ECON 213 Quiz 7 Market Inefficiencies solutions complete answers

ECON 213 Quiz 7 Market Inefficiencies solutions complete answers 

 

A government decision to impose a tax on the sale of plastic disposable water bottles is an example of:

 

Which of the following is NOT a public good?



The market overproduces common-resource goods because private decision makers consider ________ costs but society experiences ________ costs.



Which of the following is an example of a positive externality?



If government regulation forces firms in an industry to internalize the externality, then we can expect the equilibrium price of the good to ________ and the equilibrium quantity to ________.



A carbon tax would be an efficient method of addressing the problem of global warming because: 



Suzanne drives to work each day. The best example of an internal cost is the:



Elijah’s neighbor likes to mow his grass each Saturday at 7 A.M. and the noise invariably wakes Elijah up. This is an example of: 



Which of the following is a cost of internalizing a negative externality?

 

Consider a market where production of the good is creating a negative externality. In the market equilibrium, there is a deadweight loss because the:

 

To maximize social welfare, the optimal quantity of a public good to provide should be determined through the use of:

 

Driving in the city is an example of a good that is:

 

Refer to the accompanying table, where Q represents the quantity produced, internal cost and social cost are given for various quantities, and P represents the price consumers are willing to pay for various quantities.

 

The social optimum occurs where price is __________ and quantity is __________.

 

Congestion charges effectively decrease the number of cars on the road. This is an example of:

 

A good that is nonrival and nonexcludable is defined as a:

 

Your roommate is studying to be a drummer in a rock band. She practices in your apartment every evening for three hours and the noise makes it difficult for you to concentrate. This is an example of:


When pollution (a negative externality) is created by firms, which of the following is NOT a valid way for the government to restore the social optimum?
Which good has well-defined property rights?
 

Question 1 The government has identified a situation where the production of a good is creating a negative externality. The government should enact legislation to require firms to internalize the externality:

Question 2 Refer to the following information to answer the questions that follow. Two firms both emit a pollutant, and the government wants to reduce emissions of this pollutant. Each firm can choose to emit up to six units. As firms reduce emissions, there is a marginal cost per unit. This data is presented in the accompanying table.

 

The government allocates three allowances to each firm, where each allowance allows one unit to be emitted. The optimal outcome in this case is for __________ to sell one permit to the other firm, and a price that will be agreeable to both is __________.

Question 3 The tragedy of the commons occurs because the good being produced is:

Question 4 The ability to download music and movies from the Internet without paying is:

Question 5 You share a house with two other people. You are a concert pianist and often practice at home. One roommate enjoys listening to you practice, but the other does not. For the roommate who enjoys listening to you play, this is an example of __________; for the other roommate, it is an example of __________.

Question 6 An external cost is best defined as the cost of an activity paid for by:

Question 7 The costs or benefits of a market activity that affect a third party are called:

Question 8 Refer to the accompanying figure. When a negative externality exists and the government does not intervene, which point best identifies the market equilibrium?

 

Question 9 When a negative externality is not internalized, then the equilibrium price of the good produced is too __________ and the equilibrium quantity produced is too __________.

Question 10 To reduce the level of pollution emitted by firms in an industry, the government could use a capand­trade policy or a carbon tax. Which of the following is true?

Question 11 Consider the accompanying figure to answer the questions that follow

 

When a positive externality exists, which point best identifies the social optimum?

Question 12 Copyright laws exist to:

Question 13 A good that is rival and nonexcludable is defined as a:

Question 14 The government identifies a situation where production of a good is generating a negative externality. A reasonable option for the government to consider is to:

Question 15 The amount you pay for gasoline for your car is an example of a(n):

Question 16 The government imposes a tax on each plastic bag sold such that the producer of the plastic bags must pay the tax to the government. In the market for plastic bags, the:

Question 17 The market overproduces common­resource goods because private decision­makers consider __________ costs but society experiences __________ costs.

Question 18 __________ can be jointly consumed by more than one person, and nonpayers are difficult to exclude.

Question 19 Which of the following is true of a negative externality?

Question 20 Museum visits in a particular city are free. This good is:

 

Question 1 The costs or benefits of a market activity that affect a third party are called:

Question 2 When production of a good creates an external benefit:

Question 3 External costs are the result of the actions of:

Question 4 When people elect to spend more years in school, this results in a __________ externality because there are __________ associated with this decision.

Question 5 The costs of a market activity paid for by an individual engaged in the market activity are:

Question 6 Refer to the accompanying figure to answer the questions that follow.

 

At the market equilibrium, price is equal to __________ units of the good are produced.

Question 7 Refer to the accompanying table, where Q represents the quantity produced, internal cost and external cost are given for various quantities, and P represents the price consumers are willing to pay for various quantities.

 

The market equilibrium occurs where price is __________ and quantity is __________.

Question 8 The tragedy of the commons occurs for goods that are:

Question 9 Consider the following scenario when answering the questions that follow: Jones owns a factory that is dumping toxic waste into a river where Smith owns a resort. At present, Jones is not filtering the water that he dumps into the river. There is a filter he could install that would remove a significant amount of the toxic elements from the water before it is dumped in the river. Jones and Smith have each assessed the situation and come up with the following data:

 

If property rights over the river are assigned to Jones, then:

Question 10 The cost of an activity paid for by the individual and the third party is defined as a(n):

Question 11 Consider a market where production of a good generates a negative externality. In the market equilibrium,

Question 12 Which of the following characteristics best defines a public good?

Question 13 Your roommate is studying to be a chef and likes to try new recipes. He leaves his delicious creations in the refrigerator for anyone who wants to eat them. The food he leaves is always gone within a day. This is an example of:

Question 14 Refer to the accompanying figure. Which area represents the deadweight loss associated with producing at the market equilibrium instead of the social optimum?

 

Question 15 Which of the following characteristics best defines a private good?

Question 16 When a negative externality is not internalized, then the equilibrium price of the good produced is too __________ and the equilibrium quantity produced is too __________.

Question 17 Consider the production of a private good such as a car, and a common­resource good such as fish. What do the markets for these two goods have in common?

Question 18 The amount you pay for insurance on your car is an example of a(n):

Question 19 Which good has well­defined property rights?

Question 20 __________ can be jointly consumed by more than one person, and nonpayers are difficult to exclude.

 

Question 1

Copyright laws exist to:

Question 2

Externalities are minimized if:

Question 3

To reduce the level of pollution emitted by firms in an industry, the government could use a capandtrade policy or a carbon tax. Which of the following is true?

Question 4

External benefits arise from the actions of:

Question 5

What type of good is often provided by the government because it is hard to get people to voluntarily contribute their fair share of the expense?

Question 6

Your roommate is studying to be a chef and likes to try new recipes. He leaves his delicious creations in the refrigerator for anyone who wants to eat them. The food he leaves is always gone within a day. This is an example of:

Question 7

A good that is nonrival and excludable is defined as a:

Question 8

Which goods are sold in markets?

Question 9

The thirdparty problem:

Question 10

An internal cost is best defined as the cost of an activity paid for by:

Question 11

A major reason why the market equilibrium for a manufactured good may not be efficient is:

Question 12

The city decides to offer a subsidy to each homeowner’s association that plants more flowers in their common areas. In the market for flowers, this will cause the:

Question 13

Refer to the accompanying figure, which shows the market for fish, to answer the questions that follow.

If the government sets a quota of 300 pounds of fish caught per day and issues a license that entitles the holder to catch 20 pounds of fish per day, then the value of the license is:

Question 14

Consider the accompanying figure to answer the questions that follow.

When a positive externality exists, which point best identifies the social optimum?

Question 15

Consider the following scenario when answering the questions that follow:

Jones owns a factory that is dumping toxic waste into a river where Smith owns a resort. At present, Jones is not filtering the water that he dumps into the river. There is a filter he could install that would remove a significant amount of the toxic elements from the water before it is dumped in the river. Jones and Smith have each assessed the situation and come up with the following data:

If property rights over the river are assigned to Smith, then:

Question 16

Externalities exist because:

Question 17

Consider the following scenario when answering the questions that follow:

Jones owns a factory that is dumping toxic waste into a river where Smith owns a resort. At present, Jones is not filtering the water that he dumps into the river. There is a filter he could install that would remove a significant amount of the toxic elements from the water before it is dumped in the river. Jones and Smith have each assessed the situation and come up with the following data:

If property rights over the river are assigned to Jones, then:

Question 18

The music you buy on the Internet is:

Question 19

Congestion charges cause the price of driving to __________. Therefore, the number of cars on the road will __________.

Question 20

According to the Coase theorem, negative externalities can be internalized if:

 

The city decides to offer a subsidy to each homeowner’s association that plants more flowers in their common areas. In the market for flowers, this will cause the

Museum visits in a particular city are free. This good is

Which of the following characteristics best defines a common-resource good

If the government imposes a tax on each aluminum can sold, payable by consumers when they purchase the item, then, in the market for goods sold in aluminum cans, the

Consider a market where production of a good generates a negative externality. In the market equilibrium,

Your roommate is studying to be a chef and likes to try new recipes. He leaves his delicious creations in the refrigerator for anyone who wants to eat them. The food he leaves is always gone within a day. This is an example of

Which of the following is the best definition of a cap-and-trade policy for pollution

Which of the following characteristics best defines a private good?

The Coase theorem suggests that private parties:

Which good is nonrival?

Consider a market with a negative externality. The market will tend to __________ the good because the market participants tend to ignore the __________ of their decision.

The tragedy of the commons occurs for goods that are:

Consider the accompanying figure to answer the questions that follow.
A positive externality exists and the government does not intervene. Which point best identifies the market equilibrium?

Refer to the accompanying figure. The market for dry-cleaning services is currently in equilibrium at point A, and the government decides to tax the stores that offer dry-cleaning services in order to improve the air quality. The new equilibrium will be at point:

If the government implements a cap-and-trade system to reduce pollution in a particular industry, then the:

When people elect to spend more years in school, this results in a __________ externality because there are __________ associated with this decision.

Which goods are sold in markets?

The personal decisions of consumers and firms are based on:

You share a house with two other people. You are a concert pianist and often practice at home. One roommate enjoys listening to you practice, but the other does not. For the roommate who enjoys listening to you play, this is an example of __________; for the other roommate, it is an example of __________.

A major reason why public goods are not supplied by the market is the:

 

If the government imposes a tax on each aluminum can sold, payable by consumers when they purchase the item, then, in the market for goods sold in aluminum cans, the

Consider a market where production of a good generates a negative externality. In the market equilibrium

Refer to the accompanying figure. The market for dry-cleaning services is currently in equilibrium at point A, and the government decides to tax the stores that offer dry-cleaning services in order to improve the air quality. The new equilibrium will be at point

If the government implements a cap-and-trade system to reduce pollution in a particular industry, then the

When people elect to spend more years in school, this results in a __________ externality because there are __________ associated with this decision

Which goods are sold in markets?

You share a house with two other people. You are a concert pianist and often practice at home. One roommate enjoys listening to you practice, but the other does not. For the roommate who enjoys listening to you play, this is an example of __________; for the other roommate, it is an example of __________.

