ôn tập ck microeconomics

Multiple Choice

Teresa faces prices of $6.00 for a unit of good X and $1.50 for a unit of good Y. At her optimum, Teresa is willing to give up 1 unit of good X for ... units of good Y.

• 3

• 4

• 5

• 6

Multiple Choice

Suppose there is a decrease in the price of corn. If corn is an input into the production of ethanol, we would expect the supply curve for ethanol to

• shift rightward

• shift leftward

• become flatter

• remain unchanged

Multiple Choice

Which of the following statements is NOT correct?

• A price ceiling set at $4 would be binding, but a price ceiling set at $6 would not be binding

• A price floor set at $7 would be binding, but a price floor set at $4 would not be binding

• A price ceiling set at $3.50 would result in a surplus

• A price floor set $6.50 would result in a surplus

Multiple Choice

According to the graph, snowstorms

• and snowblowers sold are positively correlated

• and snowblowers sold are negatively correlated

• and snowblowers sold are uncorrelated

• are caused by more snowblowers being sold

Multiple Choice

Suppose a tax of $6 per unit is imposed on this market. How much will buyers pay per unit after the tax is imposed?

• $16

• between $16 and $20

• between $20 and $22

• $22

Multiple Choice

Denmark's opportunity cost of producing 1 dozen eggs is

• 5/4 pounds of ham. This is higher than Finland's opportunity cost of producing 1 dozen eggs.

• 5/4 pounds of ham. This is lower than Finland's opportunity cost of producing 1 dozen eggs

• 4/5 pounds of ham. This is higher than Finland's opportunity cost of producing 1 dozen eggs

• 4/5 pounds of ham. This is lower than Finland's opportunity cost of producing 1 dozen eggs

Multiple Choice

If a binding price floor is imposed on the market for eBooks, then

• the demand for eBooks will decrease

• the supply for eBooks will increase

• a surplus of eBooks will develop

• All of the above are correct

Multiple Choice

When the price of an eBook iss $15.00, the quantity demanded iss 400 eBooks per day. When the price falls to $10.00, the quantity demanded increases to 700. Given thiss information and using the midpoint method, we know that the demand for eBooks is

• inelastic

• elastic

• unit elastic

• perfectly inelastic

Multiple Choice

If Hector's marginal rate of substitution between pens and pencils is constant, regardless of how many pens and pencils he has, then his indifference curves

• are right angles

• are straight lines

• slope upward

• cross one another at certain points

This indicates that Hector is willing to trade pens and pencils at a constant rate, resulting in linear indifference curves

Multiple Choice

What is flowing from rectangle 1 to oval A?

• revenue

• goods and services sold

• factors of production

• labor, land and capital

Multiple Choice

Giffen goods are

• normal goods for which the income effect dominates the substitution effect

• normal goods for which the substitution effect dominates the income effect

• inferior goods for which the income effect dominates the substitution effect

• inferior goods for which the substitution effect dominates the income effect

Multiple Choice

The bowed outward shape of the production possibilities curve indicates that opportunity cost of corn in terms of cars is

• increasing

• decreasing

Multiple Choice

For a particular product produced by a firm, the quantity at which demand is unitary elastic is most likely the quantity that maximizes:

• Total profit from the product but not total revenue from the product

• Total revenue from the product but not total profit from the product

• both total profit from the product and total revenue from the product

• neither total profit from the product nor total revenue from the product

Multiple Choice

If these are the only three sellers in the market, then the market quantity supplies at a price of $6 is

• 6 units

• 12 units

• 18 units

• 24 units

Multiple Choice

A consumer's indifference curves are right angles when, for the consumer, the goods in question are

• perfect substitutes

• perfect complements

Multiple Choice

Alexis is a lawyer. She bills her clients $100 an hour for her services. She can also mow her lawn in 30 minutes. She can hire someone to mow her lawn who takes an hour. Of the following prices, which is the highest Alexis would pay someone to mow her lawn?

• $99

• $49

• $29

• Alexis would always mow her own lawn because she can do it faster

Multiple Choice

The "invisible hand" refers to

• the government

• the free market

• central planners

• large businesses

Multiple Choice

Suppose a $3 per-unit tax is placed on this good. The tax causes the price paid by buyers to

• decrease by $3

• increase by $2

• decrease by $1

• increase by $6

Multiple Choice

At his optimum, Jack is buying

• 0.6 pounds of apples

• 2.0 pounds of apples

• 4.5 pounds of apples

• 5.5 pounds of apples

Multiple Choice

If John's willingness to pay for a good is $20 and the price of the good is $15, how much is John's consumer surplus from purchasing the good?

• $15

• $20

• $0.75

• $5

Multiple Choice

Suppose a $3 per-unit tax is placed on this good. The loss of consumer surplus resulting from this tax is

• $35

• $45

• $70

• $80

Multiple Choice

For a particular company's product, the percent change in quantity demanded is smaller than the percent change in price that caused the change in quantity demanded. If the company increased the price of that product, total revenue from sales of that product would most likely

• increase and demand is elastic

• decrease and demand is elastic

• increase and demand is inelastic

• decrease and demand is inelastic

Multiple Choice

Does a change in price in a market result in a shift of the demand curve or in a movement along the demand curve?

• a shift of the demand curve

• a movement along the demand curve

Multiple Choice

Last year, Olivia bought 6 pairs of shoes when her income was $50,000. This year, her income is $55,000, and she purchases 8 pairs of shoes. Holding other factors constant and using the midpoint method, it follows that Olivia's income elasticity of demand is about

• 0.33, and Olivia regards shoes as an inferior good

• 0.33, and Olivia regards shoes as a normal good

• 3.00, and Olivia regards shoes as an inferior good

• 3.00, and Olivia regards shoes as a normal good

Multiple Choice

Economics is the study of how society manage its

• limited wants and unlimited resources

• unlimited wants and unlimited resources

• limited wants and limited resources

• unlimited wants and limited resources

Multiple Choice

For Meg, the substitution effect of an interest-rate increase is stronger than the income effect. In respond to a higher interest rate, will Meg save more or will she save less?

