QUESTION 53 All externalities cause markets to fail to allocate resources effici

Question

QUESTION 53

All externalities

cause markets to fail to allocate resources efficiently

cause equilibrium prices to be too high

benefit producers at the expense of consumers

cause equilibrium prices to be too low

2 points   

QUESTION 54

According to the graph below, this market is experiencing

government intervention

a positive externality

a negative externality

2 points   

QUESTION 55

When negative externalities are present in a market

private costs will be greater than social costs

social costs will be greater than private costs

only government regulation will solve the problem

the market will not be able to reach any equilibrium

2 points   

QUESTION 56

Internalizing an externality refers to making

buyers and sellers take into account the external effects of their actions

certain that all market transaction benefits go to only buyers and sellers

sellers pay the full costs of production

buyers pay the full price for the products they purchase

2 points   

QUESTION 57

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

taxation

permits

subsidies

usage fees

2 points   

QUESTION 58

A command-and-control policy is another term for a

pollution permit

government regulation

corrective tax

both a and b

2 points   

QUESTION 59

Corrective taxes

encourage consumers to avoid sales by shopping online

are frequently used to discourage imports

are less effective than direct regulation

give factory owners an economic incentive to reduce pollution

2 points   

QUESTION 60

Tradable pollution permits

have prices that are set by the government

will be more valuable to firms that can reduce pollution only at high costs

are likely to create a higher level of total pollution

are less desirable than corrective taxes in reducing pollution

2 points   

QUESTION 61

What is the difference between command-and-control policies and market-based policies towards externalities?

command-and-control policies provide incentives for decision-makers to solve problems on their own, whereas market-based policies regulate behavior directly

command-and-control policies rely on taxes, whereas market-based policies rely on quotas

command-and-control policies regulate behavior directly, whereas market-based policies provide incentives for decision-makers to change their behavior

command-and-control policies are efficient, whereas market-based policies are inefficient

2 points   

QUESTION 62

The theory of consumer choice examines

the determination of output in competitive markets

the tradeoffs inherent in decisions made by consumers

how consumers select inputs into manufacturing production processes

the determination of prices in competitive markets

2 points   

QUESTION 63

Suppose a consumer has an income of $800 per month and that she spends her entire income each month on beer and hamburgers. The price of a pint of beer is $5, and the price of a hamburger is $4. Which of the following combinations of beer and hamburgers represent a point that would lie to the exterior of the consumer’s budget constraint?

160 beers and 200 hamburgers

40 beers and 50 hamburgers

80 beers and 100 hamburgers

160 beers and 0 hamburgers

2 points   

QUESTION 64

Consider the two goods from the prior question: beer and hamburgers. The slope of the consumer’s budget constraint is measured by the

consumer’s income divided by the price of hamburgers

relative price of beer and hamburgers

consumer’s marginal rate of substitution

quantity of beer purchased divided by the number of hamburgers purchased

2 points   

QUESTION 65

Economists represent a consumer’s preferences using

demand curves

budget constraints

indifference curves

supply curves

2 points   

QUESTION 66

All of the following are properties of indifference curves except

higher indifference curves are preferred to lower ones

indifference curves are downward sloping

indifference curves do not cross

indifference curves are bowed outward

2 points   

QUESTION 67

Utility measures

the income a consumer spends a bundle of goods

the satisfaction a consumer receives from consuming a bundle of goods

the satisfaction a consumer places on their budget constraint

none of the above

2 points   

QUESTION 68

When the price of pizza falls, the income effect (for normal goods Pepsi and pizza) causes

the consumer to feel richer, so the consumer buys more Pepsi

the consumer to feel richer, so the consumer buys less Pepsi

Pepsi to be relatively more expensive, so the consumer buys more Pepsi

Pepsi to be relatively less expensive, so the consumer buys less Pepsi

2 points   

QUESTION 69

When the price of pizza falls, the substitution effect (for normal goods Pepsi and pizza) causes

