Unit 6 Topic Questions
If government regulators set price such that a natural monopolist earns only normal profits, price will be set equal to
average total cost
In a perfectly competitive labor market, an increase in an effective minimum wage will result in
fewer workers being hired
The government must provide public goods such as national defense because
it is generally impossible to exclude individuals who value public goods but do not pay for them
If a positive externality exists in the consumption of a good, the private market equilibrium quantity will be
less than the socially optimal quantity, since the marginal social benefit exceeds the marginal private benefit
Antitrust laws are designed to maintain a competitive market environment by
limiting practices that increase a firm's market power
A progressive income tax is characterized by
marginal tax rates that increase as income increases
In a given year, Jennifer earns $50,000 and spends $40,000. During the same period, Steve earns $30,000 and spends $27,000. If Jennifer and Steve both must pay a 10 percent sales tax on goods purchased, the sales tax is
regressive with respect to income
The market inefficiency of a negative production externality will be eliminated if a policy is put in place that results in which of the following outcomes?
the marginal social benefit of production is equal to the marginal social cost
The table above shows the total cost and the total benefit of cleaning up pollution in a community. Which of the following cleanup levels is socially optimal?
2
Which of the following is an example of a pure public good?
A hurricane warning siren
Which of the following actions is most likely to reduce the degree of income inequality within a society?
Introducing progressive inheritance taxes on accumulated wealth
Which of the following is most likely to reduce inequality in a country's distribution of income?
Job training for low-skill workers
In the absence of externalities, which of the following is true of a competitive market in equilibrium?
Marginal social benefit equals marginal social cost.
Which of the following will most likely lead to a more equal distribution of income?
More progressive income taxes
Which of the following is the best example of a pure public good?
National defense
Which pair of characteristics is associated with a pure public good?
Nonrival consumption and a free-rider problem
Which of the following is the best example of a negative externality?
Oil leakages from drilling platforms in the Gulf of Mexico
The graph above shows the price and cost condition for a natural monopoly. The amount of lump-sum subsidy required to regulate the monopoly to produce the allocatively efficient quantity is given by the area
P2P3JK
Which of the following statements about income inequality is true?
Raising taxes on savings and providing subsidies to low-income households will lead to more equal after-tax and transfer incomes.
Which of the following is a government policy that is intended to address a market failure?
Taxing the use of toxic pesticides by farmers
The Lorenz curve is used to show which of the following?
The degree of inequality in the distribution of income within a country
The graph above depicts the marginal social cost (MSC), marginal private cost (MPC), and marginal social benefit (MSB) associated with the production of a good that generates an externality. Based on the information in the graph, which of the following is true?
There is a negative externality because marginal social cost exceeds marginal private cost.
Assume that many boats have free and open access to fishing in the waters of a country. Which of the following statements is true?
There will be a tendency for fishing operations to overfish, reduce the stock of fish, and limit the future availability of fish for succeeding generations.
Assume a profit-maximizing monopoly and firms in a perfectly competitive market have identical cost and revenue conditions. In which market will a binding price ceiling result in a more efficient outcome and why?
The monopoly will become more efficient because the deadweight loss will decrease.
Assume accountants and teachers have identical marginal revenue product schedules. Which of the following provides an explanation for why accountants receive higher starting salaries than school teachers?
The supply of accountants is low relative to the supply of teachers.