• Meg will save more

• Meg will save less

Multiple Choice

If the price of the good is $100, then consumer surplus amounts to

• $50

• $75

• $100

• $125

Multiple Choice

Suppose researchers discover a new, lower cost method of producing calculators. As a result, will the supply of calculators increase or decrease?

• increase

• decrease

Multiple Choice

If the demand curve is more price elastic than the supply curve in a particular market, will the buyers or the sellers bear a larger burden of a per-unit tax imposed on the market?

• the buyers

• the sellers

Multiple Choice

If the market price of an apple is $1.40, then the market quantity of apples demanded per day is

• 1

• 2

• 3

• 4

Multiple Choice

Suppose that good X has few close substitutes and that good Y has many close substitutes. Which good would you expect to have more price inelastic demand?

• Good X

• Good Y

Multiple Choice

Rational people make decision "at the margin" by comparing

• average costs and benefits

• total costs and benefits

• additional costs and benefits

• opportunity costs and benefits

Multiple Choice

Which of the following statements is correct?

• A price ceiling set at $6 would be binding, but a price ceiling set at $4 would not be binding

• A price floor set at $4 would be binding, but a price ceiling set at $4 would not be binding

• A price ceiling set at $3.50 would result in a surplus

• A price floor set at $6.50 would result in a surplus

Multiple Choice

With linear demand and supply curves in a market, suppose a tax of $0.20 per unit on a good creates a deadweight loss of $40. If the tax is increased to $0.50 per unit, the deadweight loss from the new tax will be

• $200

• $250

• $475

• $625

Multiple Choice

If the government imposes a price ceiling of $6 on thid market, then there will be

• no shortage

• a shortage of 5 units

• a shortage of 10 units

• a shortage of 20 units

Multiple Choice

Which of the following is a positive, as opposed to a normative, statement?

• The US Department of Justice should allow a merger between AT&T and T-Mobile because it would have little effect on consumers

• Antitrust laws should be used to prevent further concentration in the wireless telephone service market

• The US Department of Justice sued AT&T to block its merger with T-Mobile

• The wireless telephone service markter is too highly concentrated

Multiple Choice

For a particular company's product, the percent change in quantity demanded is smaller than the percent change in price that caused the change in quantity demanded. If the company increased the price of that product, total revenue from sales of that product would most likely

• increase more in the short run than in the long run

• increase more in the long run than in the short run

• decrease more in the short run than in the long run

• decrease more in the long run than in the short run

Multiple Choice

If the market equilibrium price is $25, how much is total producer surplus in this market?

• $110

• $30

• $6

• $50

Multiple Choice

When a tax is imposed on a good for which the demand is relatively elastic and the supply is relatively inelastic,

• buyers of the good will bear most of the burden of the tax

• sellers of the good will bear most of the burden of the tax

• buyers and sellers will each bear 50% of the burden of the tax

• the effective price paid by buyers will decrease as a result of the tax

Multiple Choice

The supply curve for motor oil is the typical upward-sloping straight line, and the demand curve for motor oil is the typical downward-sloping straight line. When motor oil is taxed, the area on the relevant supply-and-demand graph that represents the deadweight loss is

• larger than the area that represents consumer surplus in the absence of the tax

• larger than the area that represents government's tax revenue

• a triangle

• all of the above are correct

Multiple Choice

The deadweight loss from a tax of $x per unit will be smallest in a market

• in which demand is elastic and supply is inelastic

• in which demand is inelastic and supply is elastic

• in which demand is inelastic and supply is inelastic

• none of the above are correct, we need to know the value of x in order to determine the answer.

Multiple Choice

Deadweight loss is the

• decline in total surplus that results from a tax

• decline in government revenue when taxes are reduced in a market

• decline in consumer surplus when a tax is placed on buyers

• loss of profits to business firms when a tax is imposed

Multiple Choice

To measure the gains and losses from a tax on a good, economists use the tools of

• macroeconomics

• welfare economics

• international-trade theory

• circular-flow analysis

Multiple Choice

When a tax is imposed on a good, the

• supply curve for the good always shift

• demand curve for the good always shift

• amount of the good that buyers are willing to buy at each price always remains unchanged

• equilibrium quantity of the good always decrease

Multiple Choice

The size of a tax and the deadweight loss that results from the tax are

• positively related

• negatively related

• independent of each other

• equal to each other

Multiple Choice

It does not matter whether a tax is levied on the buyers or the sellers of the good because

• sellers always bear the full burden of the tax

• buyers always bear the full burden of the tax

• buyers and sellers will share the burden of the tax

• none of the above are correct; the incidence of the tax does depend on whether the buyers or the sellers are required to pay the tax

Multiple Choice

Suppose a tax of $1 per unit is imposed on a good. The more elastic the supply of the good, other things equal, the

• smaller is the response of quantity supplied to the tax

• larger is the tax burden on sellers relative to the tax burden on buyers

• larger is the deadweight loss of the tax

• all of the above are correct

Multiple Choice

Assume the supply curve for diapers is a typical, upward-sloping straight line, and the demand curve for diapers is a typical, downward-sloping straight line. Suppose the equilibrium quantity in the market for diapers is 1000 per month when there is no tax. Then a tax of $0.50 per diaper is imposed. The effective price paid by buyers increases from $1.50 to $1.90 and the effective price received by sellers falls from $1.50 to $1.40. The government's tax revenue amounts to $475 per month. Which of the following statements is correct

• After the tax is imposed, the equilibrium quantity of diapers is 900 per month

• the demand for diapers is more elastic than the supply of diapers

• the deadweight loss of the tax is $12.50

• the tax causes a decrease in consumer surplus of $380

Multiple Choice

The government's benefit from a tax can be measured by

• consumer surplus

• producer surplus

• tax revenue

• all of the above are correct

Multiple Choice

The benefit to buyers of participating in a market is measured by

• the price elasticity of demand

• consumer surplus

• the maximum amount that buyers are willing to pay for the good

• the equilibrium price

Multiple Choice

A tax affects

• buyers only

• sellers only

• buyers and sellers only

• buyers, sellers, and the government

Multiple Choice

A tax on a good

• raises the price that buyers effectively pay and raises the price that sellers effectively receive

• raises the price that buyers effectively pay and lowers the price that sellers effectively receive

• lowers the price that buyers effectively pay and raises the price that sellers effectively receive

• lowers the price that buyers effectively pay and lowers the price that sellers effectively receive

Multiple Choice

Suppose the price of milk is $2.39 per gallon, and the equilibrium quantity of milk is 100 thousand gallons per day with no tax on milk. Starting from this initial situation, which of the following scenarios would result in the smallest deadweight loss?

