Questions:
Question 1
In the absence of government, an under-allocation of resources generally exists for __________ .
A. goods with external costs
B. imported goods and services
C. public goods
D. all of the above
Question 2
Once a firm is forced to consider an external cost, the price of its product will __________ .
A. increase and output will decrease
B. increase and output will increase
C. decrease and output will decrease
D. decrease and output will increase
Question 3
The biggest problem with using a tax as a way to solve an externality problem is that __________ .
A. the tax sometimes increases the external cost
B. damages must be estimated in financial terms to determine the correct level of the tax
C. the firm will pass the entire tax onto the consumer
D. the commerce clause forbids such taxes
Question 4
If a producer is imposing an external cost on society, the best response would be to __________ .
A. lower the producer's taxes to offset pollution
B. increase the production
C. internalize the externality
D. subsidize the producer
Question 5
When the government imposes a tax on a firm that generates external costs, the tax is __________ .
A. always borne entirely by the firm
B. always borne entirely by the consumer
C. usually borne by both the firm and the consumer
D. borne only by the government
Question 6
Recall the application about the marginal cost and marginal benefit of reducing methane emissions. What does the optimal level of methane abatement depend on?
A. the level at which the polluting firms are able to maximize their profits
B. the total cost of abatement
C. the marginal benefit of abatement
D. It is not possible to determine an optimal level of methane.
Question 7
Which of the following would be an example of an external benefit?
A. More people start to ride the bus and as a result air pollution is reduced.
B. Firms are able to reduce their costs of production by using a more efficient technology.
C. The government requires polluting firms to pay a special tax.
D. A firm has just gotten permission to open a landfill on property that is adjacent to your home.
Question 8
The idea behind the pollution tax equal to the external cost per unit of pollution is to __________ .
A. increase the social benefit to be above the marginal cost
B. internalize the externality
C. allow the firm to evade external costs
D. drive polluting firms out of developed countries
Question 9
When the government taxes a firm that generates an external cost, the profit maximizing firm will produce __________ .
A. more units of output than before the tax was imposed
B. the same number of units of output as before the tax was imposed
C. fewer units of output than before the tax was imposed
D. either more or fewer units of output than before the tax was imposed
Question 10
Based on society's perspective, what are the benefits from pollution abatement?
A. better health
B. increased enjoyment of the natural environment
C. lower production costs
D. all of the above
Question 11
An external cost of production is __________ .
A. a cost incurred by someone other than the producer
B. the production cost borne by a producer
C. the result of the sum of private and social cost
D. another word for a tax
Question 12
If, while producing goods and services, a factory is producing pollution and not incurring the cost of this pollution, then a(n) __________ exists.
A. government failure
B. market failure
C. acceptable outcome
D. none of the above
Question 13
Sirens located around a town to warn citizens of the approach of a tornado are an example of __________ .
A. an external cost
B. a private good
C. a common resource
D. a public good
Question 14
The government imposes taxes on firms that generate external costs in an effort to __________ .
A. make it easier for economists to measure external costs
B. lead to a zero level of output
C. force decision makers to consider the full costs of their actions
D. lower the firms' costs of production
Question 15
Goods that are nonrival in consumption and that have benefits that are nonexcludable are __________ .
A. private goods
B. neighbor effects
C. public goods
D. none of the above
Question 16
Markets that have external costs will produce __________ output than the socially efficient level, whereas markets that have external benefits will produce __________ output than the socially efficient level.
A. less; less
B. more; more
C. more; less
D. less; more
Question 17
A harbor lighthouse that guides approaching ships is an example of __________ .
A. a public good
B. a private good
C. a monopoly
D. a good that is rival
Question 18
Private goods are __________ .
A. rival in consumption and their benefits are excludable
B. nonrival in consumption and their benefits are excludable
C. nonrival in consumption and their benefits are nonexcludable
D. rival in consumption and their benefits are nonexcludable
Question 19
Public goods are __________ .
A. rival in consumption and their benefits are excludable
B. nonrival in consumption and their benefits are excludable
C. nonrival in consumption and their benefits are nonexcludable
D. rival in consumption and their benefits are nonexcludable
Question 20
If the government taxes a firm that is generating an external cost, the price of the firm's product will __________ .
A. increase and output will decrease
B. increase and output will increase
C. decrease and output will decrease
D. decrease and output will increase
Question 21
The short run can be defined as any period of time __________ .
A. less than one year
B. in which some inputs are fixed
C. in which all inputs are variable
D. in which price is fixed
Question 22
Dan owns a factory that manufactures smartphones. He has many costs every month to keep his factory running. Which of the following is one of Dan's fixed costs?
