question

A benefit or cost that affects someone who is not directly involved in the production or consumption of a good or service.

answer

Externality

question

The cost borne by the producer of a good or service.

answer

Private Cost

question

The total cost of producing a good or service, including both private cost and any external cost.

answer

Social Cost

question

The benefit received by the consumer of a good or service.

answer

Private Benefit

question

The total benefit from consuming a good or service, including both the private benefit and any external benefit.

answer

Social Benefit

question

When there is a _________ externality in producing a good or service, too much of the good or service will be produced at market equilibrium.

answer

negative

question

When there is a _________ externality in consuming a good or service, too little of the good or service will be produced at market equilibrium.

answer

positive

question

A situation in which the market fails to produce the efficient level of output.

answer

Market Failure

question

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

answer

Property Rights

question

The costs in time and other resources that parties incur in the process of agreeing to and carrying out an exchange of goods or services.

answer

Transactions Costs

question

The argument that if transactions costs are low, private bargaining will result in an efficient solution to the problem of externalities.

answer

Coase Theorem

question

Government taxes and subsidies intended to bring about an efficient level of output in the presence of externalities

answer

Pigovian Taxes and Subsidies

question

A policty that involves the government imposing quantitative limits on the amount of pollution firms are allowed to emit or requiring firms to install specific pollution control devices.

answer

Command and Control Approach

question

The situation that occurs when one person consuming a unit of a good means no one else can consume it.

answer

Rivalry

question

The situation in which anyone who does not pay for a good cannot consume it.

answer

Excludability

question

A good that is both rival and excludable.

answer

Private Good

question

A good that is both nonrival and nonexcludable.

answer

Public Good

question

Benefiting from a good without paying for it.

answer

Free Riding

question

A good that is rival but not excludable.

answer

Common Resource

question

The tendency for a common resource to be overused.

answer

Tragedy of the Commons

question

A benefit or cost that affects someone who is not directly involved in the production or consumption of a good or service.

answer

Externality

question

The private cost will differ from the social cost when there is an__________.

answer

externality

question

Economic efficiency is where _____ ______ and ____ ____ is maximized

answer

consumer surplus, producer surplus

question

Externalities affect the economic efficiency of a market equilibrium by causing a difference between: a. The private cost of production and the social cost of production. b. The private benefit of consumption and the social benefit of production. c. Consumer surplus and producer surplus. d. Both a and b. e. All of the above.

answer

d

question

Your neighbor John has a barking dog. Which of the following statements is true? a. It can create negative externalities by disrupting your sleep and can also create positive externalities by discouraging intruders. b. It creates only a negative externality by disrupting your sleep. c. It does not create any externalities because you do not own the dog. d. It does not create any externality because John bought the dog from a shelter.

answer

a

question

Getting a flu shot results in a _____ externality

answer

positive

question

An externality is not created by: a. Generating Electricity b. Producing Honey with Bees. c. Conducting medical research. d. consuming a pair of Gap jeans. e. Producing college educations

answer

d

question

If a positive externality in consumption is present in a market, then the private benefit from consumption will be different than the ______ ________ from consumption.

answer

social benefit

question

The private benefit is ________, while the social benefit is ________.

answer

the benefit received by the consumer of a good or service; the total benefits from consuming the good or service.

question

A positive externality causes the social benefit from consuming the good to be ______ than the private benefit.

answer

greater

question

The economically efficient level of pollution is that amount where the marginal cost of pollution reduction equals the _________ of pollution reduction.

answer

marginal benefit

question

The Coase Theorem states that if transaction costs are _____, private bargaining will result in an efficient solution to the problem of externalities.

answer

low

question

The parties involved in an externality have an incentive to reach an efficient solution because: a. both parties become better off when an efficient solution is reached. b. government regulations compel private parties. c. it is morally the right thing to do. d. the party that causes negative externality does not have any legal right to do so.

answer

a

question

Which one of the following factors helps determine the marginal cost of reducing crime? a. medical expenses b. property damage from crime. c. resources devoted to courts.