• The price elasticity of demand for milk is 0.3, the price elasticity of supply for milk is 0.7, and the milk tax amounts to $0.40 per gallon

• the price elasticity of demand for milk is 0.2, the price elasticity of supply for milk is 0.5, and the milk tax amounts to %0.30 per gallon

• the price elasticity of demand for milk is 0.2, the price elasticity of supply for milk is 0.7, and the milk tax amounts to $0.30 per gallon

• the price elasticity of demand for milk is 0.1, the price elasticity of supply for milk is 0.5, and the milk tax amounts to $0.20 per gallon

Multiple Choice

The amount of deadweight loss from a tax depends upon the

• price elasticity of demand

• price elasticity of supply

• amount of the tax per unit

• all of the above are correct

Multiple Choice

Suppose that policymakers are considering placing a tax on either of two markets. In market A, the tax will have a significant effect on the price consumers pay, but it will not affect equilibrium quantity very much. In market B, the same tax will have only a small effect on the price consumers pay, but it will have a large effect on the equilibrium quantity. Other factors are held constant. In which market will the tax have a larger deadweight loss?

• market A

• market B

• the deadweight loss will be the same in both markets

• there is not enough information to answer the question

Multiple Choice

Which of the following statements is correct regarding the imposition of a tax on gasoline?

• the incidence of the tax depends upon whether the buyers or the sellers are required to remit tax payments to the government

• the incidence of the tax depends upon the price elasticities of demand and supply

• the amount of tax revenue raised by the tax depends upon whether the buyers or the sellers are required to remit tax payments to the government

• the amount of the tax revenue raised by the tax does not depend upon the amount of the tax per unit

Multiple Choice

The size of the deadweight loss generated from a tax is affected by the

• elasticities of both supply and demand

• elasticity of demand only

• elasticity of supply only

• total revenue collected by the government

Multiple Choice

Buyers of a product will bear the larger part of the tax burden, and sellers will bear a smaller part of the tax burden, when the

• tax is placed on the sellers of the product

• tax is placed on the buyers of the product

• supply of the product is more elastic than the demand for the product

• demand for the product is more elastic than the supply of the product

Multiple Choice

A $2 tax per gallon of paint placed on the buyers of paint will shift the demand curve

• downward by exactly $2

• downward by less than $2

• upward by exactly $2

• upward by less than $2

Multiple Choice

When a tax is levied on a good, the buyers and sellers of the good share the burden,

• provided the tax is levied on the sellers

• provided the tax is levied on the buyers

• provided a portion of the tax is levied on the buyers, with the remaining portion levied on the sellers

• regardless of how the tax is levied

Multiple Choice

In the market for widgets, the supply curve is the typical upward-sloping straight line, and the demand curve is the typical downward-sloping straight line. The equilibrium quantity in ther market for widgets is 200 per month when there is no tax. Then a tax of $5 per widget is imposed. As a result, the government is able to raise $800 per month in tax revenue. We can conclude that the equilibrium quantity of widgets has fallen by

• 40 per month

• 50 per month

• 70 per month

• 100 per month

Multiple Choice

Suppose a tax is imposed on bananas. In which of the following cases will the tax cause the equilibrium quantity of bananas to shrink by the largest amount?

• the response of buyers to a change in the price of bananas is strong, and the response of sellers to a change in the price of the bananas is weak

• the response of sellers to a change in the price of bananas is strong, and the response of buyers to a change in the price of bananas is weak

• the response of buyers and sellers to a change in the price of bananas is strong

• the response of buyers and sellers to a change in the price of bananas is weak

Multiple Choice

If a tax shifts the supply curve upward (or to the left), we can infer that the tax was levied on

• buyers of the good

• sellers of the good

• both buyers and sellers of the good

• we cannot infer anything because the shift described is not consistent with a tax

Multiple Choice

Suppose France subsidizes French wheat farmers, while Germany offers no subsidy to German wheat farmers. As a result of the French subsidy, sales of French wheat to Germany

• may prompt German farmers to invoke the unfair-competition argument.

• increase the consumer surplus of German buyers of wheat.

• increase the total surplus of the German people.

• all of the above are correct

Multiple Choice

Which of the following arguments for trade restrictions in the US is often advanced?

• Trade restrictions make all Americans better off

• Trade restrictions increase economic efficiency.

• Trade restrictions are necessary for economic growth

• Trade restrictions are sometimes necessary for national security.

Multiple Choice

Which of the following statements is true?

• Free trade benefits a country when it exports but harms it when it imports.

• "Voluntary" limits on Canadian exports of hogs are better for the United States than U.S. tariffs placed on Canadian hog exports.

• Tariffs and quotas differ in that tariffs work like a tax and therefore impose deadweight losses, whereas quotas do not impose deadweight losses.

• Free trade benefits a country both when it exports and when it imports.

Multiple Choice

The world price of a pound of almonds is $4.50. Before Uruguay allowed trade in almonds, the price of a pound of almonds there was $3.00. Once Uruguay began allowing trade in almonds with other countries, Uruguay began

• exporting almonds and the price per pound in Uruguay remained at $3.00.

• exporting almonds and the price per pound in Uruguay increased to $4.50.

• importing almonds and the price per pound in Uruguay remained at $3.00.

• importing almonds and the price per pound in Uruguay increased to $4.50.

Multiple Choice

Trade enhances the economic well-being of a nation in the sense that

• both domestic producers and domestic consumers of a good become better off with trade, regardless of whether the nation imports or exports the good in question.

• the gains of domestic producers of a good exceed the losses of domestic consumers of a good, regardless of whether the nation imports or exports the good in question.

