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A steel market has a demand represented as P=200-2Q and the supply represented as P=10+3Q. Each unit of output incurs $5 worth of negative externality. The government decides to tax the producers $5 per unit to correct negative externality. What is the new equilibrium level of output?
a. Q=25; P= 35
b. Q=37; P=126
c. Q=32; P=150
d. Q=127; P=30
e. None of the above
b. Q=37; P=126
14. Four friends decide to meet at a Chinese restaurant for dinner. They decide that each person will order an item off the menu, and they will share all dishes. They will split the cost of the final bill evenly among each of the people at the table. A Tragedy of the Commons problem is likely for each of the following reasons except
a. each person has an incentive to eat as fast as possible since their individual rate of consumption will not affect their individual cost.
b. there is an externality associated with eating the food on the table.
c. when one person eats, he may not take into account how his choice affects his friends.
d. when each dish would be both excludable and rival in consumption.
d. when each dish would be both excludable and rival in consumption.
22. Public schools, parks, libraries, and roads are paid for largely through tax revenue because
a. society finds them so valuable that citizens are happy to pay for their full cost.
b. if they were funded privately, too many of these goods would be produced.
c. these goods create a free-rider problem.
d. All of the above are correct.
c. these goods create a free-rider problem.
27. Diminishing marginal product explains why, as a firm’s output increases,
a. the production function and total cost curve both get steeper.
b. the production function and total cost curve both get flatter.
c. the production function gets flatter, while the total cost curve gets steeper.
d. the production function gets steeper, while the total cost curve gets flatter.
c. the production function gets flatter, while the total cost curve gets steeper.
31. The cost of producing an extra unit of output is the
a. variable cost
b. marginal cost
c. fixed cost
d. opportunity cost
e. average total cost
b. marginal cost
If an activity has an external benefit of $7 per unit then to create an efficient outcome the government should
a. Tax this activity at $7 per unit in order to increase the market equilibrium quantity.
b. Tax this activity at $7 per unit in order to decrease the market equilibrium quantity.
c. Subsidize this activity at $7 per unit in order to decrease the market equilibrium quantity.
d. Subsidize this activity at $7 per unit in order to increase the market equilibrium quantity.
d. Subsidize this activity at $7 per unit in order to increase the market equilibrium quantity.
20. Because it is
a. neither excludable nor rival in consumption, a tornado siren is a public good.
b. neither excludable nor rival in consumption, a tornado siren is a common resource.
c. rival in consumption but not excludable, a tornado siren is a common resource.
d. excludable but not rival in consumption, a tornado siren is produced by a natural monopoly.
a. neither excludable nor rival in consumption, a tornado siren is a public good.
23. Which of the following is not a reason that the findings of cost-benefit analyses on public goods are only rough approximations?
a. Without prices, it is difficult to be sure how much people really value a good.
b. Analysts can't be sure that the respondents to surveys are telling the truth.
c. Analysis must include not only the cost of building the project but also the cost of maintenance, if any.
d. People value goods differently if they are publicly provided rather than privately provided.
d. People value goods differently if they are publicly provided rather than privately provided.
18. An example of a private good would be
a. Playground slide
b. a rose garden
c. an internet radio subscription
d. a pillow
d. a pillow
16. Goods that are not excludable include both
a. private goods and public goods.
b. club goods and common resources.
c. common resources and public goods.
d. private goods and club goods.
c. common resources and public goods.
6. An externality arises when a person engages in an activity that influences the well-being of
a. buyers in the market for that activity and yet neither pays nor receives any compensation for that effect.
b. sellers in the market for that activity and yet neither pays nor receives any compensation for that effect.
c. bystanders in the market for that activity and yet neither pays nor receives any compensation for that effect.
d. Both (a) and (b) are correct.
c. bystanders in the market for that activity and yet neither pays nor receives any compensation for that effect.
