micro econ 2 – Flashcards
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an externality is A) a benefit realized by the purchaser of a good or service. B) a cost paid for by the producer of a good or service. C) a benefit or cost experienced by someone who is not a producer or consumer of a good or service. D) anything that is external or not relevant to the production of a good or service.
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a benefit or cost experienced by someone who is not a producer or consumer of the product produced
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which is considered a negative externality? A) cleaning up the sidewalk on your block B) graduating from college C) repainting the house you live in to improve its appearance D) keeping a junked car parked on your front lawn
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keeping a junked car parked on your front lawn
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private costs A) are borne by producers of a good while social costs are borne by government. B) are borne by consumers of a good while social costs are borne by government. C) are borne by producers of a good while social costs are borne by society at large. D) are borne by producers of a good while social costs are borne by those who cannot afford to purchase the good.
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are borne by producers of a good while social costs are borne by society at large.
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If you burn your trash in the back yard in spite of regulations against it, then you are A) acting economically irrationally and creating a social cost. B) avoiding the private costs associated with disposing your trash some other way and creating a social cost. C) acting rationally and creating a positive externality. D) saving landfill space and creating a social benefit.
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avoiding the private costs associated with disposing your trash some other way and creating a social cost.
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When a negative externality exists, the private market produces A) more than the economically efficient output level. B) less than the economically efficient output level. C) products at a low opportunity cost. D) products at a high opportunity cost.
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more than the economically efficient output level.
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An advantage of imposing a tax on the producer that generates pollution is that A) it forces the polluting producer to internalize the external cost of the pollution. B) the government can keep tabs on exactly what is produced in an industry. C) it will eliminate pollution. D) a producer can pass the cost of the pollution to consumers.
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it forces the polluting producer to internalize the external cost of the pollution.
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Who was the economist who first proposed that governments use taxes and subsidies to correct for externalities? A) Ronald Coase B) A. C. Pigou C) Adam Smith D) David Hume
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A. C. Pigou
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A product is considered to be nonexcludable if A) you can keep those who did not pay for the item from enjoying its benefits. B) you cannot keep those who did not pay for the item from enjoying its benefits. C) your consumption of the product reduces the quantity available for others to consume. D) it is jointly owned by all members of a community.
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you cannot keep those who did not pay for the item from enjoying its benefits.
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Which of the following displays these two characteristics: rivalry and nonexcludability? A) a public good. B) a private good. C) a quasi-public good. D) a common resource.
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a common resource.
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Which of the following displays these two characteristics: nonrivalry and nonexcludability in consumption? A) public goods B) private goods C) quasi-public goods D) common resources
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public goods
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Which of the following is an example of a product that is nonexcludable and rivalrous? A) free concert (with limited seating) in a park B) national defense C) automobiles D) oil
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free concert (with limited seating) in a park
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In economics, the term "free rider" refers to A) a person who evades taxes. B) a supervisor who delegates menial time-consuming activities to others. C) one who volunteers her services. D) one who waits for others to produce a good and then enjoys its benefits without paying for it.
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one who waits for others to produce a good and then enjoys its benefits without paying for it.
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How does the construction of a market demand curve for a private good differ from that for a public good? A) There is no difference; in both cases the demand curve is determined by adding up the price each consumer is willing to pay for each quantity of the good. B) There is no difference; in both cases the demand curve is determined by adding up the quantities demanded by each consumer at each price. C) The market demand curve for a private good is determined by adding up the quantities demanded by each consumer at each price but the market demand curve for a public good is determined by adding up the price each consumer is willing to pay for each quantity of the good. D) The market demand curve for a private good is determined by adding up the price each consumer is willing to pay for each quantity of the good but the market demand curve for a public good is determined by adding up the quantities demanded by each consumer at each price.
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The market demand curve for a private good is determined by adding up the quantities demanded by each consumer at each price but the market demand curve for a public good is determined by adding up the price each consumer is willing to pay for each quantity of the good.