• trade results in an increase in total surplus.

• trade puts downward pressure on the prices of all goods.

Multiple Choice

When a country allows trade and becomes an exporter of a good,

• domestic producers gain and domestic consumers lose

• domestic producers lose and domestic consumers gain.

• domestic producers and domestic consumers both gain.

• domestic producers and domestic consumers both lose.

Multiple Choice

When a country allows trade and becomes an importer of a good,

• everyone in the country benefits.

• the gains of the winners exceed the losses of the losers.

• the losses of the losers exceed the gains of the winners.

• everyone in the country loses.

Multiple Choice

When a nation first begins to trade with other countries and the nation becomes an importer of corn,

• this is an indication that the world price of corn exceeds the nation’s domestic price of corn in the absence of trade

• this is an indication that the nation has a comparative advantage in producing corn.

• the nation’s consumers of corn become better off and the nation’s producers of corn become worse off.

• All of the above are correct.

Multiple Choice

The “jobs argument” is used when  being  in favor of restrictions on trade in the US; stating that everything can be produced at lower cost in other countries. The likely flaw in the above reasoning is that it ignores the fact that

• there is no evidence that any worker ever lost his or her job because of free trade.

• unemployment of labor is not a serious problem relative to other economic problems.

• the gains from trade are based on comparative advantage.

• the gains from trade are based on absolute advantage.

Multiple Choice

Workers displaced by trade eventually find jobs in

• another country.

• the government sector.

• the industries in which the country has a comparative advantage.

• a different company in the same industry

Multiple Choice

Which of the following is the least likely consequence of  tariffs imposed on all imported furnitures?

• Domestic furniture buyers will lose consumer surplus, have less variety, and will pay higher prices.

• Domestic furniture producers will gain producer surplus.

• Domestic furniture producers will have a higher rate of technological advance.

• Domestic furniture producers will have more market power.

Multiple Choice

When a country moves away from a free trade position and imposes a tariff on imports, it causes

• a decrease in total surplus in the market.

• a decrease in producer surplus in the market.

• an increase in consumer surplus in the market.

• a decrease in revenue to the government.

Multiple Choice

When a country allows international trade and becomes an importer of a good,

• domestic producers of the good become better off.

• domestic consumers of the good become worse off.

• the gains of the winners exceed the losses of the losers.

• all of the above are correct

Multiple Choice

Suppose the world price of a television is $300. Before Paraguay allowed trade in televisions, the price of a television there was $350. Once Paraguay began allowing trade in televisions with other countries, Paraguay began

• importing televisions and the price of a television in Paraguay decreased to $300.

• importing televisions and the price of a television in Paraguay remained at $350.

• exporting televisions and the price of a television in Paraguay decreased to $300.

• exporting televisions and the price of a television in Paraguay remained at $350.

Multiple Choice

When a country allows trade and becomes an importer of coal,

• the losses of the domestic producers of coal exceed the gains of the domestic consumers of coal.

• the losses of the domestic consumers of coal exceed the gains of the domestic producers of coal.

• the gains of the domestic producers of coal exceed the losses of the domestic consumers of coal.

• the gains of the domestic consumers of coal exceed the losses of the domestic producers of coal.

Multiple Choice

Within a country, the domestic price of a product will equal the world price if

• trade restrictions are imposed on the product.

• the country allows free trade.

• the country chooses to import, but not export, the product.

• the country chooses to export, but not import, the product.

Multiple Choice

The before-trade price of fish in Germany is $8.00 per pound. The world price of fish is $6.00 per pound. Germany is a price-taker in the fish market. If Germany allows trade in fish, then Germany will become an

• importer of fish and the price of fish in Germany will be $6.00.

• importer of fish and the price of fish in Germany will be $8.00.

• exporter of fish and the price of fish in Germany will be $6.00.

• exporter of fish and the price of fish in Germany will be $8.00.

Multiple Choice

At present, the United States uses a system of quotas to limit the amount of sugar imported into the country. Which of the following statements is most likely true?

• The quotas are probably the result of lobbying from U.S. consumers of sugar. The quotas increase consumer surplus for the United States, reduce producer surplus for the United States, and harm foreign sugar producers.

• The quotas are probably the result of lobbying from U.S. producers of sugar. The quotas increase producer surplus for the United States, reduce consumer surplus for the United States, and harm foreign sugar producers.

• The quotas are probably the result of lobbying from foreign producers of sugar. The quotas reduce producer surplus for the United States, increase consumer surplus for the United States, and benefit foreign sugar producers.

• U.S. lawmakers did not need to be lobbied to impose the quotas because total surplus for the United States is higher with the quotas than without them.

Multiple Choice

The “unfair-competition” argument might be cited by an American who believes that

• almost every country has a comparative advantage, relative to the United States, in producing almost all goods.

• young industries should be protected against foreign competition until they become profitable.

• the American automobile industry should be protected against Japanese firms that are able to produce automobiles at relatively low cost.

• the French government’s subsidies to French farmers justify restrictions on American imports of French agricultural products.

Multiple Choice

Suppose a country begins to allow international trade in steel. Which of the following outcomes will be observed regardless of whether the country finds itself importing steel or exporting steel?

• The sum of consumer surplus and producer surplus for domestic traders of steel increases.

• The quantity of steel demanded by domestic consumers increases.

• Domestic producers of steel receive a higher price for steel.

• The losses of the losers exceed the gains of the winners.

Multiple Choice

In a market economy, government intervention

• will always improve market outcomes.

• reduces efficiency in the presence of externalities.

• may improve market outcomes in the presence of externalities.

• is necessary to control individual greed.

Multiple Choice

The free-rider problem exists with

• public transportation

• knowledge.

• online music subscriptions.

• all of the above are correct

Multiple Choice

In choosing the form of a tax, there is often a tradeoff between

• allocative and productive efficiency.

• profits and revenues.

• efficiency and fairness.

• fairness and profits.

Multiple Choice

A city street is

• always a public good, whether or not it is congested.

• a public good when it is congested, but it is a common resource when it is not congested.

• a common resource when it is congested, but it is a public good when it is not congested.

• always a common resource, whether or not it is congested.