 

Question 1 The government imposes a tax on the sale of a good whose production is creating a negative externality. The value of the tax is $4 per unit sold. In the new equilibrium, you would expect:

Question 2 Refer to the accompanying figure, which shows the market for fish, to answer the questions that follow. If the government sets a quota of 300 pounds of fish caught per day, then fish will sell for:

Question 3 The tragedy of the commons occurs for goods that are:

Question 4 Your roommate is studying to be a chef and likes to try new recipes. He leaves his delicious creations in the refrigerator for anyone who wants to eat them. The food he leaves is always gone within a day. This is an example of:

Question 5 A positive externality exists whenever:

Question 6 Consider a market with a negative externality. The market will tend to __________ the good because the market participants tend to ignore the __________ of their decision.

Question 7 __________ can be jointly consumed by more than one person, and nonpayers are difficult to exclude.

Question 8 Which of the following characteristics best defines a private good?

Question 9 Consider the market for refined oil. In the market equilibrium,

Question 10 Common resources are:

Question 11 Which good is nonrival?

Question 12 If government regulation forces firms in an industry to internalize the externality, then we can expect the equilibrium price of the good to __________ and the equilibrium quantity to __________.

Question 13 Refer to the accompanying figure to answer the questions that follow. The figure best illustrates what type of market?

Question 14 A negative externality exists whenever:

Question 15 Refer to the accompanying table, where Q represents the quantity produced, internal cost and external cost are given for various quantities, and P represents the price consumers are willing to pay for various quantities. The market equilibrium occurs where price is __________ and quantity is __________.

Question 16 It is best to reduce the level of pollution:

Question 17 Refer to the accompanying figure. Which area represents the deadweight loss associated with producing at the market equilibrium instead of the social optimum?

Question 18 Positive externalities have __________ for third parties.

Question 19 Global warming is an example of:

 

Question 1 Refer to the accompanying figure, which shows the market for fish, to answer the questions that follow. If the government sets a quota of 300 pounds of fish caught per day, then fish will sell for __________ more per pound than the cost of catching the fish.

Question 2 The tragedy of the commons occurs because the good being produced is:

Question 3 The government has identified a situation where the production of a good is creating a negative externality. The government should enact legislation to require firms to internalize the externality:

Question 4 Which of the following characteristics best defines a public good?

Question 5 The market works efficiently in the absence of externalities if the good is:

Question 6 Visiting the public beach during summer is an example of an activity that is:

Question 7 Copyright laws exist to:

Question 8 The market overproduces common­resource goods because private decision­makers consider __________ costs but society experiences __________ costs.

Question 9 Which of the following characteristics best defines a private good?

Question 10 Your neighbor is an avid gardener who changes his flower displays four times per year and who was given the “best yard on the block” award last year. While you personally enjoy these changing flower displays, some of your neighbors have said they do not like some of the flowers your neighbor chooses to plant. For you, this is an example of:

Question 11 The ability to download music and movies from the Internet without paying is:

Question 12 Consider the following scenario when answering the questions that follow: Jones owns a factory that is dumping toxic waste into a river where Smith owns a resort. At present, Jones is not filtering the water that he dumps into the river. There is a filter he could install that would remove a significant amount of the toxic elements from the water before it is dumped in the river. Jones and Smith have each assessed the situation and come up with the following data: If property rights over the river are assigned to Jones, then:

Question 13 Refer to the accompanying figure. When a negative externality exists and the government does not intervene, which point best identifies the market equilibrium?

Question 14 It is best to reduce the level of pollution:

Question 15 To reduce the level of pollution emitted by firms in an industry, the government could use a cap­and­trade policy or a carbon tax. Which of the following is true?

Question 16 Which rule would not protect fish populations?

Question 17 The costs of a market activity paid for by an individual NOT engaged in the market activity are:

Question 18 The city decides to offer a subsidy to each homeowner’s association that plants more flowers in their common areas. In the market for flowers, this will cause the:

Question 19 Which good has well­defined property rights?

Question 20 If the government decides to adopt a carbon tax, the price of goods whose production generates carbon emissions will __________ and the quantity produced will __________.

 

Question 1 Refer to the following scenario to answer the questions that follow. Five fishermen live in a village and have no other employment or income­earning possibilities besides fishing. They each own a boat that is suitable for fishing but does not have any resale value. Fish are worth $5 per pound, and the marginal cost of operating the boat is $500 per month. They all fish a river next to the village. According to the following schedule, they have determined that, when there are more of them out on the river fishing, they each catch fewer fish per month. If four boats operate, then each boat will make a profit of:

Question 2 Refer to the accompanying figure, which shows the market for fish, to answer the questions that follow. If the government sets a quota of 300 pounds of fish caught per day and issues a license that entitles the holder to catch 20 pounds of fish per day, then the value of the license is:

Question 3 If government regulation forces firms in an industry to internalize the externality, then the:

Question 4 Consider the following scenario when answering the questions that follow: Jones owns a factory that is dumping toxic waste into a river where Smith owns a resort. At present, Jones is not filtering the water that he dumps into the river. There is a filter he could install that would remove a significant amount of the toxic elements from the water before it is dumped in the river. Jones and Smith have each assessed the situation and come up with the following data: If property rights over the river are assigned to Jones, then:

Question 5 Refer to the accompanying figure, which shows the market for fish, to answer the questions that follow. If the government sets a quota of 300 pounds of fish caught per day, then fish will sell for __________ more per pound than the cost of catching the fish.

Question 6 Copyright laws exist to:

Question 7 A good that is nonrival and excludable is defined as a:

Question 8 Which of the following is the best definition of a cap­and­trade policy for pollution?

Question 9 __________ can be jointly consumed by more than one person, and nonpayers are difficult to exclude.

Question 10 Refer to the following scenario to answer the questions that follow. Five fishermen live in a village and have no other employment or income­earning possibilities besides fishing. They each own a boat that is suitable for fishing but does not have any resale value. Fish are worth $5 per pound, and the marginal cost of operating the boat is $500 per month. They all fish a river next to the village. According to the following schedule, they have determined that, when there are more of them out on the river fishing, they each catch fewer fish per month. How many fishermen will choose to operate their boats?

Question 11 For a market to work efficiently:

Question 12 A major reason why public goods are not supplied by the market is the:

Question 13 Which of the following is true?

Question 14 The ability to download music and movies from the Internet without paying is:

Question 15 Externalities exist because:

Question 16 Refer to the accompanying figure. When a negative externality exists and the government does not intervene, which point best identifies the market equilibrium?

Question 17 Refer to the accompanying figure to answer the questions that follow. At the market equilibrium, price is equal to __________ units of the good are produced.

Question 18 Two policy options for reducing emissions are cap­and­trade and the carbon tax. Which of the following is true?

Question 19 The personal decisions of consumers and firms are based on:

Question 20 Which of the following is the best example of a common­resource good?

 

A good that is rival and excludable is defined as a

The costs or benefits of a market activity that affect a third party are called

Museum visits in a particular city are free. This good is

The Coase theorem suggests that private parties

Refer to the accompanying figure to answer the questions that follow. Total utility is maximized at the:

Timothy is trying to figure out what combination of bags of peanuts and bags of popcorn he should buy with his $13 budget. The price of peanuts is currently $5 per bag and the price of popcorn is currently $2 per bag. If Timothy’s marginal utility from consuming his third bag of peanuts is 15 utils and his marginal utility from consuming his second bag of popcorn is 6 utils, Timothy should:

Diminishing marginal utility:

Utility theory seeks to measure:

Kati-Lyn has to choose between eating Chinese food and Indian food. Both Chinese food and Indian food cost the same. Which of the following equations, where MU is marginal utility and U is total utility, will lead to the optimal level of consumption?

Phillip is deciding between consuming Good X and Good Y. At his current level of consumption, his marginal utility per dollar for Good X is less than the marginal utility per dollar for Good Y. To achieve the consumer optimum, Phillip needs to:

Lauren is the owner of a bakery. Last year, her total revenue was $145,000, her rent was $12,000, her labor costs were $65,000, and her overhead expenses were $15,000. From this information, we know that her accounting profit was:

Ralph owns a small pizza restaurant, where he works full-time in the kitchen. His total revenue last year was $100,000, and his rent was $3,000 per month. He pays his one employee $2,000 per month, and the cost of ingredients and overhead averages $500 per month. Ralph could earn $35,000 per year as the manager of a competing pizza restaurant nearby. His total accounting profit for the year was:

When the average total cost curve is downward-sloping, what must be true about the marginal cost curve?

Darrell owns a furniture store. His total costs are $225,000 per year, and his variable costs are $75,000 per year. This means that his fixed costs are:

Total revenue minus total cost is equal to:

In the short run, average total costs and average variable costs converge as output increases because:

When the average variable cost curve is upward-sloping, what must be true about the marginal cost curve?

Darrell is the owner of a furniture store. Last year, his total revenue was $525,000 and his total labor costs were $200,000. His overhead expenses, including insurance and legal fees, were $175,000. The rent on his building was $45,000. Darrell could earn $105,000 per year working at a nearby furniture distributor. From this information, we know that his accounting profit was:

 

If the market price of a product is between the minimum average variable cost (AVC) and minimum average total cost (ATC) of a firm, that firm will...

When a tax is imposed on some good, the lost consumer surplus and producer surplus both typically end up as:

You share a house with two people . You are a concert pianist and often practice at home. One roommate enjoys listening to you practice, but the other does not. For the roommate who enjoys listening to you play, this is an example of ______; for the other roommate it is an example of _____.

An example of price discrimination is when:

Monopolistically competitive firms that are earning zero economic profit would most likely:

If government regulation forces firms in an industry to internalize the externality, then we can expect the equilibrium price of the good to _____ and the equilibrium quantity to _____.

The change in total cost given a change in output is also known as:

What is necessary for price discrimination to occur

Kim owns a cupcake shop in Newport, CA. The market for cupcakes is very competitive. At Kim's current production level, her marginal cost is $25 and her marginal revenue is $29. To maximize profits, Kim should?

Accounting profit is equal to:

Compared to producers, consumers will lose the lesser amount of surplus from a tax if:

Total revenue minus total cost is equal to:

What is an example of a good that is non rival

A tax on apples would cause consumers to suffer because:

Price discrimination exists when a firm is able to sell the same good at more than one price to different groups of:

If a monopolistically competitive firm is incurring losses, then at the profit maximizing output amount:

In 1996 Victoria's Secret shipped different catalogs to customers based on their buying habits. Frequent customers received catalogs with lower prices, whereas new customers received catalogs with high prices for those same items. What is the firm's motivation for practicing price discrimination, despite knowing that if their customers' found out, the company could potentially experience a loss in sales?

If Tommy's Tank Tops is a perfectly competitive firm and is currently making a positive economic profits of $1,000:

Charlie's Churros is a perfectly competitive firm that sells desserts in Houston, Texas. Charlie's Churros currently is taking in $40,000 in revenues, and has $15,000 in explicit costs and $25,000 in implicit costs. Charlie's Churro's economic profits are:

Holding all else constant, a decrease in the market demand for a product in a competitive market would cause:

Compared to producers, consumers will lose the greater amount of surplus from a tax if:

You can tell a firm is operating in a market that is in long run competitive equilibrium if:

When talking about economic profits in a perfectly competitive market, the difference between the long run and the short run is that, in the short run, firms:

When a negative externality is not internalized, then the equilibrium price of the good purchased is too___ and the equilibrium quantity produced is too ___.

Consumer surplus is defined as the:

At current production levels, the marginal revenue of a competitive firm is $15 and the marginal cost of the firm is $15. The firm should:

A tax on apples would cause apple growers to suffer because:

Both monopolies and competitive firms:

If a firm's average total costs decrease as it increases its scale of production, the firm is experiencing:

Which of the following is a question that a firm must answer in the long run but not in the short run?

