question

Is the following an example of a negative externality? A factory emits pollution into the air as a by-product of production

answer

Yes, it is an example of a negative externality.

question

Is the following an example of a negative externality? A neighbor plays loud music that annoys the surrounding community.

answer

Yes, it is an example of a negative externality.

question

Is the following an example of a negative externality? A person smokes a cigaretter and imposes a secondhand smoke on others.

answer

Yes, it is an exmaple of a negative externality.

question

Is the following an example of a negative externality? A person with no allergies that gets a mosquito bite from a disease-free mosquito.

answer

No, this is not an example of a negative externality.

question

Is the following an example of a negative externality? A person who lives alone buys a DVD, but finds the movie unenjoyable.

answer

No, this is not an example of a negative externality.

question

Is the following an example of a negative externality? A person gets a flu-shot and is therefore less likely to spread illness to others.

answer

No, this is not an example of a negative externality.

question

Suppose Apple Inc. creates the first ever solar powered cell phone battery. The battery absorbs ambient light and converts it into electrical power. Also, the battery stores excess light as energy to last 10 hours in the dark. At a conference, a representative from Apple Inc. makes a presentation about the battery to representatives from many other companies, proclaiming the invention will revolutionize the cell phone industry. A few months later, Microsoft creates a solar powered cell phone battery that lasts 12 hours in the dark. This example of the spreading of knowledge is known as a ___________ which is a _____________ externality.

answer

technology spillover; positive

question

The Environmental Protection Agency is attempting to rule on whether pollution from greenhouse gas emissions endangers public safety. One of the many greenhouse gas polluters is cows and their farts. Can cow fart pollution be controlled? What is the ideal level of cow fart pollution? Economists have devised a theory to help address this issue. Identify the statement that economic theory believes to be true from the list below: a)The benefit of pollution cleanup to society is always less than the cost of pollution cleanup, especially is all costs are borne by the producer. b) The efficient level of pollution removal occurs where the marginal benefit of pollution equals the marginal cost of pollution (some cow farts can be allowed) c) If the cost of paying a pollution charge (fart tax) is less than the cost of reducing pollution, the farmer (and his or her cows) will have an incentive to reduce pollution

answer

b) The efficient level of pollution removal occurs where the marginal benefit of pollution equals the marginal cost of pollution (some cow farts can be allowed)

question

The environmental costs of pollution are the best-known example of a(n) ___________-an uncompensated cost that an individual or firm imposes on others. Another example is traffic congestion. An individual who chooses to drive during rush hour increases congestion and so increases the travel time of other drivers.

answer

external cost

question

A marketable permit provides its owner with the right to pollute a specified amount. The number of permits in existence is determined by ______. Who is allowed to purchase permits

answer

regulators; anyone is allowed to purchase permits

question

State whether the scenario below describes a positive externality, negative externality or neither. Jane raises bees to produce honey for her business, but her bees also pollinate many flowers in the neighborhood where she lives.

answer

This is an example of a positive externality

question

State whether the scenario below describes a positive externality, negative externality or neither. KingClaw fishing company illegally hunts the Coelacanth, a critically endangered fish that is close to extinction.

answer

This is an example of a negative externality.

question

State whether the scenario below describes a positive externality, negative externality or neither. The US government decides to house all of its nuclear waste material at Cactus Cliff, WY. As with all nuclear waste, there is no failsafe protection method.

answer

This is an example of a negative externality.

question

As a result of light pollution in most cities, families that do not live in the country are unable to go stargazing. Assume the government places an optimal Pigouvian tax on electricity used at night to reduce light pollution so that people can enjoy the stars. As a result of the tax, consumers pay a (lower/higher) price for electricity while producers (lower/higher) output

answer

higher; lower

question

T/F: As a result of light pollution in most cities, families that do not live in the country are unable to go stargazing. Assume the government places an optimal Pigouvian tax on electricity used at night to reduce light pollution so that people can enjoy the stars. As a result of the tax, consumers pay a lower price for electricity while producers lower output.

answer

False. As a result of the tax, consumers ought to pay a higher price for electricity while producers lower output

question

One way to deal with pollution is to charger polluters a(n) __________ tax. This us a tax that depends on the amount of pollution a firm produces. Taxes can be used to discourage any activity that generate negative externalities, such as driving during rush hour. In general, taxes designed to reduce external costs are known as _________ taxes.