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For certain public projects such as building a dam on a river or a bridge to an island, what procedure is a government is likely to use to determine what quantity of a public good should be supplied? A) It conducts public surveys to determine if consumers want the product. B) It hires economists to estimate the market demand for the product. C) It takes a vote in Congress. D) It evaluates the costs and benefits of producing the good
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It evaluates the costs and benefits of producing the good
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The "tragedy of the commons" refers to the phenomenon where A) individuals are free riders. B) people overuse a common resource. C) people do not internalize an externality. D) there is rivalry in consumption.
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people overuse a common resource.
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Which of the following exemplifies the tragedy of the commons? A) Residents on the northern coast of California receive only one public broadcasting signal which may be eliminated altogether if government funding is cut. B) The Pleasant Hill community is growing so fast that the city's only post office is not able to keep pace with the population growth in the community. C) Canadian citizens receive free universal health care administered by provincial governments. D) The Malaysian tapir, distinguished for its unusual coloration, is a target for poachers who hunt it for its tough and leathery hide.
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The Malaysian tapir, distinguished for its unusual coloration, is a target for poachers who hunt it for its tough and leathery hide.
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13) Price elasticity of demand measures A) how responsive suppliers are to price changes. B) how responsive sales are to changes in the price of a related good. C) how responsive quantity demanded is to a change in price. D) how responsive sales are to a change in buyers' incomes.
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how responsive quantity demanded is to a change in price.
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Suppose the value of the price elasticity of demand is -3. What does this mean? A) A 1 percent increase in the price of the good causes quantity demanded to increase by 3 percent. B) A 1 percent increase in the price of the good causes quantity demanded to decrease by 3 percent. C) A 3 percent increase in the price of the good causes quantity demanded to decrease by 1 percent. D) A $1 increase in price causes quantity demanded to fall by 3 units.
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A 1 percent increase in the price of the good causes quantity demanded to decrease by 3 percent.
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If the percentage increase in price is 15 percent and the value of the price elasticity of demand is -3, then quantity demanded A) will increase by 45 percent. B) will increase by 5 percent. C) will decrease by 45 percent. D) will decrease by 5 percent.
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will decrease by 45 percent.
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The price elasticity of demand for Stork ice cream is -4. Suppose you're told that following a price increase, quantity demanded fell by 10 percent. What was the percentage change in price that brought about this change in quantity demanded? A) 40 percent B) 25 percent C) 2.5 percent
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2.5 percent
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If demand is inelastic, the absolute value of the price elasticity of demand is A) one. B) less than one. C) greater than one. D) greater than the absolute value of the slope of the demand curve.
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less than one.
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Which of the following statements about the price elasticity of demand is correct? A) The elasticity of demand for a good in general is equal to the elasticity of demand for a specific brand of the good. B) The absolute value of the elasticity of demand ranges from zero to one. C) Demand is more elastic in the long run than it is in the short run. D) Demand is more elastic the smaller the percentage of the consumer's budget the item takes up.
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Demand is more elastic in the long run than it is in the short run.
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When there are few close substitutes available for a good, demand tends to be A) perfectly inelastic. B) perfectly elastic. C) relatively inelastic. D) relatively elastic.
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relatively inelastic.
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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? A) Demand is likely to be perfectly inelastic. B) Demand is likely to be perfectly elastic. C) Demand is likely to be relatively elastic. D) Demand is likely to be relatively inelastic.
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Demand is likely to be relatively inelastic.
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Income elasticity measures A) how a good's quantity demanded responds to change in the goods price. B) how a good's quantity demanded responds to change in the price of another good. C) how a good's quantity demanded responds to change in buyers' incomes. D) how a good's quantity demanded responds to producers' incomes.
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how a good's quantity demanded responds to change in buyers' incomes.
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Calculate the income elasticity if an 8 percent increase in income leads to a 4 percent increase in quantity demanded for organic produce. A) -0.66 B) 0.5 C) 1.5 D) 2
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0.5
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Studies show that the income elasticity of demand for wine is approximately five. What does this mean? A) A one percent decrease in the price of wine leads to a five percent increase in wine consumption. B) A one percent increase in income leads to a five percent increase in wine consumption. C) A five percent increase in income leads to a one percent increase in wine consumption. D) Wine is a relatively elastic good.
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A one percent increase in income leads to a five percent increase in wine consumption.
