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The difference between the value of a good to consumers and its price is known as

consumer surplus

The difference between the value of a a good to sellers and its price is known as

producer surplus

Graphically, consumer surplus is measured by:

the area below the demand curve, but above the market price

Total welfare gains from trade to the economy can be measured:

as the sum of consumer and producer surpluses

As the market price of a good falls due to an increase in supply, consumer surplus:

rises

As a result of the imposition of a tax on a product:

some consumer and produceer surplus is transferred from buyers and sellers to the governement

A deadweight loss occurs as a result of a per-unit tax because:

there is a decline in output for units for which the marginal benefit exeeds the marginal cost

other things being equal, the flatter demand is:

the greater the deadweight loss is returning grom the imposition of a particular tax on a product

Goods that are heavily taxed, such as alcohol and cigarettes, often have:

relatively steep demand, such that the tax burden falls primarily on buyers and the deadweight loss associated with the tax is smaller than if demand were flatter

A price ceiling imposed below equilibrium price causes a deadweight loss for society because

as a result of the ceiling, units of output are not produced despite the fact that the value to consumers exceeds the production cost.

A subsidy in an industry would result in:

an increase in consumer surplus and an increase in producer surplus but not an increase in the gains from trade

Private costs are those born by:

the producer of an item

Which of the following would most likely include positive externality:

a hybrid automoblie

The total social costs of production are:

private costs plus external costs

The production of a good creates large spillover benefits on others, the government might correct for the:

under allocation of resources to its production by subsidizing it.

AN example of a positive externailty is:

beautiful trees on property along a parkway

Assume that production of a good generates exteranl benefits for other. The equilibrium price of the good will be ____ and the equilibrium quanity ______ for efficient resource allocation.

too high; too low

Negative externalities are:

costs incurred by individuals other than buyers and sellers

Which of the following activities, if any, represents an external cost?

none.

In a competitive economy with no government sector:

there will be too few public goods produced

Which of the following activities, if any, represents an external benefit?

The increase in the value of property belonging to your neighbors when you hire a landscaper to beautify your front yard.

Assume that production of a good imposes external costs on others. The equilibrium price will be ____ and the equilibrium quanity _____ for efficient resource allocation

too low; too high

To internalize a negative externality:

a producer's cost could be increased by an amount equal to the external cost resulting from the production of a good.

A corrective tax equal to the external cost imposed on third parties levied on polluters will:

force polluters to internalize the external cost resulting from their actions

If firms were required to pay the full social costs of the production of goods, including both private and external costs, other things being equal, there would probably be:

a decrease in production

According to the Coarse Theorem, one way to deal with an externality problem when transaction costs are low is:

for the government to make certain that property rights are well-defined.

Which of the following is an example of a public good?

national defense

The reason why national defense is commonly provided by the government, while food is not, is that food:

can easily be withheld from those who refuse to pay for it.

A free-rider problem arises whenever:

goods cannot be provided exclusively to those who pay for them.

Public goods are those that are consumed:

by the paying and non paying public alike.

Public goods are characterized

nonrivalry in consumption and nonexcludability of non payers

when a good is nonrivalrous in consumption, then:

consumption by an additional individual does not prevent others from benefiting from a public good.

The market system fails to provide the efficient output of public goods because:

private firms cannot restrict the benefits from those goods to consumers who are willing to pay for them.

When city beautification programs are funded privately:

both free riders and contribution citizens are likely to benefit from a more beautiful city and an under allocation of resources toward the beautification project is likely to occur relative to what is socially efficient.

Which of the following goods is least likely to be provided by the private sector?

a good characterized by rivalry in consumption from which paying customers cannot be excluded

The tendency of those who are insured to take more risks is a problem of:

moral hazard

which of the following is an example of a moral hazard?

an individual drives less cautiously after obtaining automobile insurance.

Which of the following is not true of adverse selection?

A) It can result when both parties to a transaction have little information about
the quality of the goods involved.
B) It can cause the quality of goods traded to fall, if quality detection costs are high.
C) It can be a difficult problem to overcome, because it is not individually rational for the transactor with the superior information to provide a truthful and complete disclosure.

(ALL)

In the market for insurance, the moral hazard problem leads:

those who buy insuraunce to take fewer precautions to avoid the insured risk

If a company offers a medical and dental care plan that offers benefits to all of the members of each employee's family for a given monthly premium, an employee who is a mother of five children and who has bad teeth who elects that plan would be an illustration of:

the adverse selection problem

A situation in which the winner of an auction is worse off than the loser because of innaccurate valuation is known as:

winner's curse

Which is an example of assymetric information?