answer

emissions; Pigouvian

question

_______________ are licenses to emit limited quantities of pollutants that can be bought and sold by polluters. The main problem with these permits is the flip-side of the problem with ______ taxes: because it is difficult to determine the optimal quantity of pollution, governments can find themselves issuing too many permits (so not enough pollution is reduced) or too few permits (so that too much pollution is reduced)

answer

Tradable emissions permits; emissions

question

There are four potential responses to environmental problems through regulation: (a) Command-and-Control Regulation (b) Marketable Permits (c) Pollution Change or (d) Better-Defined Property Rights. Assign the following problem to the proper regulatory outlet. Government requires that auto manufacturers use a new, cleaner, technology in producing cars.

answer

(a) Command-and-Control Regulation

question

There are four potential responses to environmental problems through regulation: (a) Command-and-Control Regulation (b) Marketable Permits (c) Pollution Change or (d) Better-Defined Property Rights. Assign the following problem to the proper regulatory outlet. Government requires that auto manufacturers limit pollution to specified threshold.

answer

(a) Command-and-Control Regulation

question

There are four potential responses to environmental problems through regulation: (a) Command-and-Control Regulation (b) Marketable Permits (c) Pollution Change or (d) Better-Defined Property Rights. Assign the following problem to the proper regulatory outlet. Auto manufacturers are allowed to pollute as much as they wish, provides that they have purchased a sufficient number of pollution vouchers.

answer

(b) Marketable Permits

question

There are four potential responses to environmental problems through regulation: (a) Command-and-Control Regulation (b) Marketable Permits (c) Pollution Charge or (d) Better-Defined Property Rights. Assign the following problem to the proper regulatory outlet. An auto manufacturer is charged a tax for all units of pollution emitted into a river.

answer

(c) Pollution Charge

question

The following are all associated with a network externality except: a) A teleportation device that allows its users to be magically transported to any other location where there is another person who has also purchased the device b) Operating systems like Windows and Linux c) A facebook account d) A private airport e) Cell Phone

answer

d) A private airport The benefit to a consumer of some goods decreases when more people are using the good. This occurs when a good is not associated with network externalities. A private airport would be more useful for you if you were the only one using it as opposed to if more people owned such good.

question

Technological advancements are considered (negative/neutral/positive) externality because __________ receive the majority of benefits. Too (little/much) of this type of externality is usually provided.

answer

positive; third parties; little

question

____________ is the change in total utility generated by consuming one additional unit of a particular good. Focus on this factor when maximizing total utility.

answer

Marginal utility

question

Charlie is deciding how much time he should spend at work. He has 10 hours to spend on work per week, and the rest of the time is spent either at school or studying. Currently, his boss pays him $16 per hour. Suppose that his boss reduces his wage to $10 per hour. We know that when Charlie's wage decreases: a) He works more and consumed more b) He consumes more leisure c) He works more hours but consumes less d) There is not enough information to tell

answer

d) There is not enough information to tell

question

T/F: Miles is 2 years old and watches Sesame Street every morning. He usually finds the first 30 minutes of the show very entertaining, but loses interest quickly after that point. This accurately describes increasing marginal utility.

answer

False.

question

T/F: Stink tofu, a Chinese specialty, typically requires an acquired taste before becoming truly enjoyable. This normally occurs after the first few bites. This accurately describes increasing marginal utility.

answer

True.

question

Despite the possibility of exceptions, economists generally agree that the principle of diminishing marginal utility is a good model because a) The marginal utility curve slopes upward b) Given enough of something, the next unit of a good or activity will eventually provide less utility than the previous c) Most goods and services qualify under the exceptions

answer

b) Given enough of something, the next unit of a good or activity will eventually provide less utility than the previous

question

The principle of diminishing marginal utility states that the additional utility a(n) _______ receives from an additional unit of a good or service (decreases/increases) as consumption of it (decreases/increases)

answer

consumer; decreases; increases

question

T/F: Beth likes pillows since they are really comfortable to sleep on. However, she finds that if there are more than 3 pillows on her bed, they become too tall to sleep on. This scenario demonstrates decreasing marginal utility.

answer

True.

question

Lauren uses her income from working at a call center to buy caviar, the only thing she enjoys apart from leisure. An ounce of caviar costs $30.00, and she can work up to 8 hours a day at an hourly wage of $11.50. If a day has 24 hours, how much leisure and caviar can she consume if she does not work at all?

answer

Leisure: 24 hours Caviar: 0 oz.