A. plastic used to make the smartphones
B. his electricity bill for the factory
C. his mortgage on the factory
D. memory devices used to store music and video on the smartphones
Question 23
Dan is an entrepreneur who invests in commercial and residential real estate. He has a savings account with $100,000 that earns 1% APY. Dan wants to buy a house that will give him a monthly cash inflow of $200. What will be the opportunity cost of investing in the house?
A. $1,000
B. $1,200
C. $800
D. $200
Question 24
Juan is consuming three sandwiches and six sodas. If a sandwich costs twice as much as a soda, then __________ .
A. Juan should buy more sodas
B. Juan should buy more sandwiches
C. Juan is maximizing his utility if he derives twice as much utility from the last soda as from the last sandwich
D. Juan is maximizing his utility if he derives twice as much utility from the last sandwich as from the last soda
Question 25
Consumers should allocate their scarce income so that __________ .
A. the marginal utility for all goods consumed is zero
B. the marginal utility for all goods consumed is equal
C. the marginal utility divided by price is equal for all goods consumed
D. the marginal utility divided by price is maximized for all goods consumed
Question 26
Suppose that / A. spending a dollar less on Y and spending a dollar more on X increases utility
B. spending a dollar less on X and spending a dollar more on Y increases utility
C. X is more expensive than Y
D. Y is more expensive than X
Question 27
Brandon eats four slices of pizza on a Sunday night but admits each slice of pizza doesn't taste as delicious as the previous one. This suggests that for Brandon __________ .
A. the marginal utility of a slice of pizza is positive but decreasing
B. the marginal utility of a slice of pizza is negative but increasing
C. the total utility of slice of pizza is declining by larger and larger increments
D. the total utility of slice of pizza is increasing by larger and larger increments
Question 28
Sarah has a savings account with a $1,000 balance that earns 3% APY. She decides to withdraw the entire balance to buy a laptop computer. What will be her opportunity cost in buying the laptop?
A. the cost of the laptop
B. the foregone interest
C. the foregone interest and the cost of the laptop
D. the cost of the laptop minus the foregone interest
Question 29
The equimarginal rule __________ .
A. equates the marginal utility per dollar spent on each good purchased
B. states that in order to maximize utility the consumer should buy more of those goods with a high marginal utility
C. states that in order to maximize utility the consumer should buy more of those goods that cost less
D. none of the above
Question 30
According to the law of diminishing marginal utility __________ .
A. as the consumption of a particular good increases, marginal utility increases
B. as the consumption of a particular good increases, marginal utility decreases
C. total utility is negative
D. Both B and C are correct.
Question 31
The budget line shows __________ .
A. the different combinations of two goods that a consumer can buy
B. the quantity of a single good that a consumer is willing to buy at different prices
C. the maximized utility from a good
D. none of the above
Question 32
Total economic costs include __________ .
A. a normal rate of return
B. out-of-pocket costs
C. opportunity costs of all inputs
D. all of the above
Question 33
The period of time when a firm is unable to change all inputs, or factors of production, is called the __________ .
A. economic term
B. short run
C. accounting term
D. long run
Question 34
Marginal utility is the __________ .
A. total amount of satisfaction gained by the consumption of a good or service
B. additional satisfaction gained by the consumption or use of one more unit of something
C. price of a good relative to the prices of other goods and services
D. comparison of utility between two different people
Question 35
Maxine has a fixed income per month to spend on goods and services, so in allocating her limited income over a set of goods, she should purchase the goods that __________ .
A. have the highest utility regardless of price
B. have the highest marginal utility
C. provide the most utility per dollar spent
D. have equal marginal utilities
Question 36
If marginal product is negative, then __________ .
A. total product will decrease if more of the input is hired
B. total product is equal to zero
C. marginal product will increase if more of the input is hired
D. average product will increase if more of the input is hired
Question 37
A firm's objective is to maximize its economic profit, which is __________ .
A. total revenue minus economic cost
B. total profit minus total cost
C. economic cost minus profit
D. economic cost minus total revenue
Question 38
As more of any one good is consumed in a given period, its __________ .
A. total utility decreases, then remains constant
B. marginal utility decreases
C. total utility decreases, then increases
D. marginal utility increases
Question 39
Which of the following statements about fixed costs is correct?
A. Fixed costs are not opportunity costs.
B. Fixed costs must be paid even if the firm's output is zero.
C. Fixed costs are always the largest portion of total costs.
D. none of the above
Question 40
The principle of opportunity cost is __________ .
A. what someone sacrifices to get something
B. the satisfaction of obtaining the best next alternative
C. the choice someone has to make between two different goods
D. the cost of paying for something someone needs