answer

c

question

Which one of the following factors helps determine the marginal benefit of reducing crime? a. resources devoted to education. b. personal injury from crime. c. resources devoted to prison guards.

answer

b

question

Would it be economically efficient to reduce the amount of crime to zero?

answer

no

question

An example of a transaction cost is: a. The cost associated with not reducing a negative externality. b. The total cost of reducing a negative externality. c. The cost associated with drawing up a binding contract to reduce a negative externality. d. The cost of a negative externality on others. e. The marginal cost of reducing a negative externality.

answer

c

question

A pivogian tax is a tax to bring about an efficient level of output in the presence of ________

answer

externalitites

question

At what level must a Pigovian tax be set to achieve efficiency? A pigovian tax must be set equal to: a. The marginal social cost of production. b. The market equilibrium price. c. The cost of externality. d. The marginal private cost of production. e. The transaction cost associated with Coase bargaining.

answer

c

question

An individual producer or a consumer "internalizes an externality" when a. They ignore the externalities created by their actions. b. They lobby against any government action related to the externalities caused by their actions. c. in their own decisions they take into account the external effects of their actions. d. they keep knowledge of the externalities private to them.

answer

c

question

A producer or a consumer will internalize an externality because a. They have an incentive to consider the external effects of their actions due to taxes that are imposed or subsidies that they receive. b. They face government regulation. c. They are driven by their individual moral codes. d. they are compelled by law.

answer

a

question

A private good is ______ and _______

answer

rival, excludable

question

A public good is ________ and ________.

answer

nonrivalrous, nonexcludable

question

a quasi-public good is _______ and _______

answer

nonrivalrous, excludable

question

A common resource is ______ and ______.

answer

rival, nonexcludable

question

Free riding is benefiting from a good without ______ for it.

answer

paying

question

Free riding results in the market producing a quantity of public goods that is inefficiently low because they are __________.

answer

nonexcludable

question

The tendency for a common resource to be overused.

answer

Tragedy of Commons

question

The tragedy of commons can be avoided by: a. clearly defining and enforcing property rights. b. setting a tax equal to the external cost of overusing common resources. c. removing restrictions to increase access to common resources. d. both a and b. e. all of the above.

answer

d

question

The three major types of firms in the United States are called a. Sole proprietorships, partnerships, and corporations. b. Small businesses, limited liability firms, and corporations. c. sole proprietorships, not-for-profit companies, and government agencies. d. non-profit corporations, government agencies, and limited liability firms.

answer

a

question

______ _______ means that share holders in a corporation cannot lose more than their investment in the firm.

answer

Limited Liability

question

The government grants limited liability to the owners of corporations to limit shareholder risk and thus ______ investment in corporations.

answer

encourage

question

Supposed that shortly after graduating from college you decide to start your own business. Assuming you are starting a small business and want it to be your business alone, which category of firm are you most likely to start?

answer

Sole proprietorship

question

The establishment of limited liability for the owners of corporations causes the businesses to produce ____ and over time the country's production possibilities frontier shifts to the _____.

answer

more, right

question

_______ have greater ability to raise funds.

answer

Corporations

question

_______ are costly to organize.

answer

Corporations

question

______ account for the most profit in the United States.

answer

Corporations

question

______ own the corporation, but it is controlled by _______.

answer

Shareholders, managers

question

A _____ represents a loan to the company.

answer

bond

question

A _____ represents part ownership of the company.

answer

stock

question

A competitor launches a search engine that is just as good as Googles. The price of Google's stock would be expected to ______.

answer

fall

question

The corporate income tax is abolished. The price of Google's stock would be expected to ______.

answer

rise

question

Google's board of directors becomes dominated by close friends and relatives of its top management. The price of Google's stock would be expected to ______.

answer

fall

question

The price of wireless Internet connections unexpectedly drops, somore and more people use the Internet. The price of Google's stock would be expected to ______.

answer

rise

question

Suppose Ford Motor Company issues bonds with a face value of $1,000 and an annual coupon payment of $20. What is the interest rate Ford is paying on the borrowed funds?