the consumer to feel richer, so the consumer buys more Pepsi

the consumer to feel richer, so the consumer buys less Pepsi

Pepsi to be relatively more expensive, so the consumer buys less Pepsi

Pepsi to be relatively less expensive, so the consumer buys less Pepsi

2 points   

QUESTION 70

The goal of the consumer is to

maximize utility

be on the highest indifference curve

maximize satisfaction

all of the above

2 points   

QUESTION 71

Assume that the consumer depicted in the figure above has an income of $40, the price of a bag of marshmallows is $2, and the price of a bag of chocolate chips is $2. The optimizing consumer will choose to purchase which bundle of marshmallows and chocolate chips?

A

B

C

D

2 points   

QUESTION 72

Economists normally assume that the goal of a firm is to

maximize its total revenue

maximize its profits

minimize its explicit costs

minimize its total cost

2 points   

QUESTION 73

Profit is defined as total revenue

plus total cost

times total cost

minus total cost

divided by total cost

2 points   

QUESTION 74

An example of an explicit cost of production would be the

cost of forgone labor earnings for an entrepreneur

lost opportunity to invest in capital markets when the money is invested in one’s business

lease payments for the land on which a firm’s factory stands

both a and c

2 points   

QUESTION 75

Suppose that for a particular business there are no implicit costs. Then

accounting profit will be greater than economic profit

accounting profit will be the same as economic profit

accounting profit will be less than economic profit

the relationship between accounting profit and economic profit cannot be determined without more information

2 points   

QUESTION 76

John has been working for a law firm and earning an annual salary of $80,000. He decides to open his own practice. His annual expenses will include $15,000 for office rent, $3,000 for equipment rental, $1,000 for supplies, $1,200 for utilities, and a $35,000 salary for a secretary/bookkeeper. John will cover his start-up expenses by cashing in a $20,000 certificate of deposit on which he was earning annual interest of $500. (Use the information provided above to answers the following 3 questions)

John’s annual economic costs will equal

$55,200

$75,200

$80,500

$135,700

2 points   

QUESTION 77

According to John’s accountant, which of the following revenue totals will yield his business $50,000 profit?

$55,200

$105,200

$132,500

$185,700

2 points   

QUESTION 78

According to an economist, which of the following revenue totals will yield John’s business $50,000 economic profit?

$55,200

$100,200

$132,500

$185,700

2 points   

QUESTION 79

For a firm, the production function represents the relationship between

implicit costs and explicit costs

quantity of inputs and total costs

quantity of inputs and quantity of output

quantity of output and total cost

2 points   

QUESTION 80

The marginal product of any input is the

increase in total cost associated with a one-unit increase in production

change in total output associated with a $1.00 increase in total cost

increase in total cost resulting from the hiring of an additional worker

increase in total output obtained from one additional unit of input

2 points   

QUESTION 81

Gallo Cork Factory:

Use the information provided in the table above to answer the following 3 questions.

Each worker at Gallo cork factory costs $12 per hour. The cost of each machine is $20 per day regardless of the number of corks produced. If Gallo produces at a rate of 70 corks per hour and operates 8 hours per day, what is Gallo’s total labor cost per day?

$72

$112

$576

$616

2 points   

QUESTION 82

Assume Gallo currently employs 5 workers. What is the marginal product of labor when Gallo adds a 6th worker?

5 corks per hour

15 corks per hour

25 corks per hour

70 corks per hour

2 points   

QUESTION 83

Gallo cork factory experiences diminishing marginal product of labor with the addition of which worker?

the 3rd

the 4th

the 5th

the 6th

2 points   

QUESTION 84

Marginal cost tells us the

value of all resources used in a production process

marginal increment to profitability when price is constant

amount by which total cost rises when output is increased by one unit

amount by which total cost rises when labor is increased by one unit

2 points   

QUESTION 85

Jane’s Elegant Earrings produces pairs of earrings for its mail order catalogue business. Each pair is shipped in a separate box. She rents a small room for $150 a week in the downtown business district that serves as her factory. She can hire workers for $275 a week. There are no implicit costs.

