review module 1/4

A tax on imported goods is known as a(n):

tariff

The budget line shows:

the affordable combinations of goods and services you can buy with your income

What is the cross-price elasticity of demand for two goods that are unrelated?

zero

Considering the Law of Demand, when you compute a price elasticity of demand the answer is always:

negative

If the total benefit increases with additional consumption of a good, then the marginal benefit is:

positive

The price elasticity of supply always has a:

positive value

Suppose you have a fixed amount of income and spend equal amounts on two goods, X and Y. The price of good X is Px = $10, and the price of good Y is Py = $5. The marginal benefit (utility) of X is MBx = 60 units of benefit, and the marginal benefit (utility) of Y is MBy = 15 units of benefit (utility). How should the consumption of X and Y change, if at all, to increase benefit (utility)?

Consumption of good X should increase, and consumption of good Y should decrease.

Which of the following is a source of comparative advantage?

The relative abundance of capital and labor

Some goods induce costs or benefits to someone other than the parties involved in transaction. These costs or benefits are known as:

external costs or benefits

Diamonds have a higher price than water because:

the price reflects marginal, not total, benefit

The lack of private ownership of certain resources like public lands or water can contribute to overuse. This is known as:

the tragedy of the commons

Government taxes and subsidies designed to create an efficient equilibrium in markets with externalities are known as:

Government taxes and subsidies designed to create an efficient equilibrium in markets with externalities are known as:

What term do economists use to refer to the dollar amount that business owners must earn on their time and effort they invest in a firm?

Implicit cost

Which of these is the preferred method to reduce the external cost (pollution) of traffic congestion according to an economist?

Levy a tax that varies with the level of congestion

What is the name for the additional output that a firm produces as a result of hiring one more worker?

Marginal product of labor

The association formed to lower trade barriers and encourage trade between Canada, the United States and Mexico is known as:

NAFTA

What is the name given to the highest-valued alternative that must be given up to engage in any activity?

Opportunity cost

Which of the following is a technique used to encourage people to contribute and resolve the free-rider problem?

Rewarding private contributors with private goods.

Which one of the following will not help to reduce the problem that exists when social costs exceed social benefits?

Subsidize polluters

If increasing your consumption of pizza from 3 to 4 slices increases your benefit, which of the following must be true?

The marginal benefit of the fourth slice of pizza must be positive.

When is the market equilibrium said to be efficient?

When there are neither external benefits nor external costs

If the price elasticity of supply is 0.4, then a 20% increase in price will __________ the quantity supplied by __________ %.

increase, 8.0

If polluters are charged to pollute, then:

less pollution is a likely result

Costs that cannot be recovered and therefore aren't relevant to a decision for a future activity are called _______________ costs.

sunk

What types of goods provide external benefits?

Both public goods and private goods

Which of the following arguments is used to justify protectionism?

Tariffs and quotas protect infant industries

A bakery generates a pleasant odor for its neighborhood. Which is the following is true?

The MSC curve lies below the supply curve.

Country A has the comparative advantage in good Y.

The industries under protection may never become efficient enough to compete with foreign firms.

Ms. Boulware is the best lawyer and the best secretary in town. She has:

an absolute advantage in both jobs.

Countries gain from specializing in goods for export in which they have a(n) __________ advantage and importing goods in which other countries have a(n) __________ advantage.

comparative, comparative

If a 20 percent increase in the price of Red Bull energy drinks results in a decrease in quantity demanded of 25 percent, we say the demand for Red Bull is __________ in this range.

elastic

The idea of a pollution tax is to internalize the externality, which happens when the tax:

equals the external cost

The opponents of globalization contend that:

globalization destroys cultures

The more substitutes that exist for a particular product, the __________ the price elasticity of demand.

greater

Which statement is precisely correct? A market with external benefits is _______________.

inefficient, so there is an opportunity for government to promote efficiency via establishment of appropriate property rights

Accounting profits will always be __________ economic profit.

larger than

The marginal cost of eliminating the first 20% of pollution is much __________ than the marginal cost of eliminating the last 20% of pollution.

less expensive

The optimal combination of pizza and coke is the one where the:

marginal benefit per dollar spent on pizza equals the marginal benefit per dollar spent on coke

Economists avoid confusion over units in the computation of elasticity by using:

percentage changes

In perfect competition, the marginal revenue is the same as:

price

Absolute advantage is the ability of an individual, firm, or country to:

produce more of a good or service than competitors using the same amount of resources.

