm is competitive and has no control over its product's price, the declining values for VMPL are a result of diminishing
marginal productivity
If the price of the good decreases to $4, the firm now experiences a ___ economic profit
negative
Producer surplus is the difference between the ___ and the _____
price consumers pay, supply curve
A non market price imposition is a ___
price control
An example of a regressive tax is the ___________.
property tax
this lump-sum income tax is a ____ tax
regressive
The primary types of tax systems are ___________. (Check all that apply.)
regressive, progressive, proportional
Social surplus is the ____________.
sum of consumer surplus and producer surplus
How does a command-and-control policy differ from a market-based policy? With a command-and-control policy,_____. while with a market-based policy, ____
the government directly regulates the allocation of resources the government provides incentives fro private organizations to internalize the externalize
A firm will employ physical capital until ____________.
the value of marginal product of capital (VMPK) equals the rental price of capital
If the imposed price PC were removed, market forces would rectify the mismatch between quantity demanded and quantity supplied by pushing the price ____
upward
Tax incidence refers to ____________.
who bears the burden of a tax
In the case of the profit-maximizing, perfectly competitive hospitals in Springfield, profits and losses and thus the movement of firms will in the long run result in _____ economic profits
zero
The associated income effect of a decrease of one good ____ the quantity of that good and _____ the quantity of the other food in the quantities of the two goods in the new consumption choice cannot simultaneously ___ as a result of the income effect
may increase or decrease, may increase or decrease, decrease
The figure on the right shows the typical firm in a perfectly competitive industry. Equilibrium in the market is currently yielding a price of $ 70$ AT this price, the typical firm earns a ___ economic profit
positive
The Coase Theorem states that ____________
private bargaining will result in an efficient allocation of resources.
Classify the following goods and services as private goods, common pool resources, club goods, or public goods. Health insurance is a ___ Radio spectrum is a ____ A video on YouTube is a ___ A mosquito control program in a city is a ___ A library collection of e-books is a ____
private good common pool resource public good public good club good
The government could encourage the production of the efficient number of ITNs by ____________.
providing a subsidy fr ITNs
According to the Law of Diminishing Returns, ____________.
the marginal productivity of an additional unit of labor eventually decreases as the quantity of labor increases.
A production function shows ____________.
the number of workers employed and the corresponding output levels that will be produced.
a consumers satisfaction is maximize when the marginal benefit from the last dollar she spent on one good is equal to the marginal benefit from the last dollar she pent on another good because_____
the reality of diminish marginal benefits assures that any shift in consumption toward either good must necessarily make her worse off
The Coase Theorem will will breakdown when ____________. (select all that apply)
there are a large number of agents., when property rights are not clearly defined., transaction costs become high.
A government would want to be on this curve where ___________.
there is no correct answer to this question, as the answer depends on a government's value judgments.
This price adjustment would eliminate the mismatch by ___ market participants to change their behavior
incentive's
When the ATC curve is decreasing, we know that the MC curve is ________, and when the ATC curve is increasing, we know that MC is _______
Below the ATC curve, Above the ATC Curve
If you are the only buyer, and you know that the lowest ask price is $3, should you accept this offer?
Both A and C are correct
In the united states, __ gain from trade In Ecuador,___ gain from trade As a whole, does the United States or Ecuador benefit from a trade The gain in total surplus for the united States is ____ the gain in total surplus for Ecuador is ___
Buyers Sellers both countries benefit from trade e + f c
In the diagram on the right, the consumer surplus in the maret is represented by are ___
C
Calculate the opportunity costs of producing fish and coconuts in Nearway and Farway, and then complete the table below. (Round your responses to two decimal places.)
Nearway-- 2.00 cocunts/ 0.50 Fish Farway-- 1.50 coconuts/ 0.67 fish
A point B, the firm experiences ___
Constant returns to scale
At pint A, the firm experinces ____
Economies of scale
According to the data, ___ has an absolute advantage in making either type of sandwich
Gonzalo
Government spending in the United States has grown over time and now accounts for more than 40 percent of U.S. national income. Does this mean that government has been consistently running a budget deficit?
No, government deficits depend upon spending and tax revenue.
