econ exam #3:

question

When the federal government orders firms to use particular methods to reduce pollution, it is said to be using:

answer

command-and-control policies.

question

A carbon tax which is designed to reduce pollution is an example of a

answer

market based policy

question

Conceptually, the efficient level of carbon emissions is the level for which

answer

the marginal benefit of reducing carbon emissions is equal to the marginal cost of reducing carbon emissions.

question

An externality is

answer

a benefit or cost experienced by someone who is not a producer or consumer of a good or service.

question

What are property rights?

answer

the rights individuals or firms have to the exclusive use of their property, including the right to buy or sell it

question

A negative externality exists if:

answer

the marginal social cost of producing a good or service exceeds the private cost.

question

What is a "social cost" of production?

answer

the sum of all costs to individuals in society, regardless of whether the costs are borne by those who produce the products or consume the product

question

Private costs

answer

are borne by producers of a good while social costs are borne by society at large

question

When a negative externality exists, the private market produces

answer

more than the economically efficient output level.

question

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

answer

planting trees along a sidewalk which add beauty and create shade

question

A positive externality causes

answer

the marginal social benefit to exceed the marginal private cost at the market equilibrium.

question

Refer to Figure 5-1. Suppose the current market equilibrium output of Q1 is not the economically efficient output because of an externality. The economically efficient output is Q2. In that case, the diagram shows

answer

the effect of a negative externality in the production of a good.

question

Refer to Figure 5-1. If, because of an externality, the economically efficient output is Q2 and not the current equilibrium output of Q1, what does S1 represent?

answer

the market supply curve reflecting marginal private cost

question

The efficient output level is

answer

Qa.

question

The private profit-maximizing quantity for the firm is

answer

Qb.

question

The deadweight loss due to the externality is represented by the area

answer

abf.

question

The size of marginal external costs can be determined by

answer

S2 - S1 at each output level.

question

An external cost is created when you

answer

litter on the side of the road.

question

Suppose the current market equilibrium output of Q1 is not the economically efficient output because of an externality. The economically efficient output is Q2. In that case, diagram shows

answer

the effect of a positive externality in the consumption of a good.

question

What does D1 represent?

answer

the demand curve reflecting private benefits

question

Assume that production from an electric utility caused acid rain and that the government imposed a tax on the utility equal to the cost of the acid rain. This is an example of

answer

a Pigovian tax.

question

Policies that mandate the installation of specific pollution control devices are called A) command-and-control policies.

answer

command-and-control policies.

question

The "tragedy of the commons" refers to the phenomenon where

answer

people overuse a common resource.

question

A private good is

answer

a good that is rival and excludable.

question

Price elasticity of demand measures

answer

how responsive quantity demanded is to a change in price.

question

Suppose the value of the price elasticity of demand is -3. What does this mean?

answer

A 1 percent increase in the price of the good causes quantity demanded to decrease by 3 percent.

question

If demand is inelastic, the absolute value of the price elasticity of demand is

answer

less than one

question

Perfectly inelastic demand is represented by a demand curve which is ________, and relatively inelastic demand is represented by a demand curve which is ________.

answer

vertical; downward sloping

question

If demand is perfectly inelastic, the absolute value of the price elasticity of demand is

answer

zero

question

A perfectly elastic demand curve is shown in

answer

Panel B.

question

Suppose a hurricane decreased the supply of oranges so that the price of oranges rose from $120 a ton to $180 a ton and quantity sold decreased from 800 tons to 240 tons. What is the absolute value of the price elasticity of demand?

answer

2.69

question

Using the midpoint formula, calculate the absolute value of the price elasticity of demand between e and f

answer

3.125

question

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 formula

answer

0.6

question

answer

0.6

question

As price falls from PA to PB, the quantity demanded increases the most along D1; therefore

answer

D1 is more elastic than D2 or D3.

question

Which of the following products comes closest to having a perfectly inelastic demand?

answer

perfectly elastic.