answer

2%

question

A firm's ______ cost is its monetary cost whereas its _____ cost is its non monetary opportunity cost.

answer

explicit, implicit

question

Suppose a business earned a positive accounting profit, but a negative economic profit, then it will be very _____ for the firm to remain in business in the long run.

answer

unlikely

question

The ____ ____ act requires that CEOs of corporations certify the accuracy of financial statements.

answer

Sarbanes Oxley

question

A firm owned by a single individual and not organized as a corporation.

answer

Sole Proprietorship

question

A firm owned jointly by two or more persons and not organized as a corporation.

answer

Partnership

question

A legal form of business that provides owners with protection from losing more than their investment should the business fail.

answer

Corporation

question

Anything of value owned by a person or a firm.

answer

Asset

question

The legal provision that shields owners of a corporation from losing more than they have invested in the firm.

answer

Limited Liability

question

The way in which a corporation is structure and the effect that structure has on the corporation's behavior.

answer

Corporate Governance

question

A problem caused by an agent pursuing his own interests rather than the interests of the principal who hired him.

answer

Principal Agent Problem

question

A flow of funds from savers to borrowers through financial intermediaries such as banks. Intermediaries raise funds from savers to lend to firms (and other borrowers).

answer

Indirect Finance

question

A flow of funds from savers to firms through financial markets, such as the New York Stock Exchange.

answer

Direct Finance

question

A financial security that represents a promise to repay a fixed amount of funds.

answer

Bond

question

An interest payment on a bond.

answer

Coupon

question

The cost of borrowing funds, usually expressed as a percentage of the amount borrowed.

answer

Interest Rate

question

A financial security that represents partial ownership of a firm.

answer

Stock

question

Payments by a corporation to its shareholders.

answer

Dividends

question

Anything owed by a person or a firm.

answer

Liability

question

A firm's net income, measured as revenue minus operating expenses and taxes paid.

answer

Accounting Profit

question

The highest valued alternative that must be given up to engage in an activity.

answer

Opportunity Cost

question

A cost that involves spending money.

answer

Explicit Cost

question

A nonmonetary opportunity cost.

answer

Implicit Cost

question

A firm's revenues minus all of its implicit and explicit costs.

answer

Economic Profit

question

The processes a firm uses to turn inputs into outputs of goods and services.

answer

technology

question

A change in the ability of a firm to produce a given level of output with a given quantity of inputs.

answer

technological change

question

The period of time during which at least one of a firm's inputs is fixed.

answer

Short Run

question

The period of time in which a firm can vary all its inputs, adopt new technology, and increase or decrease the size of its physical plant.

answer

Long Run

question

The cost of all the inputs a firm uses in production

answer

Total Cost

question

Costs that change as output changes.

answer

Variable Cost

question

Costs that remain constant as output changes.

answer

Fixed Costs

question

The highest valued alternative that must be given up to engage in an activity.

answer

Opportunity Cost

question

A cost that involves spending money

answer

Explicit Cost

question

A nonmonetary opportunity cost.

answer

Implicit Cost

question

The relationship between the inputs employed by a firm and the maximum output it can produce with those inputs.

answer

Production Function

question

Total cost divided by the quantity of output produced.

answer

Average Total Cost

question

The additional output a firm produces as a result of hiring one more worker.

answer

Margin Product of Labor

question

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

answer

Law of Diminishing Returns

question

The total output produced by a firm divided by the quantity of workers.

answer

Average Product of Labor

question

The change in a firm's total cost from producing one more unit of a good or service.

answer

Marginal Cost

question

A curve that shows the lowest cost at which a firm is able to produce a given quantity of output in the long run, when no inputs are fixed.

answer

Long-run average cost curve

question

The situation when a firm's long-run average costs fall as it increase the quantity of output it produces.

answer

Economies of scale

question

The situation in which a firms long-run average costs remain unchanged as it increases output.

answer

Constant returns to scale

question

the lvel of output at which all economies of scale are exhaused.