Multiple Choice

Under which of the following scenarios would a park be considered a club good?

• Visitors to the park must pay an admittance fee, but there are always plenty of empty picnic tables.

• Visitors to the park must pay an admittance fee and frequently all of the picnic tables are in use.

• Visitors can enter the park free of charge and there are always plenty of empty picnic tables.

• Visitors can enter the park free of charge, but frequently all of the picnic tables are in use.

Multiple Choice

When a negative externality exists in a market, the cost to producers

• is greater than the cost to society.

• will be the same as the cost to society.

• will be less than the cost to society.

• will differ from the cost to society, regardless of whether an externality is present.

Multiple Choice

An externality

• results in an equilibrium that does not maximize the total benefits to society.

• causes demand to exceed supply.

• strengthens the role of the “invisible hand” in the marketplace.

• affects buyers but not sellers.

Multiple Choice

Dioxin emission that results from the production of paper is a good example of a negative externality because

• self-interested paper firms are generally unaware of environmental regulations.

• there are fines for producing too much dioxin.

• self-interested paper producers will not consider the full cost of the dioxin pollution they create.

• toxic emissions are the best example of an externality.

Multiple Choice

Which of the following suggests that private markets can be effective in dealing with externalities?

• the "invisible hand"

• the law of diminishing social returns

• the Coase theorem

• technology policy

Multiple Choice

Private markets fail to account for externalities because

• externalities don't occur in private markets.

• sellers include costs associated with externalities in the price of their product.

• decisionmakers in the market fail to include the costs of their behavior to third parties.

• the government cannot easily estimate the optimal quantity of pollution.

Multiple Choice

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

• air pollution

• a person littering in a public park

• a nice garden in front of your neighbor's house

• the pollution of a stream

Multiple Choice

Suppose that beef producers create a negative externality. What is the relationship between the equilibrium quantity of beef and the socially optimal quantity of beef?

• They are equal.

• The equilibrium quantity is greater than the socially optimal quantity.

• The equilibrium quantity is less than the socially optimal quantity.

• There is not enough information to answer the question.

Multiple Choice

If the government were to limit the release of air pollution produced by a glue factory to 75 parts per million, the policy would be considered a

• corrective tax.

• subsidy.

• command-and-control policy.

• market-based policy.

Multiple Choice

The supply curve for a product reflects the

• willingness to pay of the marginal buyer.

• quantity buyers will ultimately purchase of the product.

• cost to sellers of producing the product.

• seller's profit from producing the product.

Multiple Choice

When a good is excludable,

• one person's use of the good diminishes another person's ability to use it.

• people can be prevented from using the good.

• no more than one person can use the good at the same time.

• everyone will be excluded from using the good.

Multiple Choice

One tax system is less efficient than another if it

• places a lower tax burden on lower-income families than on higher-income families.

• places a higher tax burden on lower-income families than on higher-income families.

• raises the same amount of revenue at a higher cost to taxpayers.

• raises less revenue at a lower cost to taxpayers.

Multiple Choice

An optimal tax on pollution would result in which of the following?

• Producers will choose not to produce any pollution.

• Producers will internalize the cost of the pollution.

• Producers will maximize production.

• The value to consumers at market equilibrium will exceed the social cost of production.

Multiple Choice

If the government were to impose a fine of $4,000 for each unit of air-pollution released by a fertilizer plant, the policy would be considered

• a subsidy.

• a regulation.

• a corrective tax

• an application of the Coase theorem.

Multiple Choice

Which of the following is not correct?

• Markets allocate scarce resources with the forces of supply and demand.

• The equilibrium of supply and demand is typically an efficient allocation of resources.

• Governments can sometimes improve market outcomes.

• Externalities cannot be positive.

Multiple Choice

Which of the following is usually true about government-provided goods?

• These goods have a zero opportunity cost.

• These goods are not scarce.

• People do not have to pay a fee to enjoy these goods.

• The invisible hand is at work to ensure these goods are provided in the market

Multiple Choice

If the use of a common resource is not regulated,

• no one can enjoy it.

• it will tend to be underused.

• property rights will be clearly defined.

• it will be overused.

Multiple Choice

When the government taxes labor earnings we can expect people to

• work more so they can keep the same standard of living

• work less and enjoy more leisure.

• quit their present job and find one that pays better.

• stop working altogether and go on welfare.

Multiple Choice

Vertical equity in taxation refers to the idea that people

• in unequal conditions should be treated differently.

• in equal conditions should pay equal taxes.

• should pay taxes based on the benefits they receive from the government.

• should pay a proportional tax rather than a progressive tax.

Multiple Choice

For private goods allocated in markets,

• prices guide the decisions of buyers and sellers and these decisions lead to an efficient allocation of resources.

• prices guide the decisions of buyers and sellers and these decisions lead to an inefficient allocation of resources.

• the government guides the decisions of buyers and sellers and these decisions lead to an efficient allocation of resources.

• the government guides the decisions of buyers and sellers and these decisions lead to an inefficient allocation of resources.

Multiple Choice

Education yields positive externalities. For example, a more educated population

• may increase the pace of technological advances, leading to higher productivity and wages for everyone.

• leads to more informed voters, resulting in better government for everyone.

• tends to result in lower crime rates.

• All of the above are correct.

Multiple Choice

Both public goods and common resources are

• rival in consumption.

• nonrival in consumption.

• excludable.

• nonexcludable.

Multiple Choice

Most goods in the economy are

• club goods

• common resources

• public goods

• private goods

Multiple Choice

Internalizing a positive externality will cause the demand curve to

• shift to the right.

• shift to the left.

• become more elastic.

• remain unchanged.

Multiple Choice

To economists, good environmental policy begins by acknowledging one of the Ten Principles of Economics:

• Trade can make everyone better off.

• People face trade-offs.

• Markets are usually a good way to organize economic activity.

• A country’s standard of living depends on its ability to produce goods and services.

Multiple Choice

When the social cost curve is above a product's supply curve

• the government has intervened in the market.

• a negative externality exists in the market.

• a positive externality exists in the market.

• the distribution of resources is unfair.