Use the information provided above to answer the following 3 questions.

What is the total cost associated with making 890 boxes of earrings per week?

$1,250

$1,325

$1,400

$1,575

2 points   

QUESTION 86

During the week of July 4th, Jane doesn’t produce any earrings. What are her costs during the week?

$0

$150

$275

$425

2 points   

QUESTION 87

One week, Jane earns a profit of $125. If her revenue for the week is $1,100 how many boxes of earrings did she produce?

140

330

780

950

2 points   

QUESTION 88

Curve A represents which type of cost curve (see the graph above)?

marginal cost

average total cost

average variable cost

average fixed cost

2 points   

QUESTION 89

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

firms are price takers

firms can freely enter the market

many firms have market power

goods offered for sale are largely the same

2 points   

QUESTION 90

When firms are said to be price takers, it implies that

marginal revenue is equal to price

average total cost is equal to price

average revenue is greater than price

average fixed cost is increasing

2 points   

QUESTION 91

For a certain firm, the 100th unit of output that the firm produces has marginal revenue of $10 and a marginal cost of $11. It follows that the

production of the 100th unit of output increases the firm’s profit by $1

production of the 100th unit of output increases the firm’s average total cost by $1

firm’s profit-maximizing level of output is less than 100 units

production of the 100th unit of output must increase the firm’s profit by less than $1
  

2 points   

QUESTION 92

What is John’s Vineyard’s economic profit at its profit-maximizing output level (see the table below)?

$25

$75

$115

$225

2 points   

QUESTION 93

Bill operates a boat rental business in a competitive industry. He owns 10 boats and pays $1,000 per month on the loan that he took out to buy them. He rents each boat for $200 per month. The variable cost for each boat rental is $50. In the off season, Bill should

operates his business as long as he rents at least 7 boats per month

operates his business as long as he rents at least 1 boat per month

operates his business as long as he rents all 10 boats each month

raise the price he charges per boat rental

2 points   

QUESTION 94

The fundamental cause of monopoly is

incompetent management in competitive firms

the zero-profit feature of long-run equilibrium in competitive markets

advertising

barriers to entry


(Refer to the graph below to answer the following 3 questions)

2 points   

QUESTION 95

  

What price will the monopolist charge?

A

B

C

F

2 points   

QUESTION 96

How much output will the monopolist produce?

O

J

K

L

2 points   

QUESTION 97

What area measures the monopolist’s profit?

(B-F)*K

(A-H)*J

(B-G)*K

0.5[(B-F)*(L-K)]

2 points   

QUESTION 98

Which of the following is an example of price discrimination?

Nabisco provides cents-off coupons for its products

Amtrak offers a lower price for weekend travel compared to weekly rates on the same routes

hotel rates for AAA members are lower than for non-members

all of the above

2 points   

QUESTION 99

What is the profit-maximizing price, quantity, and resulting profit (see the graph below)?

P=$60, Q=20 units, profit=$200

P=$80, Q=20 units, profit=$200

P=$75, Q=25 units, profit=$100

P=$60, Q=40 units, profit=$0

2 points   

QUESTION 100

In which of the following product markets are we likely to observe the largest amount of advertising?

markets with highly differentiated products

perfectly competitive markets

markets in which industrial products are sold

markets in which there is very little difference between different firms’ products

cause markets to fail to allocate resources efficiently

cause equilibrium prices to be too high

benefit producers at the expense of consumers

cause equilibrium prices to be too low

Explanation / Answer

53.

All externalities:

cause markets to fail to allocate resources efficiently.

This is because in case of externality either there is under production or over production.

55.

When negative externalities are present in a market:

social costs will be greater than private costs.

This is becuase the cost to society is higher than the cost incurred by the producers.

56.

Internalizing an externality refers to making:

buyers and sellers take into account the external effects of their actions.

57.

The following policies is the government most inclined to use when faced with a positive externality:

subsidies.

58.

A command-and-control policy is another term for a:

governmental regulation.

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