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Suppose Tinsel Town Videos lowers the price of its movie club membership by 10 percent and as a result, CineArts Videos experienced a 16 percent decline in its movie club membership. What is the value of the cross-price elasticity between the two movie club memberships? A) -1.6 B) -0.625 C) 0.625 D) 1.6
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1.6
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Price elasticity of supply is used to gauge A) how responsive suppliers are to price changes. B) how responsive suppliers are to changes in future prices. C) how responsive suppliers are to a change in demand. D) how responsive sales are to a change in input prices
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how responsive suppliers are to price changes.
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The price elasticity of supply is equal to A) the value of the slope of the supply curve. B) the change in quantity supplied divided by the change in price. C) the percentage change in price divided by the percentage change in quantity supplied. D) the percentage change in quantity supplied divided by the percentage change in price.
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the percentage change in quantity supplied divided by the percentage change in price.
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Suppose a 4 percent increase in price results in a 2 percent increase in the quantity supplied of a good. Calculate the price elasticity of supply and characterize the product. A) 2; The product is elastic. B) 0.2; The product is inelastic. C) 0.5; The product is inelastic. D) 50%; The product is inelastic.
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0.5; The product is inelastic.
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Suppose the value of the price elasticity of supply is 4. What does this mean? A) A 4 percent increase in the price of the good causes quantity supplied to increase by 1 percent. B) A 1 percent increase in the price of the good causes the supply curve to shift upward by 4 percent. C) A 1 percent increase in the price of the good causes quantity supplied to increase by 4 percent. D) For every $1 increase in price, quantity supplied increases by 4 units.
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A 1 percent increase in the price of the good causes quantity supplied to increase by 4 percent.
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The price elasticity of supply for umbrellas is 2. Suppose you're told that following a price increase, quantity supplied increased by 30 percent. What was the percentage change in price that brought this about? A) 60 percent B) 15 percent C) 6.7 percent D) impossible to determine without additional information
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15 percent
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Bringing oil to the market is a relatively long and costly process. The whole process from exploration to pumping significant amounts of oil can take years. What does this indicate about the price elasticity of supply for oil in the short term? A) The price elasticity of supply is likely to be very high and supply is inelastic. B) The price elasticity of supply is likely to be close to zero and supply is perfectly elastic. C) The price elasticity of supply is likely to be low and supply is highly inelastic. D) The price elasticity of supply is likely to be low and supply is highly elastic.
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The price elasticity of supply is likely to be low and supply is highly inelastic.
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Marginal utility is the A) total satisfaction received from consuming a given number of units of a product. B) average satisfaction received from consuming a product. C) extra satisfaction received from consuming one more unit of a product. D) satisfaction achieved when a consumer has had enough of a product.
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extra satisfaction received from consuming one more unit of a product.
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As a consumer consumes more and more of a product in a particular time period, eventually marginal utility A) rises. B) is constant. C) declines. D) fluctuates.
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declines.
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If a consumer receives 20 units of utility from consuming two candy bars, and 25 units of utility from consuming three candy bars, the marginal utility of the third candy bar is A) 25 utility units. B) 20 utility units. C) 5 utility units. D) unknown as more information is needed to determine the answer.
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5 utility units
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Which of the following is likely to occur as the result of the law of diminishing marginal utility? A) Petra's utility from her second apple was less than her satisfaction from her first orange. B) Hudson enjoyed his second slice of pizza more than his first. C) Sabines' utility from her first granola bar is greater than Rachel's utility from her second granola bar. D) Wesley enjoyed his second bottle of iced tea less than his first bottle, other things constant.
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Wesley enjoyed his second bottle of iced tea less than his first bottle, other things constant.
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Consumers maximize total utility within their budget constraint by A) buying the cheapest goods they can find. B) buying whatever they like the best. C) buying the goods with the largest marginal utility per dollar spent. D) spending the same dollar amount for each good.
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buying the goods with the largest marginal utility per dollar spent.
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Suppose Joe is maximizing total utility within his budget constraint. If the price of the last pair of jeans purchased is $25 and it yields 100 units of extra satisfaction and the price of the last shirt purchased is $20, then, using the rule of equal marginal utility per dollar spent, the extra satisfaction received from the last shirt must be A) 2,000 units of utility. B) 500 units of utility. C) 100 units of utility. D) 80 units of utility.