Multiple Choice

According to the Coase theorem, in the presence of externalities

• private parties can bargain to reach an efficient outcome.

• government assistance is necessary to reach an efficient outcome.

• the assignment of legal rights can prevent externalities.

• the initial distribution of property rights will determine the efficient outcome.

Multiple Choice

The idea that “externalities arise because something of value has no price attached to it” is associated with

• public goods, but not with common resources.

• common resources, but not with public goods.

• both public goods and common resources.

• neither public goods nor common resources.

Multiple Choice

Suppose that flu shots create a positive externality equal to $12 per shot. What is the relationship between the equilibrium quantity and the socially optimal quantity of flu shots produced?

• They are equal.

• The equilibrium quantity is greater than the socially optimal quantity.

• The equilibrium quantity is less than the socially optimal quantity.

• There is not enough information to answer the question.

Multiple Choice

In some cases, tradable pollution permits may be better than a corrective tax because

• pollution permits allow for a market solution while a corrective tax does not.

• pollution permits generate more revenue for the government than a corrective tax.

• pollution permits are never preferred over a corrective tax.

• the government can set a maximum level of pollution using permits.

Multiple Choice

University researchers create a positive externality because what they discover in their research labs can easily be learned by others who haven't contributed to the research costs. What could the federal government do to equate the equilibrium quantity of university research and the socially optimal quantity of university research produced?

• tax university researchers

• offer grants to university researchers

• eliminate subsidized student loans

• nothing

Multiple Choice

Altering incentives so that people take account of the external effects of their actions

• is called internalizing the externality.

• can be done by imposing a corrective tax.

• is the role of government in markets with externalities.

• All of the above are correct.

Multiple Choice

Market failure can be caused by

• too much competition.

• externalities.

• low consumer demand.

• scarcity.

Multiple Choice

Goods that are rival in consumption include both

• club goods and public goods.

• public goods and common resources.

• common resources and private goods.

• private goods and club goods.

Multiple Choice

Corrective taxes differ from most taxes in that corrective taxes

• reduce economic efficiency.

• do not raise revenue for the government.

• do not cause deadweight losses.

• always result in a high burden on sellers of goods to which the corrective tax applies.

Multiple Choice

Which of the following policies is the government most inclined to use when faced with a positive externality?

• taxation

• permits

• subsidies

• usage fees

Multiple Choice

In the long run, when marginal cost is above average total cost, the average total cost curve exhibits

• economies of scale.

• diseconomies of scale.

• constant returns to scale.

• efficient scale.

Multiple Choice

One assumption that distinguishes short-run cost analysis from long-run cost analysis for a profit-maximizing firm is that in the short run,

• output is not variable.

• the number of workers used to produce the firm's product is fixed.

• the size of the factory is fixed.

• there are no fixed costs.

Multiple Choice

In choosing the form of a tax, there is often a tradeoff between

• allocative and productive efficiency

• profits and revenues.

• efficiency and fairness.

• fairness and profits.

Multiple Choice

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

• The firm can vary both the size of its factory and the number of workers it employs.

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

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

• The firm can vary neither the size of its factory nor the number of workers it employs.

Multiple Choice

A production function describes

• how a firm maximizes profits.

• how a firm turns inputs into output.

• the minimal cost of producing a given level of output.

• the relationship between cost and output.

Multiple Choice

If a firm uses labor to produce output, the firm’s production function depicts the relationship between

• the number of workers and the quantity of output.

• marginal product and marginal cost.

• the maximum quantity that the firm can produce as it adds more capital to a fixed quantity of labor.

• fixed inputs and variable inputs in the short run.

Multiple Choice

Suppose that for a particular firm the only variable input into the production process is labor and that output equals zero when no workers are hired. In addition, suppose that when the firm hires 4 workers, the firm produces 50 units of output. If the fixed cost of production is $4, the variable cost per unit of labor is $20, and the marginal product of labor for the fifth unit of labor is 2, what is the average total cost of production when the firm hires 5 workers?

• $2.00

• $20.00

• $20.80

• $22.80

Multiple Choice

Constant returns to scale occur when a firm’s

• marginal costs are constant as output increases.

• long-run average total costs are decreasing as output increases.

• long-run average total costs are increasing as output increases.

• long-run average total costs do not vary as output increases.

Multiple Choice

The total cost to the firm of producing zero units of output is

• zero in both the short run and the long run.

• its fixed cost in the short run and zero in the long run.

• its fixed cost in both the short run and the long run.

• its variable cost in both the short run and the long run.

Multiple Choice

When a factory is operating in the short run,

• it cannot alter variable costs.

• total cost and variable cost are usually the same.

• average fixed cost rises as output increases.

• it cannot adjust the quantity of fixed inputs.

Multiple Choice

If a firm produces nothing, which of the following costs will be zero?

• total cost

• fixed cost

• opportunity cost

• variable cost

Multiple Choice

Which of the following explains why long-run average cost at first decreases as output increases?

• diseconomies of scale

• less-efficient use of inputs

• variable costs becoming spread out over more units of output

• gains from specialization of inputs

Multiple Choice

Economies of scale arise when

• an economy is self-sufficient in production.

• individuals in a society are self-sufficient.

• fixed costs are large relative to variable costs.

• workers are able to specialize in a particular task.

Multiple Choice

In the long run a company that produces and sells laundry detergent incurs total costs of $2,500 when output is 1,250 units and $2,750 when output is 1,500 units. For this range of output, the laundry detergent company exhibits

• economies of scale.

• constant returns to scale.

• diseconomies of scale.

• efficient scale.

Multiple Choice

Suppose that a firm has only one variable input, labor, and firm output is zero when labor is zero. When the firm hires 6 workers it produces 90 units of output. Fixed cost of production are $6 and the variable cost per unit of labor is $10. The marginal product of the seventh unit of labor is 4. Given this information, what is the total cost of production when the firm hires 7 workers?

• $66

• $76

• $906

• $946

Multiple Choice

When a firm's only variable input is labor, then the slope of the production function measures the

• quantity of labor.

• quantity of output.

• total cost.

• marginal product of labor.