A)The seller of a used car is likely to have better information about the true
condition of the car than the buyer.
B) The owners of companies are likely to have better information about the true condition of the business than the buyer of company stock.
C) Drug companyies are likely to have better information about the side effects of drugs than the buyers of the drugs.

(ALL)

Which of the following are attempts by the government to correct the problem of asymmetric information in the market place?

Publicly traded companies are required to disclose certain information to the public and to be audited annually.
B) Information about the side-effects of drugs are required to be included with medications.
C) Truth in lending laws required lenders to include written disclosures about interest rates, fines, and other terms of a loan.

A progressive tax:

is designed to take a larger percentage of higher incomes as compared to lower incomes

Which of the following are means by which the government redistributes income?

taxes, subsidies, transfer payments

Which of the following accounted for the highest percentage of federal government spending in 2012?

Social Security and National Defense equally

Which of the following accounts for the largest percentage of federal taxas?

personal income taxes

Which of the following is an example of a progressive tax?

federal income tax

A regressive tax:

takes a greater proportion of the income of lower-income groups than of higher-income groups

What proportion of wage and salary income up to $106,800 goes to Social Security as of 2011?

a combined total of 10.4 percent from employees and employers

A flat tax allows individuals to deduct a standard allowance of $25000 from their wages. Assume that the flat tax rate is 12%

How much income tax would you have to pay if you were earning $20,000 a year?

zero

If stephen earns $100,00 this year and pays $20,000 in taxes and Chris earns $50,000 this year and pays $5,000 in taxes, this tax system would appear to be

progressive

The ability to pay principle suggests that:

those with the greatest ability to pay taxes should pay more than those with the least ability to pay taxes

The benefits received principle suggests that

individuals receiving the benefits are those who pay for them

The benefits received principle would not work well in which of the following cases:

national defense

Tax collected based on a taxpayers spending is known as:

consumption tax

Public choice theory assumes that each voter will tend to favor the political candidate who offers:

programs that will yield the greatest personal benefits net of personal cost.

Which of the following statements best summarized the essence of public choice analysis?

Public choice analysis applies economic principles to political science issues.

Individual citizens are unlikely to spend time and effort resisting actions of special interest groups because

the costs of such actions are spread over a large number of taxpayers

Rational voter ignorance can lead politicians to:

favor programs with immediate and clear benefits and unclear and deferred costs, fail to take all the benefits and costs of a program fully into account in deciding on which policies to favor, do a poor job of overseeing the actions of public sector bureaus.

A special interest issue is one that

provides large benefits to each of a small number of people and small costs to each of a large number of people.

The median voter result implies that

elections will usually be landslides for the same party year after year and when the preferences of most voters change substantially, winning political positions will also tend to change.

The law of diminishing marginal utility implies that the more of a commodity you consume, the

less you value additional units of output

Total utility:

increases as long as marginal utility is positive

As an individual consumes more of a given good or service, the marginal utility of that good to the consumer likely:

falls

If Tom purchases and consumes an entire pizza, which of the following is likely to be true?

the total utility of the first two pieces will be positive and the marginal utility of the second piece will be less than the marginal utility of the first piece

One of the ugly stepsisters argues that she, rather than Cinderella, should go to the ball because she will derive more utility from it than Cinderalla. An economist would:

point out that making interpersonal comparisons is not possible

The total utility from consuming five donuts is 30, 54, 74, 92, and 108 utils, respectively. The marginal utility of the fourth donut is:

18

For Brent, if the marginal utility of sleeping an extra hour, from 8 a.m. to 9 a.m., is negative:

Brent is better off getting up at 8 a.m.

The law of diminishing marginal utility suggests that a demand curve:

has a negative slope

When a consumer allocated her limited budgetary resources to maximize her well-being, _______ is achieved

consumer equillibrium

In consumer equillibrium

total utility cannot be increased by reallocation spending among the goods consumed

If the marginal benefit Isaac derives from the consumption of another candy bar is greater than the price of the candy bar, then:

Isaac will increase his total satisfaction by purchasing the candy bar.

The price of a pound of sirloin steak is five times the price of a pound of ground beef. You are not in consumer equilibrium unless:

your marginal utility from the last pound of sirloin steak consumed is five times that of the last pound of ground beef consumed.

Rebecca consumes both iced tea and coffee. Iced tea is priced at $1.50 per bottle and coffee at $2.oo per 16-ounce cup. Which of the following marginal utility pairs is consistent with Rebecca's consumer equilibrium at these prices?

MU of iced tea=3; MU of coffee =4

What is true about utility?

Utility varies from individual, total utility is the total amount of satisfaction derived from the consumption of a certain number of unites of a good or a service, marginal utility tends to decline, the more of a good or service is consumed, when marginal utility is at its maximum, total utility is zero.