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80 units of utility.
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If Marlowe obtains 9 units of utility per dollar spent on apples and 6 units of utility per dollar spent on oranges, then Marlowe A) is maximizing total utility. B) should buy more apples. C) should buy more oranges. D) should buy same amount of oranges and apples.
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should buy more apples.
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In order to derive an individual's demand curve for salmon, we would observe what happens to the utility-maximizing bundle when we change A) income and hold everything else constant. B) tastes and preferences and hold everything else constant. C) the price of the product and hold everything else constant. D) the price of a close substitute and hold everything else constant.
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the price of the product and hold everything else constant.
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What is behavioral economics? A) the study of how people make wealth-maximizing decisions B) the study of how people behave in the face of scarcity C) the study of situations in which people act in ways that are not economically rational D) the study of how people make decisions at the margin
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the study of situations in which people act in ways that are not economically rational
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The observation that people tend to value something more highly when they own it than when they don't is called the A) wealth effect. B) endowment effect. C) path dependent effect. D) endorsement effect.
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endowment effect.
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Sunk costs A) are costs associated with repairing something you already own. B) are important for optimal decision making. C) are costs that have already been paid and cannot be recaptured in any significant way. D) are costs that firms sink into marketing.
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are costs that have already been paid and cannot be recaptured in any significant way.
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A firm increased its production and sales because the firm's manager rearranged the layout of his factory floor. This is an example of A) investment in human capital. B) economies of scale. C) positive technological change. D) inspired management.
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positive technological change.
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Which of the following is an example of positive technological change? A) A firm offers workers a higher wage to work on weekends and at night. As a result, the firm is able to increase its weekly production of surf boards. B) A firm buys an additional machine that it uses to make surf boards. As a result, the firm is able to increase its weekly production of surf boards. C) A firm conducts a new advertising campaign. As a result, the demand for the firm's surf boards increases. D) A firm's workers participate in a training program designed to increase the number of surf boards they can produce per day.
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A firm's workers participate in a training program designed to increase the number of surf boards they can produce per day.
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A characteristic of the long run is A) there are fixed inputs. B) all inputs can be varied. C) plant capacity cannot be increased or decreased. D) there are both fixed and variable inputs
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all inputs can be varied.
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Which of the following is the best example of a short run adjustment? A) A local bakery purchases another commercial oven as part of its capacity expansion. B) Your local Wal-Mart hires two more associates. C) Smith University completed negotiations to acquire a large piece of land to build its new library. D) Toyota builds a new assembly plant in Texas.
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Your local Wal-Mart hires two more associates.
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Which of the following is an implicit cost of production? A) interest paid on a loan to a bank B) wages paid to labor plus the cost of carrying benefits for workers C) the utility bill paid to water, electricity, and natural gas companies D) rent that could have been earned on a building owned and used by the firm
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rent that could have been earned on a building owned and used by the firm
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Golda Rush quit her job as a manager for Home Depot to start her own hair dressing salon, Goldilocks. She gave up a salary of $40,000 per year, invested her savings of $45,500 (which was earning $1,500 interest per year) to rent a salon, hire a part-time assistant, and to buy equipment and hairdressing material. Based on this information, what is the amount of her explicit costs in her first year as a hairdresser? A) $45,000 B) $45,500 C) $47,000 D) $87,000
answer
$45,500
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Golda Rush quit her job as a manager for Home Depot to start her own hair dressing salon, Goldilocks. She gave up a salary of $40,000 per year, invested her savings of $45,500 (which was earning $1,500 interest per year) to rent a salon, hire a part-time assistant, and to buy equipment and hairdressing material. Based on this information, what is the amount of her implicit costs in her first year as a hairdresser? A) $80,000 B) $70,000 C) $42,000 D) $41,500
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$41,500
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The production function shows A) the total cost of producing a given quantity of output. B) the maximum output that can be produced from each possible quantity of inputs. C) the technology used to produce output. D) the incremental output gained by improving the production process.
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the maximum output that can be produced from each possible quantity of inputs.
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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 A) 2 chairs. B) 3 chairs. C) 4 chairs. D) 38 chairs.
answer
2 chairs