Fast food restaurants are a good illustration of:

If a monopolist is producing a quantity where marginal revenue is equal to $32 and the marginal cost is equal to $30, the monopolist should:

The incidence of a tax is determined by:

It is unrealistic to regulate a natural monopoly at marginal cost pricing because:

Two government created barriers to entry are:

Compared to consumers, producers will lose the greater amount of surplus from a tax if:

In competitive markets:

The fast food, bottled water, and cereal markets are all examples of:

When demand is perfectly inelastic, the demand curve is:

The government imposes a tax on sale of a good whose production is creating a negative externality. The value of the tax is $4 per unit sold. In the new equilibrium, you would expect:

Nathan owns a coffee roasting company. He buys raw coffee beans, roasts them, grinds them, and sells them to stores. He recently moved into a larger factory so that he can sell coffee to more stores. How would Nathan know if he is experiencing constant returns to scale from increasing the size of his factory?

If a tax is imposed on a good where both supply and demand are somewhat elastic, but demand is more elastic than supply, the burden of tax will be borne:

If a firm hires another worker and her marginal product of labor is zero, we know that the firm's total output is:

To maximize profits, a monopolist chooses the quantity where:

If Nicole's Knick Knacks is a perfectly competitive firm and is making zero economic profits:

Despite creating maximum market efficiency, perfect price discrimination is often disliked by consumers because it transfers the gains in trade from:

 

1. The Sunny Softball league finds that when it changed its ticket prices from $10 to $5, there was a more than proportional increase in attendance.  The price elasticity of demand is:

a.             perfectly inelastic.

b.             inelastic.

c.             elastic.

d.             perfectly elastic.

e.             unitary elastic.

 

2. When the price elasticity of demand is elastic, a consumer is 

a.             completely unresponsive to a change in price.

b.             relatively unresponsive to a change in price.

c.             unaffected by a change in price.

d.             relatively responsive to a change in price.

e.             completely responsive to a change in price.

 

3. Jaycee Jeans sold 40 pairs of jeans at a price of $40. When it lowered its price to $20, the quantity sold increased to 60 pairs.  Calculate the absolute value of the price elasticity of demand.

a.  1.67

b.  1.0

c.  0.6

d.  0.53

 

4. Jaycee Jeans sold 40 pairs of jeans at a price of $40. When it lowered its price to $20, the quantity sold increased to 60 pairs.  Calculate the absolute value of the price elasticity of demand. Use the midpoint method.

a.  1.67

b.  1.0

c.  0.6

d.  0.53

 

5. There are two goods: good A and good B. Good A has a demand curve with a flatter slope; good B has a more steeply sloped demand curve.  Which good is more price elastic?

a.             Good A

b.             Good B

c.             They are equally price elastic

d.             There is not enough information to decide

 

6. There are two goods: good A and good B. Good A has a demand curve with a flatter slope; good B has a more steeply sloped demand curve.  For which good are consumers more price sensitive?

a.             Good A

b.             Good B

c.             They are equally price elastic

d.             There is not enough information to decide

 

7. The introduction of new gaming systems that effectively competed for the Nintendo console market share will made the demand for Nintendo consoles become:

a.             more price elastic

b.             more price inelastic

c.             perfectly price elastic

d.             perfectly price inelastic

e.             unchanged

 

  

 

8. The curve in the above graph is a

a.             standard demand curve

b.             standard supply curve

c.             perfectly elastic demand or supply curve

d.             perfectly inelastic demand or supply curve

 

9. Which price elasticity of demand indicates an elastic good?

a.             0

b.             -0.25

c.             -1

d.             -2.5

 

10. Which income elasticity of demand indicates a normal good—necessity?

a.             -0.5

b.             0.5

c.             1

d.             2.2

 

11. Which income elasticity of demand indicates a normal good—luxury?

a.             -0.5

b.             0.5

c.             1

d.             2.2

 

12. Which income elasticity of demand indicates an inferior good?

a.             -0.5

b.             0.5

c.             1

d.             2.2

 

13. Which cross-price elasticity of demand indicates substitute goods?

a.             0.5

b.             0

c.             -0.5

d.             -2.5

 

14. Consumer surplus is the difference between ________ and ________.

a. supply; demand.

b. the price the producer receives; the willingness to sell a good.

c. the willingness to pay for a good; the willingness to sell a good.

d. the willingness to pay for a good; the amount that is paid to get it

e. the price paid for a good; the amount of the good produced.

 

15. A nonbinding price ceiling would result in a

a. Surplus

b. Shortage

c. Both a surplus and a shortage

d. Neither a surplus nor a shortage

 

The following diagram illustrates the demand and supply curves for taxi rides to and from Atlanta International Airport.  Assume that originally, the market is in equilibrium with a price of $16 and an equilibrium quantity of 320 taxi rides.  Next suppose that the city of Atlanta imposes a price ceiling on the price of taxi rides that limits the legal price that can be charged for a taxi ride to $10.

 

 

 

16. Prior to the imposition of the price ceiling what is the value of producer surplus in the taxi ride market?  

 

a. A+B+C (10,240)

b. D+E+H (2,560)

c. B+D (6,000)

d. C+E (1,800)

 

17. After the imposition of the price ceiling what is the value of producer surplus in the taxi ride market?  

 

a. D+E+F (1920)

b. D+E+H (2,560)

c. H (1,000)

d. C+E (1,800)

 

18. The deadweight loss associated with the price ceiling is

a)       B+D (6,000)

b)       C+E (1,800)

c)       F (360)

d)       There is no deadweight loss

19. After the imposition of the price ceiling, there is:

a)  an excess supply of taxi rides

b) an excess demand for taxi rides

c)  market clearing

d) some excess supply, but more excess demand

 

 

The figure above shows the market for root beer.  The government plans to impose a unit tax in this market.

 

20. The price sellers receive after the tax is

A) $7.

B) $20.

C) $22.

D) $27.

 

21. What is consumer surplus after the tax is imposed?

A) $5.

B) $10.

C) $125.

D) $250.

 

22.      Graciela is willing to sell 1 dozen roses for $50, while Giuseppe is willing to sell 1 dozen roses for $60.  Carlos is willing to buy 1 dozen roses for $60, while Yuriko is willing to pay $50.  If the market price is $52, how many roses are sold and what is the sum total of consumer and producer surplus after the transaction(s)?

a)       One dozen roses will be sold, and the total consumer and producer surplus will be $10.

b)       One dozen roses will be sold, and the total consumer and producer surplus will be $16.

c)        Two dozen roses will be sold, and the total consumer and producer surplus will be $16.

d)       No roses will be sold, and consequently the total consumer and producer surplus will be $0.

 

23.      Under what circumstances does the burden of an excise tax fall mainly on producers?

a)        when the supply is relatively inelastic and demand is fairly elastic

b)       when the supply is relatively elastic and demand is fairly inelastic

c)        when consumers do not have many substitutes for the good

d)       when it is easy for suppliers to expand production of the good

 

24.      Which of the following statements is true?

a)       The amount of deadweight loss from an excise tax will increase as the demand becomes more inelastic.

b)       The amount of deadweight loss resulting from an excise tax will increase as the demand becomes more  elastic

c)        An excise tax does not create a deadweight loss if the taxed good is a necessity.

d)       An excise tax does not create a deadweight loss if the taxed good is a luxury.

 

25. Taxes will almost always cause the price charged to consumers to increase. How much the consumer price increases depends on:

a. how often the government collects the tax.

b. the amount of the tax.

c. who pays the tax out of pocket.

d. who is legally obligated to pay the tax.

e. the elasticities of supply and demand.

 

26. Taxing goods with very elastic supply generates more deadweight loss than taxing goods with very inelastic supply because:

 

a. the amount of the tax is larger.

b. the change in producer behavior is greater

c. producers have to pay these taxes out of pocket.

d. the change in producer behavior is smaller.

e. the government does not bother collecting the revenue.

 

27. The revenue generated from a tax equals:

a. the amount of the good sold times the original price of the good.

b. the amount of the tax times the quantity sold after the tax is imposed

c. the total social welfare lost as a result of the tax.

d. the deadweight loss from the tax.

e. the total consumer and producer surplus before the tax.

 

28. The costs of a market activity paid for by an individual engaged in the market activity are:

a.        external costs.

b.       internal costs.

c.        free-rider costs.

d.       social costs.

e.        common costs.

 

29. The costs of a market activity paid for by an individual NOT engaged in the market activity are:

a.        external costs.

b.       internal costs.

c.        free-rider costs.

d.       social costs.

e.        common costs.

 

30. Consider the table below where Q represents the quantity produced, internal cost and external cost are given for various quantities, and P represents the price consumers are willing to pay for various quantities.

Q        Internal Cost             External Cost             P

1        $2                          $4                          $14

2        $4                          $4                          $12

3        $6                          $4                          $10

4        $8                          $4                          $8

5        $10                         $4                          $6

6        $12                         $4                          $4

 

The market equilibrium occurs where price is ____ and quantity is _____.

 

a.        $4; 2.

b.       $8; 4

c.        $10; 3.

d.       $10; 5.

e.        $12; 6.

 

31. Consider a market with a negative externality. The market will tend to _____ the good because the market participants tend to ignore the ____ of their decision.

a.        overproduce; external benefit

b.       underproduce; external benefit

c.        overproduce; external cost

d.       underproduce; external cost

e.        overproduce; internal benefit

 

32. Consider a market where production of the good is creating a negative externality. In the market equilibrium there is a deadweight loss because:

a.        the internal cost is not equal to the external cost.

b.       the internal cost is not equal to the internal benefit.

c.        the internal benefit is not equal to the external benefit.

d.       the social cost is greater than the internal benefit

e.        the internal benefit is less than the internal cost.

 

33.      The economic incidence of a tax is the:

a)       amount of the revenue the government collects.

b)       deadweight loss arising from imposition of the tax.

c)        per-unit amount of an excise tax.

d)       measure of who really bears the burden of the tax

 

34. Consider the production of a private good such as a car, and a common-resource good such as fish. What do the markets for these two goods have in common?

a.        The quantity of output produced is inefficiently low.

b.       The quantity of output produced is inefficiently high.

c.        Both create a positive externality.

d.       Both markets are likely to arrive at the social optimum without government intervention.

e.        The price of both goods is inefficiently high.

 

35. A good that is nonrival and excludable is defined as a:

a.        private good.

b.       public good.

c.        common-resource good.

d.       club good

e.        government good.

 

 

36. Clean air becomes polluted because:

a.        it is a private good.

b.       no one owns the air

c.        it is a club good.

d.       the air is owned by private corporations.

e.        the air is owned by the government.

 

37. A good that is rival and nonexcludable is defined as a:

a.        private good.

b.       public good.

c.        common-resource good

d.       club good.

e.        government good.

 

38. If the firm depicted in the following graph had to pay higher rent to its landlord, we would expect its ________ curve to shift ________.

 

 

a.        average total cost (ATC); down

b.       average variable cost (AVC); down

c.        average total cost (ATC); up

d.       marginal cost (MC); up

e.        average variable cost (AVC); up

 

39. A firm’s average fixed costs:

a. Continually rise as output increases

b. Remain constant as output increases

c. Continually decline as output increases

d. Are U-shaped

 

40. According to the figure below, a firm would shut down in the short run if the price is:

 

 

a.     anywhere below $5.

b.     below $5 but above $4.

c.     anywhere above $4.

d.     below $4.

e.     above $5.