Multiple Choice

Suppose that for a particular firm the only variable input into the production process is labor and that output equals zero when no workers are hired. In addition, suppose that the average total cost when 5 units of output are produced is $30, and the marginal cost of the sixth unit of output is $60. What is the average total cost when six units are produced?

• $10

• $25

• $30

• $35

Multiple Choice

Some colleges charge all students the same “activity fee.” Suppose that students differ by how many campus activities they engage in. This charge is most like

• an excise tax which conforms to the benefits principle.

• an excise tax which violates the benefits principle.

• a lump-sum tax which conforms to the benefits principle.

• a lump-sum tax which violates the benefits principle.

Multiple Choice

Some costs do not vary with the quantity of output produced. Those costs are called

• marginal costs.

• average costs.

• fixed costs.

• explicit costs.

Multiple Choice

Kate is a florist. Kate can arrange 20 bouquets per day. She is considering hiring her husband William to work for her. Together Kate and William can arrange 35 bouquets per day. What is William’s marginal product?

• 55 bouquets

• 35 bouquets

• 22.5 bouquets

• 15 bouquets

Multiple Choice

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

• lower the market price.

• necessarily raise the costs for the firms that remain in the market.

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

• shift the demand for the product to the left.

Multiple Choice

Suppose that a firm operating in perfectly competitive market sells 400 units of output at a price of $4 each. Which of the following statements is correct?

(i) Marginal revenue equals $4.

(ii) Average revenue equals $100.

(iii) Total revenue equals $1,600.

• (i) only

• (iii) only

• (i) and (iii) only

• (i), (ii), and (iii)

Multiple Choice

A firm has market power if it can

• maximize profits.

• minimize costs.

• influence the market price of the good it sells.

• hire as many workers as it needs at the prevailing wage rate.

Multiple Choice

For a monopoly,

• average revenue exceeds marginal revenue.

• average revenue equals marginal revenue.

• average revenue is less than marginal revenue

• price equals marginal revenue.

Multiple Choice

As a monopolist increases the quantity of output it sells, the price consumers are willing to pay for the good

• is unaffected.

• decreases.

• increases.

• There is not enough information given in answer the question.

Multiple Choice

In a competitive market, the actions of any single buyer or seller will

• discourage entry by competitors.

• influence the profits of other firms in the market.

• have a negligible impact on the market price.

• Both a and b are correct.

Multiple Choice

Tom produces commemorative t-shirts in a competitive market.  If Tom decides to decrease his output, this will

• increase his revenue, since the output decrease leads to a higher market price.

• increase his revenue, since Tom’s competitors will also decrease their output, so that price rises to offset the drop in Tom’s output.

• decrease his revenue, since his output has decreased and the price remains the same.

• decrease his revenue, since the price does not rise sufficiently when output drops to offset the drop in Tom’s output.

Multiple Choice

A monopoly is an inefficient way to produce a product because

• it can earn both short-run and long-run profits.

• it faces a downward-sloping demand curve.

• the cost to the monopolist of producing one more unit exceeds the value of that unit to potential buyers.

• it produces a smaller level of output than would be produced in a competitive market.

Multiple Choice

Which of the following is not a characteristic of a perfectly competitive market?

• There are many buyers and sellers.

• Firms can freely enter and exit the market.

• Many firms have market power.

• Firms sell very similar products.

Multiple Choice

Which of the following represents the firm's long-run condition for exiting a market?

• exit if P < MC

• exit if P < FC

• exit if P < ATC

• exit if MR < MC

Multiple Choice

In a competitive market with identical firms,

• an increase in demand in the short run will result in a new price above the minimum of average total cost, allowing firms to earn a positive economic profit in both the short run and the long run.

• firms cannot earn positive economic profit in either the short run or long run.

• firms can earn positive economic profit in the long run if the long-run market supply curve is upward sloping.

• free entry and exit into the market requires that firms earn zero economic profit in the long run even though they may be able to earn positive economic profit in the short run.

Multiple Choice

If a monopolist can sell 7 units when the price is $4 and 8 units when the price is $3, then the marginal revenue of selling the eighth unit is equal to

• $3.

• $4.

• $24.

• -$4.

Multiple Choice

For an individual firm operating in a competitive market, marginal revenue equals

• average revenue and the price for all levels of output.

• average revenue, which is greater than the price for all levels of output.

• average revenue, the price, and marginal cost for all levels of output.

• marginal cost, which is greater than average revenue for all levels of output.

Multiple Choice

Suppose a firm in a competitive market earned $1,000 in total revenue and had a marginal revenue of $10 for the last unit produced and sold. What is the average revenue per unit, and how many units were sold?

• $5 and 50 units

• $5 and 100 units

• $10 and 50 units

• $10 and 100 units

Multiple Choice

Which of the following industries is least likely to exhibit the characteristic of free entry?

• ethnic restaurants

• municipal water and sewer

• corn farming

• grocery stores

Multiple Choice

Because monopoly firms do not have to compete with other firms, the outcome in a market with a monopoly is often

• not in the best interest of society.

• one that fails to maximize total economic well-being.

• inefficient.

• All of the above are correct.

Multiple Choice

Firms that operate in perfectly competitive markets try to

• maximize revenues.

• maximize profits.

• equate marginal revenue with average total cost.

• All of the above are correct.

Multiple Choice

Which of the following is not a characteristic of a competitive market?

• Buyers and sellers are price takers.

• Each firm sells a virtually identical product.

• Entry is limited.

• Each firm chooses an output level that maximizes profits.

Multiple Choice

Authors are allowed to be monopolists in the sale of their books in order to

• encourage authors to write more and better books.

• correct for the negative externalities that the Internet and television impose.

• satisfy literary advocacy groups that exercise their lobbying power.

• promote a society in which people think for themselves and learn from whichever books they please.

Multiple Choice

If a monopoly market were to be transformed into a competitive market, the result would be that

• market output would increase.

• the market would be efficient, once the market reached the competitive output.

• the deadweight loss from the monopoly would be eliminated.

• All of the above would be true.

Multiple Choice

In a perfectly competitive market, the horizontal sum of all the individual firms' supply curves is

• zero.

• equal to the industry profits.