question

Lauren uses her income from working at a call center to buy caviar, the only thing she enjoys apart from leisure. An ounce of caviar costs $30.00, and she can work up to 8 hours a day at an hourly wage of $11.50. How much leisure and caviar can Lauren consume in a day if she works the maximum number of hours? (round to 2 decimal places)

answer

Leisure: 16 hours Caviar: 3.07 oz.

question

State whether the following scenario describes decreasing, constant or increasing marginal utility. Michelle rarely ate out as a child since her parents would cook every night. She remembers that it was a real treat to go out and get fast food. now, Michelle has finished her first semester at college and has had McDonals's once a week for the past 5 months. She plans to learn to cook soon so she doesn't have to eat out any more, being sick of fast food.

answer

The scenario describes decreasing marginal utility.

question

State whether the following scenario describes decreasing, constant or increasing marginal utility. Brian likes running. His friend challenges him to run a marathon all of a sudden without prior training. As he begins the race, he feels exuberance and confidence as he passes runner after runner, thinking this is the greatest feeling ever. At mile 10, he starts slowing down and feeling tired. Bu mile 20, he experiences the dreaded runner's "wall." Brian is later seen screaming in agony saying :no more" and regrets running the marathon.

answer

The scenario describes decreasing marginal utility.

question

State whether the following scenario describes decreasing, constant or increasing marginal utility. You are taking a principles of economics class using Sapling Learning. As you use Sapling Learning more and more, you find both doing homework as well as learning the subject to be increasingly enjoyable.

answer

The scenario describes increasing marginal utility

question

State whether the following scenario describes decreasing, constant or increasing marginal utility. Sheila is a coffee addict. She finds that regardless of whether she visits Starbucks three times a day or once a month, each Grande Latte that she drinks tastes amazing.

answer

The scenario describes constant marginal utility.

question

The change in the quantity of a good consumed that results from a change in the overall purchasing power of the consumer due to a change in the price of that good is known as the ______________ of the price change. Along with the substitution effect, this is another means by which changes in prices alter consumption choices.

answer

Income effect

question

______________ individuals will choose to reduce the risk they face when that reduction leaves the expected value of their income or wealth unchanged.

answer

Risk-averse

question

When people that aren't responsible for the entire costs of their actions take riskier actions than they would otherwise, it is known as __________

answer

moral hazard

question

_____________ occurs when people must choose from an undesirable selection of goods because of asymmetric information. One party knowing less about the good than the other is the cause for this.

answer

Adverse selection

question

Health insurance is one of the most hotly debated topics. Unlike a perfectly competitive market, health insurance and health care markets contain a lot of asymmetric information. For a simplified model, there are two types of people: 1. Healthy people who never get sick and 2. Unhealthy people who have very high health care costs Suppose that each people can work for either firm (a) which pays for all health insurance costs and has perfect insurance or firm (b) which pays a small part of the health insurance costs and requires high co-payments, but they pay a higher wage, enough to compensate healthy people for their health costs, but not unhealthy people. Which type of people will work for firm (a) and which for firm (b)

answer

firm (a) 2. unhealthy workers only will work for firm (a) firm (b) 1. healthy workers only will work for firm (b)

question

T/F: An example of adverse selection is when a car dealer sells someone a car that is a lemon.

answer

True.

question

Which of the following are examples of an adverse selection problem? (It is possible that more than one items should be selected) a) A person buying a used car b) A person buying a car alarm because they have car insurance c) A person buying health insurance

answer

a) A person buying a used car [and] c) A person buying health insurance

question

Expected utility is defined as the expected value of an individual's a) total utility given the uncertainty about the future b) marginal utility given the uncertainty about the future c) marginal utility given fixed insurance premiums d) total utility given the equilibrium price level

answer

a) total utility given the uncertainty about the future

question

Given two states of the world (Y and Z), complete the formula for calculating the formula for calculating expected utility (Utility of Y times _____________) plus ( Utility of Z times _____________)

answer

probability of Y; probability of Z

question

Most people prefer, other things equal, to reduce _________-uncertainty about future outcomes

answer

risk

question

A premium is a payment to an insurance company in return for the insurance company's promise to pay a claim in certain states of the world. When the premium is equal to the expected value of an individual's medical expenses-the expected value of their future claim against the policy-then this is a ______________ policy.

answer

Fair insurance (policy)

question

An individual can engage in _______________ by investing in several different things, so that the possible losses are independent events. This reduces overall risk.