 

41. Which of the curves in the accompanying graph depicts diseconomies of scale?

 

a.        LRATC1 and LRATC3

b.       LRATC2

c.        LRATC2 and LRATC3

d.       LRATC1

e.        LRATC3

 

42. If a firm adds multiple layers of management as it increases its scale of production, thus adding to its costs, we would expect its long-run average cost curve to be:

a.        downward sloping.

b.       horizontal.

c.        upward sloping

d.       vertical.

e.        U shaped.

43. According to the figure below, a firm would be suffering a loss but still be producing if the price is:

 

 

 

a.     anywhere below $5.

b.     below $5 but above $4.

c.     anywhere above $4.

d.     below $4.

e.     above $5.

 

44.      The marginal cost curve intersects the average total cost curve at the level of output where average total cost is at a minimum because

a)       when the marginal cost of the last unit produced is increasing, the marginal product of labor is at a minimum.

b)       the firm begins experiencing economies of scale at this quantity.

c)        the firm begins benefiting from division of labor at this quantity.

d)       when the marginal cost of the last unit produced is below the average, it pulls the average down, and when the marginal cost is above the average, it pulls the average up.

e)       the firm begins experiencing diminishing returns at this quantity.

 

45.      Which of the following statements is true?

a)       Whenever marginal cost is below average total cost, marginal cost is decreasing.

b)       Whenever marginal cost is above average total cost, marginal cost is decreasing.

c)        Whenever marginal cost is above average total cost, average total cost is increasing

d)       When marginal cost equals average total cost, marginal cost is minimized.

 

46. An explicit cost for a business that manufactures bicycles would be:

a.        the value of the products the firm’s employees could produce at another company.

b.       the salary that the owner of the business could earn elsewhere.

c.        the goods and services provided by the government with the taxes the firm pays.

d.       the wages paid to employees.

e.        the various products that could be made with the steel used to make bicycles.

 

47. When the average variable cost curve is upward sloping, then the marginal cost curve is:

a.         U shaped.

b.        above the average variable cost curve.

c.         upward sloping.

d.        below the average variable cost curve.

e.         a straight line.

48. Where would we find a firm’s minimum efficient scale of production?

a.         at the lowest point on its long-run average total cost curve.

b.        at the highest point on its long-run average total cost curve.

c.         in the middle of its long-run average total cost curve.

d.        at the highest point on its long-run average fixed cost curve.

e.         in the middle of its long-run average variable cost curve.

 

49. Profit maximization occurs when:

a.        a firm expands output until marginal revenue is exceeded by marginal cost.

b.       a firm expands output until marginal revenue is equal to marginal cost.

c.        the price in the market is equal to the firm’s marginal revenue.

d.       total costs equal total revenue.

e.        a firm sets the price at a point above average total cost.

 

50. The entry and exit of firms ensure that the ________________ is much more ________ in the long run than in the short run.

a.        market demand curve; elastic

b.       market demand curve; inelastic

c.        market supply curve; vertical

d.       market supply curve; inelastic

e.        market supply curve; elastic

 

51. A firm’s short-run supply curve is equal to:

a.        the firm’s marginal revenue curve.

b.       the firm’s demand curve.

c.        the firm’s marginal cost curve above minimum average total cost (ATC).

d.       the firm’s marginal cost curve below minimum average variable cost (AVC).

e.        the firm’s marginal cost curve above minimum average variable cost (AVC

 

52. Suppose demand for a product shifted to the left.  This would cause:

a. Profits to increase in the short run and supply to shift right in the long run

b. Profits to decrease in the short run and supply to shift left in the long run

c. Profits to decrease in the short run and supply to shift right in the long run

d. Profits to increase in the short run and supply to shift left in the long run

 

53. When firms exit a market, the ______________ curve shifts ____________ causing individual firms’ profits to _________________.

a.        long-run market supply; right; decrease.

b.       short-run market supply; left; decrease.

c.        short-run market supply; left; increase

d.       short-run market supply; right; decrease.

e.        short-run market supply; right; increase.

 

54. If a firm experiences diseconomies of scale, its long-run average cost curve will be:

a.        a horizontal line.

b.       downward sloping.

c.        a vertical line.

d.       upward sloping

e.        U shaped.

 

55. If a firm’s average total costs decrease as it increases its scale of production, the firm is experiencing:

a.        economies of scale

b.       diseconomies of scale.

c.        increasing returns from specialization.

d.       diminishing marginal product.

e.        constant returns to scale.

 

1.  The costs or benefits of a market activity that affect a third party are called:

         a.  externalities.

         b.  public goods.

         c.  club goods.

         d.  internal costs.

         e.  common-resource goods.

2. The personal decisions of consumers and firms are based on:

         a.  external costs.

         b.  social cost.

         c.  internal costs.

         d.  third-party costs.

         e.  public-good costs.

3. Refer to the accompanying table, where Q represents the quantity produced, internal cost and social cost are given for various quantities, and P represents the price consumers are willing to pay for various quantities.

Q
Internal Cost
Social Cost
P
100
$40
$60
$80
200
$50
$70
$70
300
$60
$80
$60
400
$70
$90
$50
500
$80
$100
$40
600
$90
$110
$30
         The external cost is equal to _________ per unit.

         a.  $60

         b.  $70

         c.  $20

         d.  $50

         e.  $30

4.  Consider a market with a negative externality. The market will tend to ___________ the good because the market participants tend to ignore the __________ of their decision.

         a.  overproduce; external benefit

         b.  under-produce; external benefit

         c.  overproduce; external cost

         d.  under-produce; external cost

         e.  overproduce; internal benefit

Refer to the accompanying figure to answer the next three questions.

 

5.  At the market equilibrium, price is equal to _________ units of the good are produced.

         a.  $18 and 70

         b.  $14 and 70

         c.  $12 and 50

         d.  $14 and 50

         e.  $18 and 50

    6.  The figure best illustrates what type of market?

         a.  The good produced creates a positive externality.

         b.  The good produced creates a negative externality.

         c.  The good produced is a club good.

         d.  The good produced is a public good.

         e.  Firms in this industry have been given a subsidy to encourage more production.

    7.  To achieve the social optimum, the government could set a tax equal to __________ per unit sold.

         a.  $6

         b.  $4

         c.  $2

         d.  $3

         e.  $5

8.  Bob is willing to pay $65 for a new pair of shoes. Bill is willing to pay $50 for the same shoes. The shoes have a price of $45. What is the total consumer surplus for Bob and Bill?

         a.  $15

         b.  $20

         c.  $5

         d.  $25

         e.  $35

    9.  Muddy’s Bakery and Lilly’s Sweetshop both sell cupcakes. The market price of one chocolate cupcake is $2.50. Muddy’s is willing to sell a cupcake for as little as $1.65; Lilly’s is willing to sell a cupcake for as little as $1.75. What is the total producer surplus for the two firms?

         a.  $0.75

         b.  $1.60

         c.  $0.85

         d.  $2.50

         e.  $3.40

10.  Explain what happens to the amount of consumer surplus and producer surplus when the supply of scarves suddenly declines (shifts left).

         a.  Producer surplus declines and consumer surplus is unchanged.

         b.  Consumer surplus declines and producer surplus is unchanged.

         c.  Consumer surplus declines and producer surplus declines.

         d.  Consumer surplus is unchanged and producer surplus is unchanged.

         e.  Producer surplus increases and consumer surplus increases.

  11.  Social welfare is measured as the sum of:

         a.  tax revenue and deadweight loss.

         b.  deadweight loss and consumer surplus.

         c.  producer surplus and tax revenue.

         d.  consumer surplus and tax revenue.

         e.  consumer surplus and producer surplus.

12.  Which of the following statements is concerned with efficiency rather than equity?

         a.  It is not fair to tax the income earned by the wealthy at higher rates than the poor.

         b.  Excise taxes on tobacco products affect low-income families the most and should be reduced.

         c.  Our income tax system should be more progressive than it is now.

         d.  Taxes cause distortions in markets and reduce social welfare.

         e.  The best type of income tax is a flat tax because it treats everyone the same.

13.  Which of the following is an accurate statement about the consequence of nonbinding price ceilings?

         a.  They prevent the seller from receiving the equilibrium price.

         b.  They require the seller to advertise the product at the equilibrium price.

         c.  They create a surplus in the legal market.

         d.  They do not change the quantity of goods bought or sold in the legal market.

         e.  They increase the quantity demanded of the good in question.

Refer to the accompanying figure to answer the next two questions.

 

  14.  The market is currently at market equilibrium. If a binding price ceiling of P1 is imposed, by how much would the quantity demanded change?

         a.  It would increase by 12,000 units.

         b.  It would decrease by 30,500 units.

         c.  It would decrease by 12,000 units.

         d.  It would increase by 30,500 units.

         e.  It would increase by 30,000 units.

15. The market is currently at market equilibrium. If a binding price ceiling of P1 is imposed, by how much would the quantity supplied change?

         a.  It would increase by 32,000 units.

         b.  It would decrease by 18,000 units.

         c.  It would decrease by 30,500 units.

         d.  It would decrease by 30,000 units.

         e.  It would decrease by 32,000 units.

16.    Suppose you live in a community with no price controls. What do you expect will happen if your town borders a community where there is a nonbinding price ceiling on most products?

         a.  Legal market prices will rise in the community with a binding price ceiling.

         b.  Legal market prices will fall in the community with a binding price ceiling.

         c.  The price and the quantity sold in the community without a nonbinding price ceiling will be the same as the price and quantity in the community with a nonbinding price ceiling.

         d.  There will be more shortages in the community with a binding price ceiling.

         e.  The black market in the community with a binding price ceiling will not be strong because consumers will simply purchase the product in the community that has no price ceiling.

17.    If a good is subject to a binding price ceiling and you purchase it on the black market, what do you expect to happen to the price over time?

         a.  The black market price will rise over time as the supply curve becomes more elastic and the demand curve becomes more inelastic.

         b.  The black market price will fall over time as both the supply and demand curves become more inelastic.

         c.  The black market price will rise over time as the demand curve becomes more elastic and the supply curve becomes more inelastic.

         d.  The black market price will fall over time as both the supply and demand curves become more elastic.

         e.  The black market price will not change over time.

18.  At a price of $5/hour, Bob wants to hire three workers. When the price rises to $7/hour, Bob wants to hire only two workers. Bob’s price elasticity of demand for workers is:

         a.  −0.83

         b.  −1.20

         c.  −0.33

         d.  −0.40

         e.  −0.10

19.  Jane says that she will always spend $20 a week on lattes. Jane’s demand for lattes is price:

         a.  inelastic.

         b.  elastic.

         c.  perfectly inelastic.

         d.  perfectly elastic.

         e.  unitary elastic.

20.  When the price of softballs is high, a ___________ in price will raise total revenue. When the price is low, the seller should ___________ the price to increase total revenue.

         a.  decrease; raise

         b.  rise; raise

         c.  decrease; decrease

         d.  rise; decrease

         e.  decrease; not change

21.  Which one of the following pairs of goods is likely to have a negative cross-price elasticity of demand?

         a.  tea and coffee

         b.  soda and water

         c.  spaghetti and ravioli

         d.  tennis shoes and flip flops

         e.  coffee and cream

 

____        1.    The personal decisions of consumers and firms are based on:

a.
external costs.
b.
social cost.
c.
internal costs.
d.
third-party costs.
e.
public-good costs.
 