The relationship between the inputs used by the firm and the maximum output it can produce is known as the:

production function

If a 20 percent increase in the price of Red Bull energy drinks results in a decrease in the quantity demanded of 25 percent, the price elasticity of demand is:

-1.25

The current price of wheat is $1.00 per bushel, and the price elasticity of demand for wheat is known to be 0.50. A bad harvest causes the supply of wheat to decrease and as a result the price of wheat rises by 20%. What will be the percentage change in quantity demanded for wheat and will farm revenues rise or fall?

10%, rise

What is an external benefit?

A benefit from a good experienced by someone other than the producer or consumer of the good.

If the number of people in a publishing company does not go up or down with the quantity of books it publishes, then how should we categorize the salaries and benefits paid to these employees?

As a part of fixed cost

Why does the government encourage people to become educated?

Because education generates external benefits

Two countries have identical resources. Each produces good X (on the x-axis) and good Y (on the y-axis) in autarky. Country A's PPF has vertices at points (8,0) and (0,8), and Country B's PPF has vertices at points (0,3) and (6,0). Which of the following is true?

Country A has the comparative advantage in good Y.

Which of these costs are affected by the level of output produced?

Variable costs

The ability of an individual, firm, or country to produce more of a good or service than competitors using the same amount of resources is known as:

absolute advantage

According to the theory of comparative advantage, specialization and free trade will benefit:

all trading partners who specialize in goods where they have comparative advantage

A product produced in a foreign country and purchased by residents of the home country is called:

an import

An increase in the price of a substitute for iPads will lead to __________ in the quantity demanded of iPads so the cross-price elasticity of demand will be __________.

an increase, positive

The short run is a period of time where __________ while the long run is a period of time where __________.

at least one input is fixed, all inputs are variable

Social benefit is the total benefit from the consumption of a good or service that includes:

both private and external benefits

If the cross-price elasticity of demand between two products is -3.0, then the two products are:

complements

The difference between the highest price a consumer is willing to pay and the amount a consumer actually pays for a good or service is known as:

consumer surplus

The demand curve for an inferior good is __________ sloping while the demand curve for a normal good is __________ sloping.

downward, downward

The downward sloping part of the long run average total cost curve is where the firm is achieving:

economies of scale

Goods and services produced domestically but sold to other countries are called __________.

exports

When a private cost is different than the social cost there is an:

external cost being borne by someone else

The marginal benefit from consuming the second ice cream cone is the:

extra satisfaction you get from consuming the second ice cream cone

In the short-run, the cost that is independent of the amount of output produced is called __________.

fixed cost

A negative externality causes the social cost of production to be:

greater than the private cost

If a country has a comparative advantage in the production of a good, then that country:

has a lower opportunity cost in the production of that good

Along a linear demand curve, the slope __________ while the price elasticity of demand __________.

is constant, changes from one point to another

Consumer optimizing requires that the consumer:

maximize total benefit, subject to an income constraint

When no one owns a specific resource, there is:

no incentive to consider negative externalities that impact that resource

When nations specialize in their comparative advantage and engage in trade:

overall standards of living increase

If the price of Good A rises, other things being constant, then the marginal benefit:

per dollar's worth of Good A falls

The __________ is a measure of responsiveness of the change in quantity demanded of a good to the change in its price.

price elasticity of demand

The use of trade barriers to shield domestic companies from foreign competition is called __________.

protectionism

Private goods are __________.

rival and excludable

Under a policy strategy in which a government imposes an emissions cap and issues tradable emissions-allowance permits to firms, the government:

seeks to cap nationwide emissions and then distributes emission-allowance permits across firms

The principle of increasing marginal opportunity cost states that the more resources devoted to any activity, the _ the payoff to devoting additional resources to that activity.

smaller

If prices rise the quantity supplied will be greater:

the longer the time that elapses

The total benefit (utility) of consuming two slices of pizza is the:

total satisfaction you get from consuming the two slices of pizza.

The costs associated with engaging in a process to solve a particular pollution problem are referred to as:

transaction costs

The Coase theorem postulates that private solutions to the problem of negative externalities are possible if:

transaction costs are low