21. Without government intervention, public goods tend to be
a. underproduced and common resources tend to be underconsumed.
b. overproduced and common resources tend to be underconsumed.
c. overproduced and common resources tend to be overconsumed.
d. underproduced and common resources tend to be overconsumed.
d. underproduced and common resources tend to be overconsumed.
15. The Occupational Safety and Health Administration (OSHA) has determined that the probability of a worker dying from exposure to a hazardous chemical used in the production of diet soft drinks is 0.0004. The cost of imposing a regulation that would ban the chemical is $18 million. If the value of a human life is equal to $10 million, how many people must the policy affect in order for the benefits to exceed the costs?
a. 361
b. 3601
c. 1801
d. 4501
e. None of the above
d. 4501
28. A firm is producing 1,000 units at a total cost of $5,000. If it were to increase production to 1,001 units, its total cost would rise to $5,008. What does this information tell you about the firm?
a. Marginal cost is $5, and average variable cost is $8.
b. Marginal cost is $8, and average variable cost is $5.
c. Marginal cost is $5, and average total cost is $8.
d. Marginal cost is $8, and average total cost is $5.
d. Marginal cost is $8, and average total cost is $5.
32. The point where the marginal cost curve crosses the average total cost curve is known as
a. returns to scale
b. minimized marginal product
c. profit maximizing point
d. efficient scale
e. none of the above
d. efficient scale
7. Negative externalities lead markets to produce
a. smaller than efficient output levels and positive externalities lead markets to produce greater than efficient output levels.
b. greater than efficient output levels and positive externalities lead markets to produce efficient output levels.
c. greater than efficient output levels and positive externalities lead markets to produce smaller than efficient output levels.
d. efficient output levels and positive externalities lead markets to produce greater than efficient output levels
c. greater than efficient output levels and positive externalities lead markets to produce smaller than efficient output levels.
17. Both private goods and club goods are
a. rival in consumption
b. nonrival in consumption
c. excludable
d. nonexcludable
c. excludable
24. One economically efficient way to eliminate the Tragedy of the Commons is to
a. tax the owners of the resource.
b. establish private ownership of the resource.
c. reduce the marginal social benefit of the resource.
d. prevent anyone from using the resource.
b. establish private ownership of the resource.
29. The government imposes a $1,000 per year license fee on all pizza restaurants. Which cost curves shift as a result?
a. Average total cost and marginal cost.
b. Average total cost and average fixed cost.
c. Average variable cost and marginal cost.
d. Average variable cost and average fixed cost
b. Average total cost and average fixed cost.
38. In a competitive market marginal revenue is equal to
a. Price
b. Change in the total revenue over the change in quantity
c. Price and Change in total revenue over the change in quantity
d. Change in total revenue over the change in quantity and Average Revenue
e. Price, Change in total revenue over the change in quantity, Average Revenue
e. Price, Change in total revenue over the change in quantity, Average Revenue
8. Research into new technologies
a. results in negative externalities because government funding for research causes less government spending in other areas.
b. is protected by patent laws, which eliminates the need for government intervention.
c. provides positive externalities because it creates knowledge others can use.
d. should only be funded by the corporations that will receive the profits from the research.
c. provides positive externalities because it creates knowledge others can use.
19. Which of the following goods is rival and excludable?
a. an uncongested toll road
b. a congested toll road
c. an uncongested non-toll road
d. a congested non-toll road
b. a congested toll road
25. It is common knowledge that many US national parks have become overused. One possible solution to this problem is to
a. decrease camping permit fees.
b. require all visitors to register upon entering the park.
c. sell the land that the parks currently occupy.
d. Limit the number of visitors
d. Limit the number of visitors
30. A cost that depends on the quantity produced is a(n)
a. variable cost
b. marginal cost
c. fixed cost
d. opportunity cost
e. average total cost
a. variable cost
40. The entry of new firms into a competitive market will
a. decrease market supply and increase market price.
b. increase market supply and decrease market price.
c. decrease market supply and decrease market price.
d. increase market supply and increase market price.
b. increase market supply and decrease market price.