 

____        2.    External costs are the result of the actions of:

a.
firms.
b.
consumers.
c.
firms and consumers.
d.
the government.
e.
firms, consumers, and the government.
 

 

____        3.    Which of the following is true?

a.
social costs = internal costs – external costs
b.
social costs = internal costs + external costs
c.
internal costs = social costs + external costs
d.
external costs = social costs + internal costs
e.
internal costs – social costs = external costs
 

 

____        4.    Negative externalities have __________ for third parties.

a.
internal costs
b.
internal benefits
c.
external costs
d.
external benefits
e.
social costs
 

 

____        5.    A negative externality exists whenever:

a.
there are no internal costs.
b.
production of a good creates an external cost.
c.
production of a good creates an external benefit.
d.
production of a good has no social cost.
e.
production of a good has no social benefit.
 

 

____        6.    Which of the following is true of a negative externality?

a.
Some costs are borne by a third party.
b.
The government can use subsidies to encourage firms to internalize the externality.
c.
The government must take over the production of this good so that the externality can be internalized.
d.
Some benefits accrue to a third party.
e.
Its existence always requires corrective measures by the government.
 

 

____        7.    The third-party problem:

a.
occurs when a market activity leads to a negative externality.
b.
occurs when a market activity leads to a positive externality.
c.
occurs when a market activity leads to a negative or a positive externality.
d.
is the same as the free-rider problem.
e.
is associated with the production of private goods but not public goods.
 

 

____        8.    Your neighbor likes to mow his grass each Saturday at 7 A.M. and the noise invariably wakes you up. This is an example of:

a.
the third-party problem.
b.
the tragedy of the commons.
c.
an internal cost.
d.
the free-rider problem.
e.
a positive externality.
 

 

____        9.    Consider the market for refined oil. In the market equilibrium,

a.
the internal supply equals the internal demand.
b.
the internal supply equals the social supply.
c.
the social supply equals the internal demand.
d.
there is too little of the good being produced.
e.
there is no deadweight loss.
 

 

Refer to the accompanying figure to answer the questions that follow.

 

 

 

____     10.    At the market equilibrium, price is equal to __________ units of the good are produced.

a.
$18 and 70
b.
$14 and 70
c.
$12 and 50
d.
$14 and 50
e.
$18 and 50
 

 

____      11.    Refer to the accompanying table, where Q represents the quantity produced, internal cost and

external cost are given for various quantities, and P represents the price consumers are willing to pay for various quantities.

 

 

 

The market equilibrium occurs where price is __________ and quantity is __________.

a.
$4; 2
b.
$8; 4
c.
$10; 3
d.
$10; 5
e.
$12; 6
 

 

____     12.    If government regulation forces firms in an industry to internalize the externality, then we can expect the equilibrium price of the good to __________ and the equilibrium quantity to __________.

a.
increase; increase
b.
increase; decrease
c.
decrease; decrease
d.
decrease; increase
e.
increase; remain unchanged
 

 

____     13.    The government has identified a situation where the production of a good is creating a negative externality. The government should enact legislation to require firms to internalize the externality:

a.
in all such cases.
b.
if the benefits of doing so outweigh the costs.
c.
as long as it will not increase the price of the good being produced.
d.
as long as it will not create unemployment in this industry.
e.
as long as there are positive health benefits associated with this policy.
 

 

____     14.    Refer to the accompanying table, where Q represents the quantity produced, internal cost and external cost are given for various quantities, and P represents the price consumers are willing to pay for various quantities.

 

 

 

The social optimum occurs where price is __________ and quantity is __________.

a.
$4; 2
b.
$8; 4
c.
$10; 3
d.
$10; 5
e.
$12; 6
 

 

____     15.    If the government decides to adopt a carbon tax, the price of goods whose production generates carbon emissions will __________ and the quantity produced will __________.

a.
increase; increase
b.
increase; decrease
c.
increase; remain unchanged
d.
decrease; increase
e.
decrease; decrease
 

 

____     16.    The government imposes a tax on each plastic bag sold such that the producer of the plastic bags must pay the tax to the government. In the market for plastic bags, the:

a.
supply curve shifts to the left.
b.
supply curve shifts to the right.
c.
demand curve shifts to the left.
d.
demand curve shifts to the right.
e.
the supply curve and the demand curve shift to the left.
 

 

____     17.    Refer to the accompanying figure. The market for dry-cleaning services is currently in equilibrium at point A, and the government decides to tax the stores that offer dry-cleaning services in order to improve the air quality. The new equilibrium will be at point:

 

 

 

a.
B.
b.
C.
c.
E.
d.
F.
e.
G.
 

 

____     18.    The government imposes a tax on the sale of a good whose production is creating a negative externality. The value of the tax is $4 per unit sold. In the new equilibrium, you would expect:

a.
the same amount to be sold and the price to be $4 higher.
b.
the same amount to be sold and the price to increase by less than $4.
c.
less to be sold and the price to increase by $4.
d.
less to be sold and the price to increase by less than $4.
e.
less to be sold and the price to increase by more than $4.
 

 

____     19.    Positive externalities have __________ for third parties.

a.
internal costs
b.
internal benefits
c.
external costs
d.
external benefits
e.
social costs
 

 

____     20.    Consider a market with a positive externality. The market will tend to __________ the good because the market participants tend to ignore the __________ of their decision.

a.
overproduce; external benefit
b.
under-produce; internal benefit
c.
overproduce; external cost
d.
under-produce; external cost
e.
under-produce; external benefit
 

 

____     21.    Positive externalities exist because:

a.
internal benefits are less than external benefits.
b.
internal benefits are greater than external benefits.
c.
external benefits are greater than social benefits.
d.
internal benefits are greater than social benefits.
e.
internal benefits are less than social benefits.
 

 

Consider the accompanying figure to answer the questions that follow.

 

 

 

____     22.    When a positive externality exists, which point best identifies the social optimum?

a.
A
b.
B
c.
C
d.
D
e.
either A or D
 

 

____     23.    External benefits arise from the actions of:

a.
firms.
b.
consumers.
c.
firms and consumers.
d.
the government.
e.
firms, consumers, and the government.
 

 

Consider the following scenario when answering the questions that follow:

 

Jones owns a factory that is dumping toxic waste into a river where Smith owns a resort. At present, Jones is not filtering the water that he dumps into the river. There is a filter he could install that would remove a significant amount of the toxic elements from the water before it is dumped in the river. Jones and Smith have each assessed the situation and come up with the following data:

 

 

 

____     24.    If property rights over the river are assigned to Smith, then:

a.
Smith will force Jones to close the factory.
b.
Smith will pay Jones up to $75 per day to install the filter.
c.
Smith will pay Jones up to $125 to install the filter.
d.
Jones will install a filter and pay Smith at least $75 per day.
e.
Jones will install a filter.
 

 

____     25.    A cattle rancher and a wheat farmer own adjacent properties that may or may not be separated by a fence. The accompanying table identifies the annual profit received by each party in the event there is, or there is not, a fence. If there is no fence, one can be installed and maintained at an annual cost of $25,000.

 

 

 

If legal rights are assigned to the wheat farmer so that the cattle rancher is liable for any damage caused by his cattle to the wheat crop, then the:

a.
rancher will choose to close his ranch.
b.
farmer will not allow the rancher to stay in business.
c.
rancher will pay to build the fence.
d.
rancher will choose to compensate the farmer for damages.
e.
rancher will be indifferent toward neither building the fence nor compensating the farmer for damages.
 

 

____     26.    Which good is excludable?

a.
apples on a tree in a public park
b.
a fireworks display
c.
swimming in the ocean
d.
a walk in a public park
e.
education at a community college
 

 

____     27.    Visiting the public beach during summer is an example of an activity that is:

a.
excludable.
b.
rival.
c.
nonexcludable and rival.
d.
nonrival.
e.
excludable and nonrival.
 

 

____     28.    Which good is nonrival?

a.
sharing a pizza with your family
b.
swimming in a public pool
c.
driving in a city
d.
listening to public radio
e.
visiting the post office
 

 

____     29.    A good that is rival and excludable is defined as a:

a.
private good.
b.
public good.
c.
common-resource good.
d.
club good.
e.
government good.
 

 

____     30.    A major reason why public goods are not supplied by the market is the:

a.
free-rider problem.
b.
existence of negative externalities.
c.
fact that no one is willing to pay for them.
d.
fact that public goods are rival.
e.
fact that no firm would be able to earn a profit by producing them.
 

 

____     31.    Club goods are:

a.
nonrival, like public goods, and excludable, like private goods.
b.
nonrival, like private goods, and excludable, like common-resource goods.
c.
nonrival, like common-resource goods, and excludable, like public goods.
d.
rival, like private goods, and nonexcludable, like public goods.
e.
rival, like common-resource goods, and nonexcludable, like private goods.
 

 

____     32.    Club goods tend to be offered __________ market price and __________ quantity than what society desires.

a.
at a lower; at a lower
b.
at a higher; at a higher
c.
at a higher; at a lower
d.
at a lower; at a higher
e.
at the same; at the same
 

 

____     33.    Which of the following characteristics best defines a common-resource good?

a.
rival and excludable
b.
rival and nonexcludable
c.
nonrival and nonexcludable
d.
nonrival and excludable
e.
a good that is never produced by the government
 

 

____     34.    The market overproduces common-resource goods because private decision-makers consider __________ costs but society experiences __________ costs.

a.
internal; external
b.
internal; internal and external
c.
external; internal
d.
external; internal and external
e.
internal and external; external
 

 

____     35.    Copyright laws exist to:

a.
eliminate negative externalities.
b.
eliminate public goods.
c.
limit free-riding.
d.
solve the tragedy of the commons.
e.
protect consumers.
 

 

____     36.    The quantity produced of a common-resource good is likely to deviate from the socially optimal quantity because:

a.
common-resource goods are nonrival.
b.
common-resource goods cannot be traded.
c.
there is an incentive to overproduce the good.
d.
of the free-rider problem.
e.
positive externalities are likely to exist.
 

 

____     37.    The tragedy of the commons:

a.
gives rise to a negative externality.
b.
gives rise to a positive externality.
c.
occurs when club goods are produced.
d.
occurs when public goods are provided.
e.
leads to underutilized resources.
 

 

____     38.    Two policy options for reducing emissions are cap-and-trade and the carbon tax. Which of the following is true?

a.
Both will result in lower prices for consumers.
b.
Both will result in lower costs for firms.
c.
Both will increase total emissions.
d.
Both will discourage the development of greener technologies.
e.
Both will not raise large amounts of revenue for the government.
 

 

____     39.    A cap-and-trade policy is an efficient method of reducing pollution because:

a.
all firms will be forced to reduce pollution.
b.
only high-cost firms will be forced to reduce pollution.
c.
only low-cost firms will be forced to reduce pollution.
d.
those who can reduce pollution relatively more cheaply will have an incentive to buy permits.
e.
those who can reduce pollution relatively more cheaply will have an incentive to sell permits.
 

 

____     40.    If the government implements a cap-and-trade system to reduce pollution in a particular industry, then the:

a.
supply curve shifts to the left.
b.
supply curve shifts to the right.
c.
demand curve shifts to the left.
d.
demand curve shifts to the right.
e.
supply curve and the demand curve shift to the left.
 

