AP Micoeconomics Unit 6

In the absence of externalities, which of the following is true of a competitive market in equilibrium? 4MI610

• Consumer surplus is maximized.

• Producer surplus is maximized.

• Marginal benefit exceeds marginal cost

• Marginal social benefit equals marginal social cost.

• Consumer surplus equals producer surplus.

Assume that the firms in an industry pollute a river. If there is no government intervention, the firms will

• produce more output than is socially efficient

• pay production costs that are higher than actual social costs

• charge a lower price than is necessary to maximize profit

• charge a higher price to pay for the pollution

• increase production to achieve allocative efficiency

Based on the information in the Lorenz curve above, which of the following is true?

• People in Country X make more money than people in Country Z.

• Income is more equally distributed in Country X than in Country Z.

• The top 20 percent of households in Country X received 60 percent of the total income.

• The top 20 percent of households in Country Z received 40 percent of the total income.

• The average income in Country X is higher than the average income in Country Z.

A governmental welfare program that taxes the labor income of the wealthy and redistributes the tax revenue to low-income citizens will

• increase income inequality and efficiency

• decrease income inequality and efficiency

• increase income inequality and decrease efficiency

• decrease income inequality and increase efficiency

• decrease income inequality and not affect efficiency

An increase in the effective minimum wage will have less of an impact on employment if the demand for labor is

• a derived demand

• decreasing

• relatively elastic

• relatively inelastic

• unit elastic

The graph above shows the cost and revenue curves for a natural monopoly. Consider the following two policies for regulating this natural monopoly. Policy I: Require the monopoly to set quantity and price where demand equals marginal cost. Policy II: Require the monopoly to set quantity and price where demand equals average total cost. Which of the following is true of these policies?

• A) Both would result in the same level of output and price

• B) Both would result in an inefficient allocation of resources relative to the unregulated result.

• C) Policy I would result in a lower level of output than would Policy II.

• D) Policy I would result in a higher price than would Policy II.

• E) Policy I might require the payment of a subsidy to the firm.

An increase in the marginal social benefit of consuming a public good should result in

• a decrease in public production of the good

• an increase in the optimal quantity of the good

• a decrease in the optimal quantity of the good

• a decrease in the social costs associated with producing the good

• a decrease in the social costs associated with consuming the good

A free-rider problem arises when a good is

• nonrival

• nondepletable

• nonexcludable

• produced in a competitive market

• produced in a monopolistic market

A perfectly competitive manufacturing industry pollutes public water in its production process, leaving the water unsuitable for use by the surrounding communities. At the market equilibrium output level, which of the following is true?

• Marginal private cost exceeds marginal social cost

• Marginal private cost exceeds marginal private benefit.

• Marginal social cost exceeds marginal social benefit.

• The market equilibrium output is equal to the socially efficient output.

• The market equilibrium output is less than the socially efficient output

An industry will produce more than the socially efficient level of output under which of the following conditions?

• The production or consumption of a good generates a positive externality.

• The production or consumption of a good generates a negative externality.

• The industry is a monopoly.

• The industry produces a public good.

• The industry produces a private good.