answer

diversification

question

Most insurance companies require a(n) ___________ meaning they compensate for losses only above a certain amount, so that coverage is always less than 100%. The insurance for on a car, for example, may pay for repairs only after the first $500 in loss. This means that a careless driver who gets into a fender bender will end up paying $500 in repairs even if he is insured, which provides at least some incentive to be careful and reduce ______________

answer

deductible; moral hazard

question

A firm's _____________ are costs that increase as quantity produced increases. These costs often show __________________ illustrated by the increasingly steeper slope of the total cost curve.

answer

variable costs; diminishing marginal returns

question

A firm's ____________ are costs that are incurred even if there is no output. In the short run, these costs (decrease/do not change/increase) as production increases.

answer

fixed costs; do not change

question

Average variable cost is the ____ of all costs that change as output changes divided by the __________________

answer

sum; number of units produced

question

Marginal cost is the change in total cost divided by ___________; The amount by which total cost increases when an additional unit is produced

answer

change in output

question

Average (Total) Cost is total cost divided by ________________

answer

quantity of output

question

The _______ of an excise tax depends on the _______ elasticity of the taxed good's supply and demand curves.

answer

incidence; price

question

The economic entity with the (least/most) flexibility in terms of their production and consumption _________ incur the largest burden of excise tax

answer

least; substitutes

question

Total inefficiency caused by a tax is the sum of _________ and ___________.

answer

administrative costs; deadweight loss

question

Governments that are interested in minimizing the efficiency costs of taxation should only tax goods where demand or supply, or both, are relatively (inelastic; elastic)

answer

inelastic

question

Individual income tax is an example of what type of tax?

answer

Progressive tax

question

The federal government levies taxes on businesses and individuals in different ways. Medicare and payroll taxes are examples of what type of tax?

answer

Flat or proportional tax.

question

Social security tax, where people with higher incomes pay a smaller share of their income in tax is known as a(n) ____________ tax.

answer

Regressive

question

______ taxes are taxes on specific goods, such as tobacco and gasoline. They are not income based.

answer

Excise

question

The impact of taxes on different groups in society varies. Some taxes create a larger burden for poorer people while others create a larger burden for wealthier people. __________ taxes are more burdensome for poorer people and less burdensome for wealthier people.

answer

Regressive

question

The nature of the tax systems means that there is usually a trade-off between __________ and ___________

answer

equity; efficiency

question

The _______________ principle pushes governments towards a progressive tax system but efficiency considerations push them in the other direction.

answer

Ability-to-pay

question

A(n) ____________ tax, promotes economic efficiency as it does not distort incentives

answer

lump-sum

question

All of the following are consistent with the Ability-to-pay principle except: a) Income Tax b) Progressive Property Tax c) Federal Bonuses Tax d) Carbon Tax

answer

d) Carbon Tax Carbon Tax is consistent with the Benefits Principle

question

According to the ________________ of tax fairness, those who gain from public spending should bear the burden of the tax that pays for that spending. For example, those who use the road should pay for its upkeep, those who fly on airplanes should pay for air traffic control, and so on.

answer

Benefits principle

question

Margaret Thatcher's poll tax is an example of a(n) ___________, a tax that is the same for everyone regardless of any actions people take. It is widely perceived as much less fair than the tax structure it replaced, in which local taxes are proportional to property values.

answer

lump-sum tax

question

The ____________ of a tax is a measure of who really pays it.

answer

incidence

question

When the larger tax incidence falls on producers, it is because the supply of Good A is more _________ than the demand for Good A.

answer

inelastic

question

T/F: Tax incidence is determined by which group (buyers or sellers) must write the check to the government.

answer

False

question

T/F: The effect of an excise tax on the equilibrium price is the same regardless of who the tax is levied upon

answer

True

question

T/F: When the price elasticity of demand is high and the price elasticity of supply is low, the burden of a tax falls mainly on consumers.

answer

False

question

T/F: An excise tax can distort incentives and create missed opportunities for mutually beneficial transactions.

answer

True

question

Diminishing marginal returns means that: a) each additional unit of an input used will cause output to decrease b) each additional unit an input will increase output, but by smaller and smaller amounts c) the firm is maximizing profit

answer

b) each additional unit an input will increase output, but by smaller and smaller amounts

question

T/F: When economic profits in an industry are zero, it means that firms are doing as well as they could in other markets.

answer

True.