Refer to the accompanying figure to answer the questions that follow.

 

At the market equilibrium, price is equal to __________ units of the good are produced

Clean air becomes polluted because:

The amount you pay for insurance on your car is an example of a(n):

A negative externality exists whenever:

__________ can be jointly consumed by more than one person, and nonpayers are difficult to exclude.

Congestion charges cause the price of driving to __________. Therefore, the number of cars on the road will __________.

Which of the following statements is always true when determining the consumer optimum?

When marginal utility is positive, total utility:

Kati-Lyn has to choose between eating Chinese food and Indian food. Both Chinese food and Indian food cost the same. Which of the following equations, where MU is marginal utility and U is total utility, will lead to the optimal level of consumption?

Refer to the accompanying figure to answer the questions that follow.
 
Total utility is negative:

Dave gets 20 utils from consuming guacamole and 15 utils from consuming salsa; Buster gets 30 utils from the same guacamole and 15 utils from salsa. Given this information, a researcher can conclude that

Refer to the accompanying figure to answer the questions that follow.
 
Total utility is maximized at the:

Explicit costs are:

Economists consider both explicit and implicit costs when measuring economic profit. The reason they consider implicit costs is that:

Steve owns a bike store. His total costs are $1.2 million per year, and his fixed costs are $450,000 per year. This means that his variable costs are:

Which of the following costs is fixed in the short run?

Accounting profit ignores which of the following costs?

Lauren is the owner of a bakery that earns 0 (zero) economic profit. Last year, her total revenue was $145,000, her rent was $12,000, her labor costs were $65,000, and her overhead expenses were $15,000. From this information, we know that her total implicit costs were:

Darrell owns a furniture store. His total costs are $225,000 per year, and his fixed costs are $150,000 per year. This means that his variable costs are:

Use the following scenario to answer the questions that follow.
Steve owns a bike store. His total costs are $1.2 million per year, his variable costs are $750,000, and his fixed costs are $450,000 per year. Last year, Steve sold 1,200 bikes.
Steve’s average variable cost was __________ per bike.

 

Which of the following characteristics best defines a club good

A negative externality exists whenever:

The pollution emitted by your car is an example of a(n):

The Coase theorem suggests that private parties:

According to the Coase theorem, negative externalities can be internalized if:

A free-rider problem exists when:

Marginal utility:

Phillip is deciding between consuming Good X and Good Y. At his current level of consumption, his marginal utility per dollar for Good X is less than the marginal utility per dollar for Good Y. To achieve the consumer optimum, Phillip needs to:

When marginal utility is negative, total utility:

Utility theory seeks to measure:

The additional satisfaction derived from consuming one more unit of a good or service is called:

Joanna is deciding between consuming Good X and Good Y. At her current level of consumption, her marginal utility per dollar for Good X is greater than the marginal utility per dollar for Good Y. To achieve the consumer optimum, Joanna needs to:

When output is 100 units, the firm’s total fixed cost is $500. What will this firm’s total fixed cost be if output doubles to 200 units?

Darrell is the owner of a furniture store. Last year, his total revenue was $525,000 and his total labor costs were $200,000. His overhead expenses, including insurance and legal fees, were $175,000. The rent on his building was $45,000. Darrell could earn $105,000 per year working at a nearby furniture distributor. If his total revenue increases to $600,000 this year and all of his other expenses are held constant, we know that his economic profit is now:

Economists consider both explicit and implicit costs when measuring economic profit. The reason they consider implicit costs is that:

Ralph owns a small pizza restaurant, where he works full-time in the kitchen. His total revenue last year was $100,000, and his rent was $3,000 per month. He pays his one employee $2,000 per month, and the cost of ingredients and overhead averages $500 per month. Ralph could earn $35,000 per year as the manager of a competing pizza restaurant nearby. His total explicit costs for the year were:

Darrell is the owner of a furniture store. Last year, his total revenue was $525,000 and his total labor costs were $200,000. His overhead expenses, including insurance and legal fees, were $175,000. The rent on his building was $45,000. Darrell could earn $105,000 per year working at a nearby furniture distributor. From this information, we know that his accounting profit was:

Lauren owns a bakery. Her total costs are $150,000 per year, and her fixed costs are $65,000. This means that her variable costs are:

Accounting profit ignores which of the following costs?

Darrell owns a furniture store. His total costs are $225,000 per year, and his variable costs are $75,000 per year. This means that his fixed costs are:

 

Consumer surplus is the difference between:  

All else being held constant, an increase in the price of a good would necessarily:  

The difference between the willingness to sell a good and the price a producer receives is also known as:  

When the price of a good decreases and all else is held constant:  

Producer surplus is depicted by the area:

When a tax is imposed on some good, the lost consumer surplus and producer surplus both typically end up as:

Producers will lose no producer surplus due to a tax if: 

The luxury tax of 1990 produced far less tax revenue than projected because:  

Positive externalities exist because: 

The personal decisions of consumers and firms are based on:  

Externalities are minimized if:  

For a market to work efficiently:  

The air is a:  

If government regulation forces firms in an industry to internalize the externality, then the:  

An external cost is best defined as the cost of an activity paid for by:  

Which of the following characteristics best defines a club good?  

The social optimum occurs where price is __________ and quantity is __________.

Which of the following is true?

1.     social costs = internal costs – external costs

2.     social costs = internal costs + external costs

3.     internal costs = social costs + external costs

4.     external costs = social costs + internal costs

5.     internal costs – social costs = external costs

Which of the following is true of a positive externality?

1.     Some costs are borne by a third party.

2.     The government can use taxes to move the market to the social optimum.

3.     There are no internal benefits.

4.     Some benefits accrue to a third party.

5.     Its existence always requires corrective measures by the government

To achieve the social optimum, the government could set a tax equal to __________ per unit sold. 

Which of the following is the best example of a common-resource good?

1.     a fireworks display

2.     a lighthouse

3.     cable television

4.     fish in a lake

5.     the production of gasoline

Which of the curves depicts economies of scale? hw7 Q1

Ralph owns a small pizza restaurant, where he works full-time in the kitchen. His total revenue last year was $100,000, and his rent was $3,000 per month. He pays his one employee $2,000 per month, and the cost of ingredients and overhead averages $500 per month. Ralph could earn $35,000 per year as the manager of a competing pizza restaurant nearby. His total explicit costs for the year were:

The accompanying graph represents the __________ for a firm

Marginal product is the change in:  

The change in total cost given a change in output is also known as:

An explicit cost for a business that manufactures bicycles would be the:  

Lauren owns a bakery. Her total costs are $150,000 per year, and her variable costs are $85,000. This means that her fixed costs are:

Which of the following is the best example of a variable cost in the short run?  

Another term for factors of production is:  

Steve owns a bike store. Last year, his average cost of selling a bike was $1,000. If he expands the size of his store this year and sees his average cost remain the same, his long-run average total cost curve should be:

Steve owns a bike store. His total costs are $1.2 million per year, his variable costs are $750,000, and his fixed costs are $450,000 per year. Last year, Steve sold 1,200 bikes. Steve’s average variable cost was __________ per bike.

Lauren owns a bakery that produces, among other things, wedding cakes. She currently has 6 employees; with 6 employees, her bakery can produce 9 wedding cakes per day. If she hired a seventh employee, she’d be able to produce 12 wedding cakes per day. Therefore, the marginal product of the seventh employee is __________ wedding cakes.

In the short run, the cost of __________ is variable, whereas the cost of __________ is fixed.

A firm’s economic profit is always less than its accounting profit because:

 

1.
The aggregate demand curve illustrates the:
a. positive relationship between the price level and the quantity demanded of real GDP.
b. positive relationship between the price level and the quantity demanded of nominal GDP.
c. inverse relationship between the price level and the quantity demanded of real GDP.
d. inverse relationship between the price level and the quantity demanded of nominal GDP.
 
 
2.
Amyjust applied for a position with Rory's firm. Rory knows that Amy will earn $20 an hour and can
produceavalueofthemargina1productof1abor(VMPL)of$40perhour.Rorywill-Amy
because her VMPL is _.
a. hire; positive
b. not hire; positive
c. hire; negative
d. not hire; negative
 
 
3.
Bobbi knows that she is producing a value just equal to her wage. If the price of what she makes falls,
Bobbi knows that she:
a. willbe able to keep her job.
b. will work less.
c. is likely to be fired.
d. will not be able to find work anywhere.
 
 
4.
Companies begin to find that customers, when calling customer service, want to talk to real people rather
than to a recording. What will happen to demand for receptionists and the market equilibrium wage?
a. Demand will fall; the equilibrium wage will fall.
b. Demand will increase; the equilibrium wage will fall.
c. Demand will decrease; the equilibrium wage will rise.
d. Demand will increase; the equilibrium wage will increase.
 
 
5.
Consider a market with a negative externality. The market will tend to ____ the good because the market participants tend to ignore the ____ of their decision.
a. overproduce; external benefit
b. under-produce; external benefit
c. overproduce; external cost
d. under-produce; external cost
 
 
6.
A decrease in aggregate demand is harmful in the short run because _, but beneficial in the long
run because _.
a. wages increase; wages decrease.
b. the price level rises; output falls.
c. unemployment rises; the price level falls.
d. the price level falls; the unemployment rate rises.
 
 
7.
Due to unrest in northern Africa thousands of refugees fled across the Mediterranean Sea to Italy where
they sought relief from the fighting. Assume that the Italian labor market was in equilibrium before the
unrest in Africa. At the equilibrium wage that prevailed in Italy prior to the unrest, what would the postwar
status of the labor market be?
a. equilibrium
b. a surplus of labor
c. a surplus ofjobs
d. possibly any of the above
 
 
8.
Frictional unemployment is present in an economy because:
a. workers often need to update their skills.
b. workers take time to decide which job is best for them.
c. firms often lay off workers due to economic recession.
d. there are often changes in the industrial make-up of an economy.
 
 
9.
From 2OO9 to 2014, per capita real GDP (gross domestic product) in the Philippines grew an average of
5Vo per year. At that rate, according to the Rule of 70, in roughly how many years will the Filipino economy
double in size?
a. 5 years.
b. 14 years.
c. 35 years.
d. 71 years
 
 
10.
From 2009 to 2010, nominal gross domestic product (GDP) in the United States grew by 3.85. Given that prices increased by 1% and the population grew by 1%, we know that per capita real GDP gross domestic product grew by:
a. 1.8%
b. 3.8%
c. 4.8%
d. 5.8%
 
 
11.
GDP is not a good measure of:
a. the total income earned by all people in the country.
b. the average living standards of people in the country when adjusted for population.
c: the output produced by people in the country.
d. the income inequality that exists between people in the country.
 
 
12.
If people expect higher income in the future, then spending today and aggregate demand
a. increases; is unaffected.
b. increases; increases.
c. increases; decreases.
d. decreases; decreases.
 
 
13.
In 1950, Nicaragua and Brazil had roughly the same-sized economies. Now, Brazil's economy is almost
five times as large as Nicaragua's. This is likely because:
a. Brazl had almost no trade with other countries.
b. Nicaragua had higher taxes and government spending.
c. Brazil had better resources and technology.
d. Brazil had no public school system and used private schools instead.
 