question

Jonah lives in a small town where there is only one Mexican restaurant. Which of the following is likely to be true about the price elasticity of demand for meals at the Mexican restaurant?

answer

Demand is likely to be relatively inelastic

question

Which of the following goods would have the most inelastic demand?

answer

bread

question

The demand for gasoline in the short run is

answer

inelastic because there are very few good substitutes for gasoline.

question

Total revenue equals

answer

price per unit times quantity sold.

question

When demand is elastic, a fall in price causes total revenue to rise because

answer

the increase in quantity sold is large enough to offset the lower price.

question

When demand is unit elastic, a change in price causes total revenue to stay the same because

answer

the percentage change in quantity demanded exactly offsets the percentage change in price.

question

Opera Estate Girls' School is considering increasing its tuition to raise revenue. If the school believes that raising tuition will increase revenue it is assuming that the demand for attending the school is

answer

inelastic

question

Last year, Joan bought 50 pounds of hamburger when her household income was $40,000. This year, her household income was only $30,000 and Joan bought 60 pounds of hamburger. Holding everything else constant, Joan's income elasticity of demand for hamburger is

answer

negative, so Joan considers hamburger to be an inferior good.

question

If a 5 percent increase in income leads to a 10 percent decrease in quantity demanded for a product, this product is

answer

an inferior good.

question

If the quantity demanded for a good rises as income rises then the income elasticity of demand for this good is ________ than 0, and the good is ________ good.

answer

greater; a normal

question

The cross-price elasticity of demand measures the

answer

percentage change in the quantity demanded of one good divided by the percentage change in the price of another good.

question

The cross-price elasticity of demand between Coca-Cola and Pepsi-Cola is calculated by dividing

answer

the percentage change in the quantity demanded of Coca-Cola by the percentage change in the price of Pepsi-Cola.

question

If the cross-price elasticity of demand between beer and wine is 0.31, then beer and wine are:

answer

substitutes.

question

The price elasticity of supply is equal to

answer

the percentage change in quantity supplied divided by the percentage change in price.

question

Suppose the value of the price elasticity of supply is 4. What does this mean?

answer

A 1 percent increase in the price of the good causes quantity supplied to increase by 4 percent.

question

If, for a given percentage increase in price, quantity supplied increases by a proportionately larger percentage, then supply is

answer

elastic.

question

If, for a given percentage decrease in price, quantity supplied decreases by a proportionately smaller percentage, then supply is

answer

inelastic.

question

Which of the following is true at the output level where average total cost is at its minimum?

answer

Marginal cost equals average total cost.

question

All of the following cost curves are U-shaped except one. Which curve is not U-shaped?

answer

the average fixed cost curve

question

What is the marginal product of the 4th worker?

answer

5 pounds

question

What is the average product of labor when the farm hires 5 workers?

answer

10.8 bushels

question

Which of the following is an example of positive technological change?

answer

A firm's workers participate in a training program designed to increase the number of surf boards they can produce per day.

question

A firm has successfully adopted a positive technological change when

answer

it can produce more output using the same inputs.

question

The long run refers to a time period

answer

long enough for a firm to vary all of its inputs, to adopt new technology, and change the size of its physical plant.

question

Which of the following are implicit costs for a typical firm?

answer

the opportunity cost of capital owned and used by the firm

question

An explicit cost is defined as

answer

a cost that involves spending money.

question

Jennifer Borts moves her office from the premises she rents at a local mall to her home. As a result of this move

answer

Jennifer's explicit costs fall and her implicit costs rise.

question

The marginal product of labor is defined as

answer

the additional output that results when one more worker is hired, holding all other resources constant.

question

If four workers can produce 18 chairs a day and five can produce 20 chairs a day, the marginal product of the fifth worker is

answer

2 chairs.

question

Red Stone Creamery currently hires 5 workers. When it added a 6th worker, its output actually fell. Which of the following statements is true?

answer

The marginal product of the sixth worker must be negative.

question

The law of diminishing marginal returns states

answer

that at some point, adding more of a variable input to a given amount of a fixed input will cause the marginal product of the variable input to decline.