question

If a local California avocado stand operates in a perfectly competitive market, that stand owner will be a __________

answer

price-taker

question

(Dan Ariely's TED talk shown in class) In European organ donation decisions, what matters most in peoples' choices? a) Whether or not their family will be compensated b) Whether or not they have to check a box to opt in to the program c) Whether or not they have eaten a full breakfast on the day of the decision

answer

b) Whether or not they have to check a box to opt in to the program

question

Suppose the marginal cost curve in the short run first decreases, then reaches a minimum, and then increases. If we are at an output where marginal cost is decreasing, then marginal product must be (decreasing/increasing) and average variable cost bust be (decreasing/increasing)

answer

increasing; decreasing

question

T/F: Price and marginal revenue are the same in perfect competition.

answer

True.

question

For the Colorado beef industry to be classified as perfectly competitive, ranchers in Colorado must have (no noticeable/a huge) effect on prices and beef is a (standardized/differentiated) product

answer

no noticeable; standardized

question

How much utility is gained by spending an additional dollar on Good X? a) the average utility of Good X divided by the price of Good X b) MUx / Px c) TUx / Px d) MUy / Py

answer

b) MUx / Px

question

(Dan Ariely's TED talk shown in class) What single factor does Ariely argue makes the biggest difference in predicting people's choices? a) Their income b) Their relative level of attractiveness c) The way the choice is framed d) Their level of education

answer

c) The way the choice is framed

question

The ___________ is the increase in output obtained by hiring an additional worker. a) average product b) total product c) marginal product d) marginal cost

answer

c) marginal product

question

The shut-down point in the short run is a) the point in which economic profit is zero b) the minimum point of AVC c) the intersection of the MC and ATC curves d) the minimum point of AFC

answer

a) the minimum point of AVC

question

If the economic profit for a firm is negative, the firm should (enter/exit) the industry in the long run

answer

exit

question

The term 'diminishing returns' refers to: a) A decrease in the extra output due to the use of an addition unit of a variable input, when more and more of the variable input is used and all other things are held constant b) a decrease in total output due to overcrowding, when too little labor is used with too much land or capital

answer

a) A decrease in the extra output due to the use of an addition unit of a variable input, when more and more of the variable input is used and all other things are held constant

question

You own a small deli that produces sandwiches, soups and other items. Which of the following is a decision most likely to be made in the long run at your deli? a) You renovate the second floor of your building to increase the size of the dining room b) You order more bread sticks from the local bakery c) You ask your beverage distributor to deliver more soft drinks next week d) You place a newspaper ad to attract part-time workers from the local college

answer

a) You renovate the second floor of your building to increase the size of the dining room

question

T/F: Economic profits could be negative even if accounting profits are positive

answer

True.

question

T/F: According to the optimal output rule, profits are maximized by producing where the difference between marginal revenue and marginal cost is the greatest

answer

False.

question

Suppose that the market for haircuts in a community is a perfectly competitive constant-cost industry and that the market is initially in long-run equilibrium. Subsequently, an increase in population increases the demand for haircuts. In the long-run, we expect that more firms will (enter/exit) the market, driving the price of haircuts (down/up) and the profits of individual firms back down to _______

answer

enter; down; zero

question

Austin's total fixed cost is $3,600. He employs 20 workers and pays each worker $60. If labor is his only variable cost, what is Austin's total cost?

answer

$4,800

question

The averal total cost curve in the short run slopes upward due to

answer

diminishing returns

question

In the short run: a) all inputs are fixed b) all inputs are variable c) some inputs are fixed and some inputs are variable d) all costs are variable

answer

c) some inputs are fixed and some inputs are variable

question

A demand curve that is downward-sloping will ensure that a) P = MR b) P > MR c) P < MR d) P = MC

answer

b) P > MR

question

T/F: In the long run, firms will exit an industry if the market price is consistently less than their break-even price

answer

True.

question

James finds a new job that doubles his income. He adjusts his consumption. From this we know that for every normal good James buys, James' marginal utility per dollar will (fall/stay constant/rise)

answer

fall

question

In the short run, a perfectly competitive firm produces output and earns zero economic profit if a) P > ATC b) P = ATC c) P P > ATC

answer

b) P = ATC

question

T/F: When diminishing returns exist, then the marginal cost curve is upward-sloping

answer

True.

question

Suppose a firm is attempting to maximize profits. If the firm increases production from 10 units to 11 units, and the market price is $20 per unit, total revenue for 11 units is

answer

$220

ECON Midterm 2 – Flashcards

Unlock all answers in this set

Haven't found what you were looking for?

Search for samples, answers to your questions and flashcards