 
14.
In 1950, residents in Liberia were wealthier than those in Taiwan. Today, per capita GDP in Taiwan is
more than twenty times that of Liberia. Which of the following best explains why Taiwan is now so much
wealthier than Liberia?
a. Taiwan is a very large country with lots of resources, while Liberia is very small.
b. Liberia lacks the sort of institutions that promote growth that Taiwan has.
c. Taxes in Liberia are very high and prevent the economy from growing.
d. All production in Taiwan is managed by the government, while in Liberia, the free market allocates
resources.
 
 
 
 
 
 
 
 
 
 
 
 
 

15.
Inflation NECESSARILY occurs when:
a. the price of gasoline rises.
b. a greater number of goods increase in price compared to the number of goods that undergo a price
decrease.
c. the overall price level, such as the Consumer Price Index (CPI), rises.
d. there is an increase in the rate of change in the price level.
 
 
16.
Inthe United States professional football players earn much higher incomes than professional soccer
players. This occurs because:
a. most football players are good soccer players while the reverse is not true
b. consumers have a greater demand for football games than for soccer games
c. football and soccer games are highly substitutable products for most consumers
d. the marginal productivity of soccer players exceeds that of football players
 
 
17.
Labor markets are different from most other markets because labor demand is
a. horizontal.
b. upward sloping.
c. derived.
d. unifelastic at multiple output levels.
 
 
18.
The long-run aggregate supply curve is:
a. vertical at the level of full employment output.
b. horizontal at the going-price level.
c. illustrating a positive relationship between price and output.
d. illustrating a negative relationship between price and output.
 
 
19.
The long run is best defined as a period of time such that:
a. more than one year has passed.
b. some prices have adjusted.
c.' all prices have adjusted.
d. all firms are maximizing profit.
 
 
20.
Positive externalities exist because benefits are benefits.
a. external; less than internal
b. internal; greater than external
c. externall; greater than social
d. internal; less than social
 
 
21.
A primary cause of inflation is:
a. businesses' quest for higher profits via higher prices.
b. the government borrowing money to distribute for entitlements.
c. workers' need for higher wages to cover higher prices.
d: the government central bank printing excess money.
 
 
22.
problem of interpreting nominal GDP is that:
a. an increase in nominal GDP can be caused by changes in either price or quantity.
b. it does not include the value obtained through purchases of stocks and bonds.
c. it does not measure changes in employment.
d. it does not address concerns about equality
 
 
23.
A profit maximizing firm will hire labor resources as long as :
a. value of the marginal revenue product (VMRP) > wage
b. average total costs (ATC) > VMRP
c. wage > VMRP
d. ATC < VMRP
 
 
24.
A rightward shift of the long-run aggregate supply curve means there has been: 
a. an increase in the unemployment rate.
b. an increase in the price level.
c, a decrease in the price level.
d. economic growth.
 
 
 
 
 
 
 
 
 

25.
The root cause of cyclical unemployment is:
a. unemployment insurance.
b. changes in the industrial make-up of the economy.
c. delays in matching available workers with open jobs.
d. downturns in the business cycle.
 
 
26.
The sale of American-grown corn to China is included in the category of GDP.
a. consumption ,
b. investment
c. import
d. export
 
 
27.
A school of thought is a:
a. cohesive way of thinking about a subject.
b. branch of psychology dedicated to mental processes.
c. trend of new educational programs.
d. large, single-concept focus at a university.
 
 
28.
A severe drought hits a country and reduces farm output by 5O7o. This will impact:
a. short-run aggregate supply.
b. short-run and long-run aggregate supply.
c. long-run aggregate supply.
d. aggregate demand.
 
 
29.
Suppose people are worried about losing their jobs. In the short run, this will:
a. increase aggregate demand and output.
b. decrease short-run aggregate supply and output.
c. increase short-run aggregate supply and output.
d. decrease aggregate demand and output.
 
 
30.
Suppose there is a surge in stock market values. In the short rug we would expect the price level to
and the unemployment rate to _.
a. increase; decrease. 
b. increase; increase. 
c. decrease; increase. 
d. decrease; decreas
 
 
31.
Tfo; labor supply curve for a particular occupation is upward sloping because:
a. higher wages will be needed to attract workers from other occupations.
b. lower wages will be needed to increase employment.
c. higher wages will enable some workers to afford more leisure.
d. the labor demand curve is downward sloping.
 
 
32.
Thebusiness cycle model describes how
____ changes over time.
a. Gross Domestic Product
b. Management practices
c. Inflation
d. Unemployment
 
 
33.
Today, not all regions of the world enjoy the same level of annual real per capita gross domestic product
(GDP). The regions that have higher levels of real per capita GDP probably also have:
a. lower levels of government spending.
. b. very little new business formation and job growth.
c. higher rates of poverty.
d. growth-promoting institutions like property rights.
 
 
34.
To evaluate the change in average living standards over time it is best to use:
a. GDP.
b. GDP per capita.
c. real GDP per capita.
d. real GDP.
 
 
35.
When wages fall:
a. the quantity of labor supplied always rises.
b. neither the opportunity cost of an hour of leisure nor the quantity of labor supplied is likely to
change.
c. the opportunity cost of an hour of leisure declines.
d. the opportunity cost ofan hour ofleisure increases.
 
 
 
 
 
 
 
 
 

36.
which activity is most likely to create a positive externality?
a. You drive downtown each day.
b. An oil refinery operates for 16 hours each day. c. A new airport is built in a big city.
d. A person receives a flu shot.
 
 
37.
Which good is most easily excludable?
a. a fireworks display
b. swimming in the ocean
c. a side-walk in a public park
d. education at a community college
 
 
38.
Which good is nonrival?
a. sharing apizzawith your family
b. swimming in a public pool
c. driving in a city
d. listening to public radio
 
 
39.
Which of the following choices is the correct sequence of the business cycle?
a. peak, trough, recession, recovery
b. peak, recovery, trough, recession
c. peak, recession, trough, recovery
d. trough, recovery, recession, peak
 
 
40.
Which of the following is an example of structural unemployment?
a. Chad graduates with his master's degree in economics and is searching for a computer analyst job
in Oklahoma.
b. Edith has decided to retire after 35 years of working at the state prison. 
c. Cameron quits his job because he wants to become an astronaut.
d. Jasmine loses her job as a newspaper editor because the publication has gone digital.
 
 
41.
Which of the following is included in the government purchases category of GDP?
a. social security payments
b. welfare payments
c. payments to people in the military
d. interest on the national debt
 
 
42.
Which of the following is not a goal of macroeconomics?
a. Full employment
b. Equality
c. Price stability
d. Economic Growth
 
 
43.
Which of the following makes up the largest part of GDP?
a. Consumption
b. Investment
c. Government spending
d. Net Exports
 
 
44.
Which of the following statements about unemployment is true?
a. To be officially unemployed, a person has to be in the labor force.
b. A person who is not working is officially unemployed.
c. Aperson who is working part-time but would like to be working full-time is considered to be unemployed.
d. A person who is retired and not looking for a job is still considered unemployed.
 
 
45.
Which of the following would not lead to higher economic growth?
a. better organization in a firm
b. updating the capital used by a firm
c. increasing educational opportunities for workers
d. higher taxes on business
 
 
46.
Whose theory of the macro economy took over during the Great Depression?
a. Adam Smith
b. Franklin Roosevelt
c. James K. Polk
d. John Maynard Keynes
 
 
47.
Zero unemployment:
a. is only possible in recessions.
b. is not desireable.
c. is only possible in long run equilibrium.
d. is the goal of macroeconomic policy-makers
 
 
 

1.
The ability to download music and movies from the Internet without paying is:
 
 
2.
The air is a ________ good.
 
 
3.
All else being held constant, an increase in the price of a good would necessarily:
 
 
4.
The amount you pay for insurance on your car is an example of a(n) ________ cost.
 
 
5.
As a firm hires more labor and each worker is able to specialize, what happens to each additional worker's marginal productivity?
 
 
6.
Ash is the preferred wood to be used in the production of baseball bats. If a company were to buy the rights to harvesting the ash trees out of all the forests in North America, which of the following barriers of entry has this company created?
 
 
7.
Assume that a firm hires an additional employee. If the marginal product for that employee is greater than for the previous employee hired, it must be because:
 
 
8.
Because the demand curve for a monopolist is downward-sloping:
 
 
9.
Beer prices at major league baseball stadiums are usually much higher than prices at a bar or restaurant. This is mainly because:
 
 
10.
Bob is willing to pay $65 for a new pair of shoes. Bill is willing to pay $50 for the same shoes. The shoes have a price of $45. What is the total consumer surplus for Bob and Bill?
 
 
11.
A cap-and-trade policy is an efficient method of reducing pollution because:
 
 
12.
A cap-and-trade policy is most often used to solve problems associated with:
 
 
13.
The change in total cost given a change in output is also known as ________ cost.
 
 
14.
The change in total output divided by the change in input is known as:
 
 
15.
Consider a market where production of a good generates a negative externality. In the market equilibrium:
 
 
16.
Consider a market where production of the good is creating a negative externality. In the market model, there is a difference between the social supply curve and the internal supply curve because the:
 
 
17.
Consumer surplus is defined as the:
 
 
18.
Control of resources, problems raising capital, and economies of scale are all examples of:
 
 
19.
The demand curve for the product of a firm in a competitive market is ________, and the demand curve for the product of a monopolist is ________.
 
 
20.
Do all buyers benefit from a binding price ceiling?
 
 
21.
Do all sellers benefit from a binding price floor?
 
 
22.
An example of an explicit cost is:
 
 
24.
Explicit costs are:
 
 
25.
An external cost is best defined as the cost of an activity paid for by:
 
 
26.
Externalities exist because:
 
 
27.
A firm characterized as a price-taker:
 
 
28.
A firm operating in an oligopolistic market has ________ market power compared to a ________.
 
 
29.
A firm's inputs are also known as its:
 
 
30.
A firm's production function is similar to a recipe used to make a cake in the sense that the production function shows us the combination of ________ used to produce ________.
 
 
31.
Firms will always suffer a loss only if the price they charge is:
 
 
32.
Holding all else constant, a decrease in the market demand for a product in a competitive market would cause:
 
 
33.
How do consumers who are subject to a binding price ceiling respond as the time frame shifts from the short run to the long run?
 
 
34.
If a firm hires another worker and his or her marginal product of labor is positive, we know that the firm's total output is:
 
 
35.
If all workers are able to specialize and become more productive as more labor is hired, the amount of total output produced ________ at a(n) ________ rate.
 
 
36.
If a monopolist is producing a quantity where marginal revenue is equal to $32 and the marginal cost is equal to $30, the monopolist should:
 
 
 
 
 
 
 
 
 

37.
If a price ceiling is imposed at $15 per unit when the equilibrium market price is $12, there will be:
 
 
38.
If firms in a competitive market are incurring economic losses, you would expect firms to:
 
 
39.
If firms in a competitive market are making positive economic profits, you would expect firms to:
 
 
40.
If Nicole's Knick-Knacks is a perfectly competitive firm and is making zero economic profits:
 
 
41.
If the local government tells gas stations that they are not allowed to change the price of gas for three weeks during hurricane season, what will be the consequence?
 
 
42.
If the marginal product is increasing, the marginal cost of output must be:
 
 
43.
If the marginal product of labor for a firm decreases as more workers are hired, we know that:
 
 
44.
If workers are unable to specialize and become more productive as more labor is hired, the amount of total output produced ________ at a(n) ________ rate.
 