• the market supply curve.

• a horizontal line.

Multiple Choice

The analysis of competitive firms sheds light on the decisions that lie behind the

• demand curve.

• supply curve.

• way firms make pricing decisions in the not-for-profit sector of the economy.

• way financial markets set interest rates.

Multiple Choice

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

• implicit cost.

• explicit cost.

• variable cost.

• sunk cost.

Multiple Choice

When buyers in a competitive market take the selling price as given, they are said to be

• market entrants.

• monopolists.

• free riders.

• price takers.

Multiple Choice

Why does a firm in a competitive industry charge the market price?

• If a firm charges less than the market price, it loses potential revenue.

• If a firm charges more than the market price, it loses all its customers to other firms.

• The firm can sell as many units of output as it wants to at the market price.

• All of the above are correct.

Multiple Choice

Profit maximizing firms in competitive industries with free entry and exit face a price equal to the lowest possible

• marginal cost of production.

• fixed cost of production

• total cost of production.

• average total cost of production.

Multiple Choice

Round-trip airline tickets are usually cheaper if you stay over a Saturday night before you fly back. What is the reason for this price discrepancy?

• Airlines are practicing imperfect price discrimination to raise their profits.

• Airlines charge a different rate based on the different nature of peoples' travel needs.

• Airlines are attempting to charge people based on their willingness to pay.

• All of the above are correct.

Multiple Choice

Private ownership of a monopoly may benefit society because the monopoly will have an incentive to

• charge a price that is consistent with that of a benevolent social planner.

• charge a price that prevents some people from buying.

• price its good according to the intersection of marginal cost and average revenue.

• lower its costs to earn a higher profit.

Multiple Choice

Jamar used to work as an office manager, earning $40,000 per year. He gave up that job to start a life-coaching business. In calculating the economic profit of his life-coaching business, the $40,000 income that he gave up is counted as part of the life-coaching business's

• total revenue.

• opportunity costs.

• explicit costs.

• marginal costs.

Multiple Choice

Tom produces commemorative t-shirts in a competitive market.  If Tom decides to decrease his output, this will

• increase his revenue, since the output decrease leads to a higher market price.

• increase his revenue, since Tom’s competitors will also decrease their output, so that price rises to offset the drop in Tom’s output.

• decrease his revenue, since his output has decreased and the price remains the same.

• decrease his revenue, since the price does not rise sufficiently when output drops to offset the drop in Tom’s output.

Multiple Choice

Jane spends 85% of her income each year, even though she knows she should be saving 20% for retirement. Jane’s behavior indicates that her behavior tends to be

• irrational.

• inconsistent over time.

• satisficing rather than maximizing.

• undefined.

Multiple Choice

For a monopolist, when the output effect is greater than the price effect, marginal revenue is

• positive.

• negative.

• zero.

• maximized.

Multiple Choice

Carol Anne makes candles. If she charges $20 for each candle, her total revenue will be

• $1,000 if she sells 100 candles.

• $500 if she sells 25 candles.

• $20 regardless of how many candles she sells.

• $200 if she sells 5 candles.

Multiple Choice

When a certain monopoly sets its price at $8 it sells 64 units. When the monopoly sets its price at $9 it sells 62 units. The marginal revenue for the firm over this range is

• $18.

• $23.

• $46

• $92

Multiple Choice

The total cost to the firm of producing zero units of output is

• zero in both the short run and the long run.

• its fixed cost in the short run and zero in the long run.

• its fixed cost in both the short run and the long run.

• its variable cost in both the short run and the long run.

Multiple Choice

Which of the following is not a reason for the existence of a monopoly?

• sole ownership of a key resource

• patents

• copyrights

• diseconomies of scale

Multiple Choice

Suppose a firm in a competitive market produces and sells 8 units of output and has a marginal revenue of $8. What would be the firm's marginal revenue if it instead produced and sold 4 units of output?

• $2

• $8

• $32

• $64

Multiple Choice

Herbert Simon suggested that people are not rational maximizers but satisficers, meaning that they choose a course of action that is

• personally satisfying, with a greater emphasis on personal consumption than on fairness.

• socially satisfying, with a greater emphasis on fairness than on personal consumption

• good enough.

• risk averse.

Multiple Choice

Experiments show that when real people play the ultimatum game, starting with $100,

• Player A usually proposes giving Player B more than $50.

• Player B usually accepts Player A's proposal if Player A proposes giving Player B $30 or $40.

• players show themselves to be rational wealth-maximizers.

• Player B will usually demand an even split.

Multiple Choice

If individuals behave irrationally in some circumstances, why do economists typically assume that they behave rationally?​

• The assumption of rationality allows economists to make powerful statements that apply the majority of the time.

• The assumption of rationality was used before psychologists discovered ways in which individuals behave irrationally.

• The assumption of rationality is used because economists do not understand principles of psychology.

• The assumption of rationality has yet to be refuted with scientific evidence.

Multiple Choice

Economists normally assume that the goal of a firm is to

• sell as much of its product as possible.

• set the price of the product as high as possible.

• maximize profit.

Multiple Choice

The short-run market supply curve in a perfectly competitive industry

• shows the total quantity supplied by all firms at each possible price.

• is perfectly inelastic at the market price.

• is perfectly elastic at the market price.

• shows the variety of prices that different firms will charge for a given quantity

Multiple Choice

In the long run a company that produces and sells candy bars incurs total costs of $1,200 when output is 2,400 candy bars and $1,400 when output is 2,900 candy bars. The candy bar company exhibits

• diseconomies of scale because total cost is rising as output rises.

• diseconomies of scale because average total cost is rising as output rises.

• economies of scale because total cost is rising as output rises.

• economies of scale because average total cost is falling as output rises.

Multiple Choice

Industrial organization is the study of

• how labor unions organize workers in industries

• which managers are the most successful

• how industries organize for political advantage

• how firms' decisions regarding prices and quantities depend on the market conditions they face.

Multiple Choice

Which of the following is not a characteristic of a perfectly competitive market?

• Firms are price takers.

• Firms have difficulty entering the market.

• There are many sellers in the market.

• Goods offered for sale are largely the same.