The price elasticity of demand shows the sensitivity of consumers's purchases to a ______ change in the good's price. In the market for backpacks, suppose Green's price of elasticity of demand is 0.4, Smith's price of elasticity is 1.4, and the price of elasticity of all the other consumers is greater than 0.4 but less than 1.4. Could the market price elasticity be less than 0.4 or greater than 1.4?
No, it must lie between 0.4 and 1.4
in the market for sneakers, suppose Green's price elasticity of emand is .6, smith's price elastic is 1.6, and the Price elasticity of all the other consumers is greater than 0.6 but less than 1.6 Could the market price elasticity be less than 0.6 or greater than 1.6?
No, it must lie between 0.6 and 1.6
should you complete the apartment building?
No, the reaming cost to build is 500,000 and you can only expect to earn 499.950; you will ignore the 100,000 spent since it is a sunk cost
Which of the following are necessary ingredients to the buyer's problem?
Price of goods and services, Consumer's tastes and preferences, Amount of money the consumer has to spend.
Which of the following equations calculates the profits of a firm?
Total Revenues - Total Costs
this will ___ corn price by shifting the supply curve for corn ___
decrease, rightward
When the VMPL is plotted in a diagram with the number of workers measured along the horizontal axis, the resulting curve (connecting the plotted points) is the firm's
demand for labor
At point C, the firm experiences
dis economies of scale
When the firm's VMPL is plotted in a diagram with the quantity if labor measured along the horizontal axis, the resulting curve will be ____ and constitutes the firms ____
downward-sloping demand curve for labor
if demand shifts to the left (decreases), the last firm that entered ______
earns negative economic profits and so exits the market
Suppose a country has 100 westerners and 100 easterners. A westerner can produce either 6 units of food or 2 units of national defense; an easterner can produce either 2 units of food or 1 unit of national defense. According to the data, ___ have comparative advantage in the production of defense
easterners
This drop in price and corresponding change in the firms profit status ____
has no bearing on the market's characterization as competitive, since nonzero values for economic profit reflect short-run events
Hardware stores charge higher prices for snow shovels after a big snow storm What role do prices play in the snow shovel market?
it would incentive distributors to shop more snow shovels into the are to met the increased demand
in the case of the profit-maximizing, perfectly competitive hospitals in Springfield profits and losses and thus the movement of firms will in the long run result in ___ economic profits
zero
The last firm to enter earn____
zero economic profits
What approach would be the least effective way to deal with free riders?
Exclude citizens from benefiting from the good or service
Which nation has a comparative advantage in the production of each good? _____ a comparative advantage in the production of fish ___ a comparative advantage in the production of coconuts
Farway has Nearway has
The terms of trade are ___ coconuts per fish Who befits from trade? Which nation received the better deal in this trade Would nearway and Farway ever trade 120 coconuts for 40 fish
1.60 Both nation benefit from trade Nearway received the better deal No, because while Farway gains from this trade, Nearway does not
Suppose the market for T-shirts in the country of Argonia is perfectly competitive, and the price of a T-shirt is $20. A producer in this market has the following total cost and marginal cost functions: TC left parenthesis q right parenthesis equals 500 plus 0.1 q squaredTC(q)=500+0.1q2 MC left parenthesis q right parenthesis equals 0.2 qMC(q)=0.2q What part of the total cost function represents fixed costs?
500
from the given information, can you conclude whether the firm is operating in a competitive market.
A and B only
Human capital is the __________.
A and B only.
The value of marginal product of labor (VMPL) is ____________.
A and C only.
What would have to be true for the analysis claim (that Starbucks revenues would not fall) to hold?
A percentage on the part of customers that few good substitutes exist for Starbucks coffee. Starbucks beverages will represent a relatively small fraction of peoples budget share. Avery limited time horizon on the part of those analysts that expected no adverse revenue effects.
Suppose this country has decided it wants to produce 60 unit of defense In this case, the country will have more food to consume if the ___ produced these 60 units of defense. You should have anticipated this answer because____
Easterners The easterners have a comparative advantage in the production of defense
New York levies the highest cigarette tax in the country—$5.85 per pack. Other states in the United States impose taxes that are much lower. The state of Virginia levies a tax of 30 cents per pack, which is the second lowest after Missouri. How would this explain the thriving black market for cigarettes in New York?
It is more profitable to sell cigarettes on the black market in New York.