 
45.
If you were a politician, why would you find it difficult to remove a binding price ceiling?
 
 
46.
If you were a politician, why would you find it difficult to remove a binding price floor?
 
 
47.
Implicit costs are:
 
 
48.
In a competitive market, if one firm raises its price relative to the other firms in the market, consumers are willing to go to another firm because:
 
 
49.
In a market economy, government intervention:
 
 
50.
In economics, we assume that firms make decisions in order to:
 
 
51.
Inefficient output and price, few choices, and rent seeking are all problems associated with:
 
 
52.
An internal cost is best defined as the cost of an activity paid for by:
 
 
53.
In the long run, if a firm is making a loss, it will:
 
 
54.
Jim and Lisa own a dog-grooming business in Champlain, New York, called JL Groomers. There are many buyers and many sellers in the dog-grooming service market. JL Groomers experiences normal cost curves, with the marginal cost (MC) curve minimized at $14 and crosses average total cost (ATC) curve at $22. JL Groomers will make positive economic profits if the market price is:
 
 
55.
Jim and Lisa own a dog-grooming business in Champlain, New York, called JL Groomers. There are many buyers and many sellers in the dog-grooming service market. JL Groomers experiences normal cost curves, with the marginal cost (MC) curve minimized at $14 and crosses the average total cost (ATC) curve at $22. JL Groomers will make zero economic profits if the market price is:
 
 
56.
Kathleen owns a photography business in Mobile, Alabama. The market for photography is very competitive. At Kathleen's current production level, her marginal cost is $15 and her marginal revenue is $12. In order to maximize profits, Kathleen should:
 
 
57.
Like a pure monopoly, an oligopoly is characterized by:
 
 
58.
A major reason why public goods are NOT supplied by the market is the:
 
 
59.
Marginal revenue is the change in total:
 
 
 

60.
Market for flat-screen TVs:
Demand: Qd = 2,600 - 5 P
Supply: Qs = -1,000 + 10 P

What would be the quantity demanded if a price ceiling is set at $150?
 
 
61.
Market for flat-screen TVs:
Demand: Qd = 2,600 - 5 P
Supply: Qs = -1,000 + 10 P

What would be the quantity demanded if a price ceiling is set at $400?
 
 
62.
The market for hot dogs on the streets of New York City can be considered close to a perfectly competitive market. Because there are so many individuals buying and selling hot dogs:
 
 
63.
Market for used cars:
Demand: Qd = 154,000 - 86 P
Supply: Qs = -100 + 14 P

What would be the equilibrium price for used cars?
 
 
64.
Market for used cars:
Demand: Qd = 154,000 - 86 P
Supply: Qs = -100 + 14 P

What would be the equilibrium quantity for used cars?
 
 
65.
Market for used cars:
Demand: Qd = 154,000 - 86 P
Supply: Qs = -100 + 14 P

What would be the quantity supplied if a price floor is set at $2,000?
 
 
66.
Market for used cars:
Demand: Qd = 154,000 - 86 P
Supply: Qs = -100 + 14 P

What would be the quantity supplied if a price floor is set at $100?
 
 
67.
A market has reached an efficient outcome when:
 
 
68.
The minimum wage law is an example of a:
 
 
69.
Monopolistic competition means:
 
 
70.
A monopoly:
 
 
71.
Mortimer loves sushi. He loves sushi so much that he asks his congressional representative to work for passage of a binding price ceiling law. Who would be affected by this law and how?
 
 
72.
Museum visits in a particular city are free. This good is:
 
 
73.
A natural monopoly:
 
 
74.
One difference between implicit costs and explicit costs is that:
 
 
75.
One strategy I might use to be elected mayor of a university town is to place a binding price ceiling on rent for student apartments. What will happen if I get elected and am able to pass such a law?
 
 
76.
Patents and copyrights can:
 
 
77.
The pollution emitted by your car is an example of a(n) ________ cost.
 
 
78.
A positive externality exists whenever:
 
 
79.
A price-maker:
 
 
80.
Producer surplus is depicted by the area:
 
 
 

81.
Producer surplus is the difference between:
 
 
82.
Product differentiation:
 
 
83.
Rent seeking occurs when:
 
 
84.
Suppose you live in a community with no price controls. What do you expect will happen if your town borders a community where there is a binding price ceiling on most products?
 
 
85.
Taxi medallions are an example of:
 
 
86.
The term "market failure" refers to:
 
 
87.
Thomas has developed a new social media site that he feels can compete heavily with Facebook. Unfortunately, he cannot find someone to lend him enough money to market his product to consumers. Thomas is facing which kind of barrier to entry?
 
 
88.
Total revenue minus total cost equals:
 
 
89.
Total revenue minus total cost is equal to:
 
 
90.
The tragedy of the commons occurs for goods that are:
 
 
91.
Two government-created barriers to entry are:
 
 
92.
Visiting the public beach during summer is an example of an activity that is:
 
 
93.
What consequences will a binding price ceiling have?
 
 
94.
What would you expect the consequences to size and quality would be for a product sold under a binding price ceiling?
 
 
95.
When firms enter a market, individual firms' profits:
 
 
96.
When firms enter a market, the ________, causing individual firms' profits to ________.
 
 
97.
When firms exit a market, individual firms' profits:
 
 
98.
When looking at a graph, the area under the demand curve and above market price is defined as:
 
 
99.
When the price of a good increases and all else is held constant:
 
 
100.
Which characteristic of competitive markets is mainly responsible for ensuring that economic profits will be zero?
 
 
101.
Which of the following characteristics best defines a private good?
 
 
102.
Which of the following characteristics best defines a public good?
 
 
103.
Which of the following is a characteristic of a monopoly but not a characteristic of a competitive market?
 
 
104.
Which of the following is a consequence of a non-binding price floor?
 
 
105.
Which of the following lists the three main characteristics of a competitive market?
 
 
106.
Which of the following statements is correct?
 
 
107.
Why are binding price ceiling laws passed?
 
 
 

108.
You are the president of the United States. In an attempt to make prescription drug prices cheaper, you have imposed a binding price ceiling on drugs. What would you expect your critics to say?
 
 
109.
Your neighbor is an avid gardener who changes his flower displays four times per year and who was given the "best yard on the block" award last year. While you personally enjoy these changing flower displays, some of your neighbors have said they do not like some of the flowers your neighbor chooses to plant. For you, this is an example of:
 
 
110.
Your neighbor likes to mow his grass each Saturday at 7 A.M. and the noise invariably wakes you up. This is an example of:
 
 
111.
You share a house with two other people. You are a concert pianist and often practice at home. One roommate enjoys listening to you practice, but the other does not. For the roommate who enjoys listening to you play, this is an example of ________; for the other roommate, it is an example of ________.
 
 
 

1.
Accounting profit ignores which of the following costs?
 
 
2.
Another term for factors of production is:
 
 
3.
Apartment rent control in New York City is an example of:
 
 
4.
Assume that a family spends 35% of its income on housing, 20% on travel-related expenses, 10% on utilities, 25% on health care, and 5% on miscellaneous items. Demand for which category will be most responsive to a change in price?
 
 
5.
At a price of $2, the quantity demanded for pens is 12. When the price increases to $3, the quantity demanded for pens is 10. The price elasticity of demand for pens is:
 
 
6.
A cap-and-trade policy is most often used to solve problems associated with:
 
 
7.
The costs of a market activity paid for by an individual NOT engaged in the market activity are:
 
 
8.
Darrell owns a furniture store. His total costs are $225,000 per year, and his variable costs are $75,000 per year. This means that his fixed costs are:
 
 
9.
Demand is almost always more price elastic in the long run because:
 
 
10.
Explicit costs are:
 
 
11.
For which of the following products should sellers raise the price in order to increase total revenue from college students?
 
 
12.
A free-rider problem exists when:
 
 
13.
The government has imposed a price control for many agricultural products in an effort to support farmers. In the case of price floor P2 in the accompanying figure, how much of a disequilibrium in quantity exists?
 
 
14.
The income elasticity of demand for a good measures the responsiveness of ________ to a change in ________.
 
 
15.
____________ is a real-life example of a price floor.
 
 
16.
Lauren owns a bakery that produces, among other things, wedding cakes. She currently has 5 employees; with 5 employees, her bakery can produce 7 wedding cakes per day. If she hired a sixth employee, she'd be able to produce 9 wedding cakes per day. Therefore, the marginal product of the sixth employee is __________ wedding cake(s).
 
 
17.
A local merchant raises the price of his good and finds that his total revenues increase. The demand for this good is:
 
 
18.
Marginal product is the change in:
 
 
19.
The market is currently at market equilibrium. If a binding price ceiling of P1 is imposed, by how much would the quantity supplied change?
 
 
20.
A positive externality exists whenever:
 
 
21.
Price elasticity of demand measures the change in:
 
 
22.
Ralph owns a small pizza restaurant, where he works full-time in the kitchen. His total revenue last year was $100,000, and his rent was $3,000 per month. He pays his one employee $2,000 per month, and the cost of ingredients and overhead averages $500 per month. Ralph could earn $35,000 per year as the manager of a competing pizza restaurant nearby. His total accounting profit for the year was:
 
 
23.
Ralph owns a small pizza restaurant, where he works full-time in the kitchen. His total revenue last year was $100,000, and his rent was $3,000 per month. He pays his one employee $2,000 per month, and the cost of ingredients and overhead averages $500 per month. Ralph could earn $35,000 per year as the manager of a competing pizza restaurant nearby. His total economic profit for the year was:
 
 
24.
Ralph owns a small pizza restaurant, where he works full-time in the kitchen. His total revenue last year was $100,000, and his rent was $3,000 per month. He pays his one employee $2,000 per month, and the cost of ingredients and overhead averages $500 per month. Ralph could earn $35,000 per year as the manager of a competing pizza restaurant nearby. His total explicit costs for the year were:
 
 
25.
Ralph owns a small pizza restaurant, where he works full-time in the kitchen. His total revenue last year was $100,000, and his rent was $3,000 per month. He pays his one employee $2,000 per month, and the cost of ingredients and overhead averages $500 per month. Ralph could earn $35,000 per year as the manager of a competing pizza restaurant nearby. His total implicit costs for the year were:
 
 
26.
The three primary inputs are:
 
 
27.
Total revenue minus total cost is equal to:
 
 
28.
The tragedy of the commons occurs for goods that are:
 
 
29.
Visiting the public beach during summer is an example of an activity that is:
 
 
30.
When the price of scooters drops by 5%, the quantity demanded changes by 20%. You know that the price elasticity of demand for scooters is:
 
 
31.
Which business most likely experiences economies of scale?
 
 
32.
Which good is excludable?
 
 
33.
Which of the following characteristics best defines a club good?
 
 
34.
Which of the following characteristics best defines a common-resource good?
 
 
 
 
 
 
 
 
 

35.
Which of the following characteristics best defines a private good?
 
 
36.
Which of the following characteristics best defines a public good?
 
 
37.
Which of the following is the best example of a common-resource good?
 
 
38.
Which of the following is true?
 
 
39.
Which of these graphs represents perfectly price inelastic demand for a good?
 
 
40.
Which one of the following pairs of goods is likely to have a negative cross-price elasticity of demand?
 
 
41.
Which one of the following pairs of goods is likely to have a positive cross-price elasticity of demand?
 
 
42.
Why are binding price ceiling laws passed?
 
 
43.
Why do shortages develop under a binding price ceiling?