answer

Minimum efficient scale

question

The situation in which a firms long run average costs rise as the firm increases output.

answer

Diseconomies of scale

question

A firm is able to cut each worker's wage rate by 10% and still produce the same level of output. True or False: This is an example of positive technological change.

answer

False

question

A training program makes a firm's workers more productive. True or False: This is an example of positive technological change.

answer

True

question

An exercise program makes a firm's workers more healthy and productive. True or False: This is an example of positive technological change.

answer

True

question

A firm cuts its workforce and is able to maintain its initial level of output. True or False: This is an example of positive technological change.

answer

True

question

A firm rearranges the layout of its factory and finds that by using its initial set of inputs, it can produce exactly as much as before. True or False: This is an example of positive technological change.

answer

False

question

In economics, the best definition of technology is a. The development of new products. b. The process a firm uses to turn inputs into outputs c. The process a firm uses to price output d. the sophistication of the equipment enjoyed by consumers e. the speed of communication

answer

b

question

Is the amount of time that separates the short run from the long run from the same for every firm?

answer

no

question

Which of the following is most likely to be a fixed cost for a farmer? a. insurance premiums on propety b. wages paid to farm workers c. cost of fertilizer d. cost of seeds

answer

a

question

Which of the following is most likely to a variable cost for a business firm? a. rent on the office building b. cost of shipping products c. property taxes d. interest on long-term outstanding bonds

answer

b

question

A firm's _______ ______ is best described as illustrating the relationship between inputs and the maximum amounts of output that the firm can produce with these inputs.

answer

production function

question

A short-run production function holds constant the amount of _______.

answer

capital

question

A insurance policy payment is a _______ cost.

answer

fixed

question

Purchasing pizza dough is a _______ cost.

answer

variable

question

The wages a firm pays workers is a ______ cost.

answer

variable

question

The law of diminishing returns applies in the _____ run.

answer

short

question

For a market to be ______ ______, there must be many buyers and sellers, with all firms selling identical products, and no barriers to new firms entering the market.

answer

perfectly competitive

question

A _____ ______ is a firm that is unable to affect the market price.

answer

price taker

question

A firm is likely to be a price taker when it represents a _____ fraction of the total market.

answer

small

question

Wheat Farming a. Perfectly Competitive? (Yes/No) b. Number of Firms? (Few, Many, One) c. Type of Product (Identical, Differentiated) d. Easy of entry (High, Low) Format a,b,c,d

answer

Yes, many, identical, High

question

Retail Bookselling a. Perfectly Competitive? (Yes/No) b. Number of Firms? (Few, Many, One) c. Type of Product (Identical, Differentiated) d. Easy of entry (High, Low) Format a,b,c,d

answer

No, many, differentiated, high

question

Manufacturing Automobiles a. Perfectly Competitive? (Yes/No) b. Number of Firms? (Few, Many, One) c. Type of Product (Identical, Differentiated) d. Easy of entry (High, Low) Format a,b,c,d

answer

No, few, differentiated, low

question

Office building Construction a. Perfectly Competitive? (Yes/No) b. Number of Firms? (Few, Many, One) c. Type of Product (Identical, Differentiated) d. Easy of entry (High, Low) Format a,b,c,d

answer

No, Few, Differentiated, Low

question

The increase in total revenue that results from selling one more unit of output

answer

marginal revenue

question

In the short run, a firm's shutdown point is the minimum point on the average _____ cost curve, while in the long run, a firm's exit point is the the minimum point on the average _____ cost curve.

answer

variable, total

question

There are _____ ______ in the short run, but not in the long run.

answer

fixed costs

question

The _______ supply curve is derived by horizontally adding the individual firms' supply curves.

answer

market

question

A state of the economy in which production is in accordance with consumer preferences.

answer

Allocative Efficiency

question

The situation in which a firm's total revenue is less than its total cost, including all implicit costs.

answer

Economic Loss

question

A cost that has already been paid and cannot be recovered.

answer

Sunk Cost

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