Total utily can be determined by:

summing the marginal utilities of each unit of a good consumed.

Which of the following violates the law of diminishing marginal utility?

The more beer phil drinks, the more he enjoys the next one.

Suppose both goods L and M have a price of $6. To maximize your utility from spending a given amount of income on the two goods you should:

consume them so that consumption of the last unit each good provides the same marginal utility.

A decrease in the price of product X will:

increase the marginal utility per dollar spent on X and result in an increase in total utility from consumption X

Consumer equilibrium is reached when a budget is used to buy two goods, x an dy, and

MUx=PUy/Py and all of the budget is spent.

An explicit cost:

an opportunity cost and an out-of-pocket expense

An implicit cost:

is an opportunity cost and does not require an outlay of money

Economic profits will take into account:

both implicit and explicit costs.

Scarlett recently began running her husband's lumber mill. Last month she took in $5,000 sales revenue and paid $3,400 in out-of-pocket costs. Did the lumberyard make an economic profit last month?

Without knowing the magnitude of implicit costs, it it not possible to state whether the lumberyard earned an economic profit last month.

Which of the following is not an explicit cost for the owner of a local pizza parlor?

other uses for the land that the parlor sits on

An economist's measurement of profit differs from an accountant's in that:

accountants do not always include all of the opportunity costs when calculating total production costs.

When a firm makes zero economic profit, it means that:

the firm is covering the total opportunity costs of its resources.

Economists normally assume that the goal of a firm is to:

maximize profits

The production function describes:

the relationship between the quantity of inputs utilized and the quantity of output produced

The marginal product of labor can be defined as:

the change in total output divided by the change in labor, other factors of production held constant.

Diminshing marginal product of labor occurs when:

adding another unit if labor increases output, but not by as large a margin as the last unit of labor employed

The long-run production period:

is a time when all inputs are variable, varies in length according to how capital goods are specialized, is likely longer for a steel manufacture than a retailer who sells watches off a cart at the local mall.

The short run is that period in which firms:

are able to vary some, but not all, inputs.

The short run is not the same length of time for all firms and industries because:

the life span of capital and the extent of capital specialization will vary across firms and industries.

Which of the following is a reason that marginal product will eventually begin to fall?

limited amounts of fixed inputs

Kelly, who grows geraniums to sell, is currently producing a level of output at which her marginal cost equals her average variable cost. What must be true about Kelly's average variable cost at this level of output?

It is a minimum

The marginal cost of a good is:

the addition to the total cost from producing one more unit of output.

When marginal product is rising, marginal costs will:

fall

Which of the following is most likely to be a fixed cost for a business?

interest payments on a loan used to finance the construction of a building

As quantity increases, which of the following must be true if average total costs are rising?

Marginal cost must be greater than average total cost.

The sum of AVC and AFC equals

average total cost.

Which of the following are variable costs of production?

the wages paid to non-salaried employees, the cost of wood used to produce furniture, the cost of electricity that powers the lighting and computer systems in an office building.

Average variable cost:

first decreases then increase as output expands

Average fixed cost:

always decreases as output expands.

The marginal cost curve:

generally falls at first and then rises as output expands.

If average fixed cost and average variable cost are summed together, the result is:

average total cost

If Randy's fixed cost totals $800 with variable cost per unit of $10 at a quantity of 100 units, what would his average total cost equal?

$18.00

If average variable cost exceeds marginal cost, then:

both the average variable and average total cost are decreasing

Which of the following must be true if the short-run average total cost curve is declining?

Marginal cost is less than average total cost.

A firm's total fixed cost equals $2,500. The firm's average fixed cost at 1,5, and 10 units of output, respectively, will be:

$2,500, $12,500, and $25,000.

If the total cost of producing 10 units equals $90, and the average total cost of producing 11 units equals $8.75, then the marginal cost of the eleventh unit produced:

is less than the average total cost of producing ten units

When average total cost is decreasing as output expands

marginal cost must be less than average total cost.

The short-run average total cost curve eventually turns upward to form a U shape because:

of diminishing marginal productivity.

You operate a factory that produces beach towels. Your current level of output equals 2,000 towels per week. Your weekly variable cost equals $8,000. If your total cost each week equals $9,000, it follows that:

the average total cost of production equals $4.50 per towel.

When there are economies of scale in production:

long-run average total cost declines as output expands.

When there are diseconomies of scale in production:

long-run average total cost increases as output expands.

Constant returns to scale indicate that a firm is experiencing:

per unit costs of production that remain stable as the scale of output expands.

What denotes the output level where economies are exhausted and constant returns to scale begin:

minimum efficient scale

In the short run, it is impossible for an expansion of output to cause an increase in:

AFC.

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