Considering comparative advantage, ___ has a comparative advantage in the production of good A and ___ has a comparative advantage in the production of good B
Taiwan, Korea
If management sought to transfer 10 thousand units of Bet's production o Alpha. the firm's overall profits would____ since for those 10 thousand additional units _____
decrease, MCBeta < MCAlpha
Charley spends all of his income on soft drinks and pizza. Suppose he is currently buying these products in amounts such that his marginal benefit from an additional soft drink is $ 110 $110 and his marginal benefit from an additional slice of pizza is $ 110 $110. If the price of a soft drink is $ 5 $5 and the price of a slice of pizza is $ 6 $6, is Charley maximizing his total benefits?
No, he should shift consumption toward soft drinks soft drinks and away from pizza pizza to maximize total benefits
This long-run profit level for Springfield's hospitals means that they will end up operating at the patient level (that is , the size) which corresponds to the average cost curve's ____ point
Minimum
Are all efficient outcomes also equitable? Explain
There is really no definitive answer to this question since issues surrounding efficiency and equity are the domain of normative economics, where subjective value judgement are made/
What is the difference between accounting profit and economic profit?
Economic profit subtract both explicit and implicit costs from total revenue, while accounting profit only subtracts explicit costs
Georgina, an economics student, notices that the price of oil has been increasing steadily. She also observes that the total consumption of oil has actually increased. Georgina concludes that this is an exception to the Law of Demand. Do you agree?
No, she is mistakenly assuming a stationary demand curve when most likely she is observing changes in the equilibrium caused by an increasing quantity supplied and shifting demand.
The price of elasticity of demand shows the sensitivity of consumers purchases to ___ change in the good's price
a percentage
An increase in the number of demanders in the corn market This will ___corn prices by shifting the demand curve for corn ____
increase, rightward
For a consumer with a given level of income, the combinations of goods for the budget constraint will be ___ than for the budget set.
lower
This long-run profit level for Springfield's hospitals means that they will end up operating at the patient level (that is, the size), which corresponds to the average cost curve's _____ point
minimum
Compensating wages are the wage premiums ___________.
paid to attract workers to occupations to otherwise undesirable jobs.
If the total costs of production increases, then the average total cost curve ______, the average variable cost curve _____, and the marginal cost curve _______
shifts up, remains unchanged, remains unchanged
in the figure on the right, the imposition of price Pc results in a ____ in the market
shortage
int he figure on the right, the imposition of price PC results in a ___ in the market
shortage
A production possibilities curve (PPC) ___________.
shows the realtinship between the maximum production of one good for a given level of production of another good.
Suppose Joe has a comparative advantage in making pizzas and Samantha has a comparative advantage in making chocolate cakes. Both individuals will specialize and trade if the exchange rate is favorable. Using the information in the table below, determine whether or not each person will trade at the terms of trade offered. if the terms of trade is 1 cake for 1 pizza, Joe ___ make the trade and Samantha ___ make the trade. The term of trade at 1 cake for 1 pizza____ FOr both Joe and Samantha to beefit equally from trading, the terms of trade would have to be ____ cakes for 1 pizza. If the terms of trade is 2.5 pizzas for 1 cake, Joe ___ make the trade and Samantha ___ make the trade.
will, will favors Samantha 1.25 Joe will not, Samantha Will
In an attempt to help the poor, India announced a policy to implement price ceilings on several essential drugs in December 2012. Some industry analysts, however, claimed that this would actually end up hurting the poor more than helping them. Do you think this is a possibility? Explain your answer.
Yes, it might hurt the poor by creating a shortage.
Suppose the apartment building does not have any rules about noise. Jones and Smith can bargain at zero cost. According to the Coase Theorem, ____ to compensate for the ___
Jone will pay $0 to smith Negativity externality
According to the figure, ___ has an absolute advantage in the production of good A and ___ has an absolute advantage in the production of good B
Korea, Korea
Because the nonprofit hospitals of Maybury minimize the long-run average cost of treating patients, they operate at the patient level (that is, the size), which corresponds to the average cost curve's _____ point
Minimum
since everyone woe ants an Ipod obtains one, and everyone who wants to get rid of their ipod sells it at the price they wanted,is social surplus maximized in the market?
No, this trade arrangement yields social surplus since each participant trades at his or hr reservation value.