question

If 11 workers can produce a total of 54 units of a product and a 12th worker has a marginal product of 6 units, then the average product of 12 workers is

answer

5 units.

question

Marginal cost is equal to the

answer

change in total cost divided by the change in output.

question

Which of the following equations is correct?

answer

AFC + AVC = ATC

1 of 70

question

When the federal government orders firms to use particular methods to reduce pollution, it is said to be using:

answer

command-and-control policies.

question

A carbon tax which is designed to reduce pollution is an example of a

answer

market based policy

question

Conceptually, the efficient level of carbon emissions is the level for which

answer

the marginal benefit of reducing carbon emissions is equal to the marginal cost of reducing carbon emissions.

question

An externality is

answer

a benefit or cost experienced by someone who is not a producer or consumer of a good or service.

question

What are property rights?

answer

the rights individuals or firms have to the exclusive use of their property, including the right to buy or sell it

question

A negative externality exists if:

answer

the marginal social cost of producing a good or service exceeds the private cost.

question

What is a "social cost" of production?

answer

the sum of all costs to individuals in society, regardless of whether the costs are borne by those who produce the products or consume the product

question

Private costs

answer

are borne by producers of a good while social costs are borne by society at large

question

When a negative externality exists, the private market produces

answer

more than the economically efficient output level.

question

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

answer

planting trees along a sidewalk which add beauty and create shade

question

A positive externality causes

answer

the marginal social benefit to exceed the marginal private cost at the market equilibrium.

question

answer

the effect of a negative externality in the production of a good.

question

Refer to Figure 5-1. If, because of an externality, the economically efficient output is Q2 and not the current equilibrium output of Q1, what does S1 represent?

answer

the market supply curve reflecting marginal private cost

question

The efficient output level is

answer

Qa.

question

The private profit-maximizing quantity for the firm is

answer

Qb.

question

The deadweight loss due to the externality is represented by the area

answer

abf.

question

The size of marginal external costs can be determined by

answer

S2 - S1 at each output level.

question

An external cost is created when you

answer

litter on the side of the road.

question

Suppose the current market equilibrium output of Q1 is not the economically efficient output because of an externality. The economically efficient output is Q2. In that case, diagram shows

answer

the effect of a positive externality in the consumption of a good.

question

What does D1 represent?

answer

the demand curve reflecting private benefits

question

Assume that production from an electric utility caused acid rain and that the government imposed a tax on the utility equal to the cost of the acid rain. This is an example of

answer

a Pigovian tax.

question

Policies that mandate the installation of specific pollution control devices are called A) command-and-control policies.

answer

command-and-control policies.

question

The "tragedy of the commons" refers to the phenomenon where

answer

people overuse a common resource.

question

A private good is

answer

a good that is rival and excludable.

question

Price elasticity of demand measures

answer

how responsive quantity demanded is to a change in price.

question

Suppose the value of the price elasticity of demand is -3. What does this mean?

answer

A 1 percent increase in the price of the good causes quantity demanded to decrease by 3 percent.

question

If demand is inelastic, the absolute value of the price elasticity of demand is

answer

less than one

question

Perfectly inelastic demand is represented by a demand curve which is ________, and relatively inelastic demand is represented by a demand curve which is ________.

answer

vertical; downward sloping

question

If demand is perfectly inelastic, the absolute value of the price elasticity of demand is

answer

zero

question

A perfectly elastic demand curve is shown in

answer

Panel B.

question

answer

2.69

question

Using the midpoint formula, calculate the absolute value of the price elasticity of demand between e and f

answer

3.125

question

answer

0.6

question

answer

0.6

question

As price falls from PA to PB, the quantity demanded increases the most along D1; therefore

answer

D1 is more elastic than D2 or D3.

question

Which of the following products comes closest to having a perfectly inelastic demand?

answer

perfectly elastic.