Suppose trades are arranged in this market such that everyone can make a trade without losing money. So, Madeline buys from Fiona at a price of $70, Katie buys from Matt at a price of $60, Sean buys from Adam at a price of $50, and so on. Since everyone who wants an iPod obtains one, and everyone who wants to get rid of their iPod sells it at the price they wanted, is social surplus maximized in the market?
No, this trade arrangement yields zero social surplus since each participant trades at his or her reservation value.
Producer surplus is the difference between the ____ and the ____
Price consumers pay, supply curve
Jones and Smith live in the same apartment building. Jones loves to play his opera recordings so loudly that Smith can hear them. Smith hates opera. Jones receives $100 worth of benefits from his music and Smith suffers $60 worth of damages. From an efficiency perspective, Jones ___ allowed to play his opera music
Should be
What is the problem with the argument that infant industries need to be protected from foreign competition?
Starting a company in isolation may deprive it of "technological spillovers" that its competitors, all located near one another, may enjoy.
Based on comparative advantage, who should make salami sandwiches and who should make turkey sandwiches ___ has a comparative advantage in making salami sandwiches ___ has a comparative advantage in making turkey sandwiches
Svetlana gonzalo
_____ occurs when people's preferences cause them to discriminate against a certain group. ____ occurs when expectations cause people to discriminate against a certain group. The owner of company that manufactures automobile part states that it will not hire gay or lesbian employees this is an example of ____
Tate-based discrimination statistical discrimination taste-based discrimination
social surplus is the ___
sum of consumer surplus and producer surplus
How do labor-saving technologies differ from labor-complementary technologies?
All of the above.
Why are there two different views on the effect of taxation on labor supply in the United States?
All of the above.
How does the labor-leisure trade-off determine the supply of labor?
An increase in the wage rate is an increase in the opportunity cost of leisure, and can therefore be expected to reduce the amount of leisure one wishes to consume. Choosing less leisure is equivalent to supplying more labor, thus yielding a positive relationship between the wage rate and the amount of labor supplied.
Rhino poaching is a serious problem in South Africa, where a large proportion of Africa's rhino population is found. The demand for rhino horns, used in traditional Chinese medicine, has increased the prices of rhino horns substantially. This has fueled an illegal market for rhino horns. What economic tools can be used to solve this problem? in this case, rhinos are best categorized as ___ The over hunting of rhinos is an example of ____ One possible economic solution to the over hunting of rhinos is to ___
Common pool resources the tragedy of the commons allow private conservation organizations to purchase the rhinos and their habitat
Which nation has an absolute advantage in the production of each good? ____ an absolute advantage in the production of fish ___ had a n absolute advantage in the production of coconuts
Farway has farway has
Do firms 1 and 2 experience economies of scale? Or do they experience dis economies of scale?
Firm 1 is experiencing economies of scale, while firm 2 is experiencing dis economies of scale.
How has the pattern of trade changed in the United States since 1960?
Imports have grown faster than exports, and the United States has become a net importer.
An increase in the number of demanders in the corn market This will ____ corn prices by shifting the demand curve for corn ____
Increase, rightward
according to your graph, when some sellers exit a competitive market, the equilibrium price ___ and the equilibrium unity ____
Increases, decreases
How would you depict the trade-off between equity and efficiency on a graph?
Inequality on one axis and social surplus on the other with a positively-sloped function.
The Internal Revenue Service defines the estate tax as a tax on your right to transfer property at your death. The fair market value of the estate is taken into account when levying the tax. Once the gross value of the tax is computed, certain deductions are allowed to arrive at the value of the taxable estate. What is the equity implication of imposing an estate tax? What is the efficiency implication of imposing an estate tax?
It is fair because it reduces inequality. It is inefficient because it reduces investment.
Consider the following statement: Given that burgers and fries are complementary goods, if the price of fries increases the demand for both goods will fall. IS this an accurate statement?
It is somewhat inaccurate. The increase in the price of fries will reduce the quantity demanded (not the demand) for fries, it will, however as the statement claims, reduce the demand for burgers
The figure on the right shows a firm's marginal and average costs of production. Te equilibrium price in this market is $5. At this price the firm is experiencing a ____ economic profit
Zero
When economists speak of a dead weight loss, they are referring to _____ in _____ caused by a market distortion
a decrease, social surplus
When determining which firms enter the market first, we look at _____
average total cost