question

Jonah lives in a small town where there is only one Mexican restaurant. Which of the following is likely to be true about the price elasticity of demand for meals at the Mexican restaurant?

answer

Demand is likely to be relatively inelastic

question

Which of the following goods would have the most inelastic demand?

answer

bread

question

The demand for gasoline in the short run is

answer

inelastic because there are very few good substitutes for gasoline.

question

Total revenue equals

answer

price per unit times quantity sold.

question

When demand is elastic, a fall in price causes total revenue to rise because

answer

the increase in quantity sold is large enough to offset the lower price.

question

When demand is unit elastic, a change in price causes total revenue to stay the same because

answer

the percentage change in quantity demanded exactly offsets the percentage change in price.

question

answer

inelastic

question

answer

negative, so Joan considers hamburger to be an inferior good.

question

If a 5 percent increase in income leads to a 10 percent decrease in quantity demanded for a product, this product is

answer

an inferior good.

question

If the quantity demanded for a good rises as income rises then the income elasticity of demand for this good is ________ than 0, and the good is ________ good.

answer

greater; a normal

question

The cross-price elasticity of demand measures the

answer

percentage change in the quantity demanded of one good divided by the percentage change in the price of another good.

question

The cross-price elasticity of demand between Coca-Cola and Pepsi-Cola is calculated by dividing

answer

the percentage change in the quantity demanded of Coca-Cola by the percentage change in the price of Pepsi-Cola.

question

If the cross-price elasticity of demand between beer and wine is 0.31, then beer and wine are:

answer

substitutes.

question

The price elasticity of supply is equal to

answer

the percentage change in quantity supplied divided by the percentage change in price.

question

Suppose the value of the price elasticity of supply is 4. What does this mean?

answer

A 1 percent increase in the price of the good causes quantity supplied to increase by 4 percent.

question

If, for a given percentage increase in price, quantity supplied increases by a proportionately larger percentage, then supply is

answer

elastic.

question

If, for a given percentage decrease in price, quantity supplied decreases by a proportionately smaller percentage, then supply is

answer

inelastic.

question

Which of the following is true at the output level where average total cost is at its minimum?

answer

Marginal cost equals average total cost.

question

All of the following cost curves are U-shaped except one. Which curve is not U-shaped?

answer

the average fixed cost curve

question

What is the marginal product of the 4th worker?

answer

5 pounds

question

What is the average product of labor when the farm hires 5 workers?

answer

10.8 bushels

question

Which of the following is an example of positive technological change?

answer

A firm's workers participate in a training program designed to increase the number of surf boards they can produce per day.

question

A firm has successfully adopted a positive technological change when

answer

it can produce more output using the same inputs.

question

The long run refers to a time period

answer

long enough for a firm to vary all of its inputs, to adopt new technology, and change the size of its physical plant.

question

Which of the following are implicit costs for a typical firm?

answer

the opportunity cost of capital owned and used by the firm

question

An explicit cost is defined as

answer

a cost that involves spending money.

question

Jennifer Borts moves her office from the premises she rents at a local mall to her home. As a result of this move

answer

Jennifer's explicit costs fall and her implicit costs rise.

question

The marginal product of labor is defined as

answer

the additional output that results when one more worker is hired, holding all other resources constant.

question

If four workers can produce 18 chairs a day and five can produce 20 chairs a day, the marginal product of the fifth worker is

answer

2 chairs.

question

Red Stone Creamery currently hires 5 workers. When it added a 6th worker, its output actually fell. Which of the following statements is true?

answer

The marginal product of the sixth worker must be negative.

question

The law of diminishing marginal returns states

answer

that at some point, adding more of a variable input to a given amount of a fixed input will cause the marginal product of the variable input to decline.

question

If 11 workers can produce a total of 54 units of a product and a 12th worker has a marginal product of 6 units, then the average product of 12 workers is

answer

5 units.

question

Marginal cost is equal to the

answer

change in total cost divided by the change in output.

question

Which of the following equations is correct?

answer

AFC + AVC = ATC

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econ exam #3:

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