Question 1
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 2
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 3
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 4
Jamal and Lauren live in the countryside 30 minutes from a city in Virginia. They moved there because they wanted to enjoy the fresh air. After a year of living in their house, the 200 acres that surround their neighborhood were zoned for an industrial property. A paper mill was built on the land and now emits strong gases that can be smelled from miles away. The paper mill's emission of gases is an example of a(n. __________ .
A. public good
B. good that imposes an external cost
C. good that provides an external benefit
D. efficient good
Question 5
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 6
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 7
The study of external costs is a major concern of __________ .
A. labor economics
B. international economics
C. environmental economics
D. macroeconomists
Question 8
Which of the following is an example of an external cost?
A. a loud, crying baby in a public restaurant
B. emissions of methane into the atmosphere
C. a homeowner who likes to mow the lawn at 7 a.m. on Saturday morning
D. all of the above
Question 9
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 10
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 11
By imposing tolls on people who drive during the busiest times, a government would be attempting to __________ .
A. internalize an externality
B. institute a progressive tax
C. externalize an internality
D. encourage driving to generate revenue
Question 12
Reductions in pollution from a specific starting level of existing pollution is called __________ .
A. abatement
B. the EPA
C. command and control
D. usage tax
Question 13
Which of the following would NOT be considered a public good?
A. national defense
B. radio broadcasts
C. police protection
D. a newspaper
Question 14
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 15
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 16
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 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
Which of the following would be typically classified as a public good?
A. postal delivery
B. national defense
C. toll roads
D. college education
Question 19
Taxes on a firm's external costs __________ .
A. are designed to encourage more production
B. are meant to force some firms out of business
C. are simply meant to force decision makers to consider the full costs of their actions
D. are designed primarily as a way to raise money so that the government can compensate the victims of the spillover
Question 20
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 21
Utility can be thought of as the same as __________ .
A. opportunity cost
B. satisfaction
C. choice
D. none of the above
Question 22
Which of the following is a reason why the marginal product increases as output increases?
A. decreasing repetition
B. increasing continuity
C. both A and B
D. neither A nor B
Question 23
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 24
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 25
You own a building that has four possible uses: an Internet cafe, a coffee shop, an ice cream store, and a bookstore. The value of the building in each use is $2,000; $3,000; $4,000; and $5,000, respectively. You decide to open an ice cream store. The opportunity cost of using this building for an ice cream store is __________ .
A. $2,000, the value if the building is used as an Internet cafe
B. $3,000, the value if the building is used as a coffee shop
C. $3,333, the average of the values if the building is used for either an Internet cafe, a coffee shop, or a bookstore
D. $5,000, the value if the building is used for a bookstore
Question 26
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 27
Suppose that Erin spends all of her income on two goods: pizza and fiction novels. If the price of pizza rises, then __________ .
A. the current marginal utility per dollar spent on pizza will rise
B. the current marginal utility per dollar spent on pizza will fall
C. the current marginal utility per dollar spent on fiction novels will rise
D. the current marginal utility per dollar spent on fiction novels will fall
Question 28
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 29
Suppose that a consumer is currently spending all of her income on 10 units of good A and 5 units of good B. The price of good A is $4 per unit, the price of good B is $10 per unit, the marginal utility of the last unit of good A consumed is 20, and the marginal utility of the last unit of good B consumed is 60. If the consumer wants to maximize her utility from consuming the two goods, she should __________ .
A. consume more of good B and less of good A
B. consume more of good A and less of good B
C. continue to consume 10 units of good A and 5 units of good B
D. consume more of both goods
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
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 32
The satisfaction experienced from consuming a good or service is referred to as __________ .
A. utility
B. marginal utility
C. the law of diminishing marginal utility
D. all of the above
Question 33
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
Question 34
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 35
Mario has a company that produces plastic freezer bags. His company objective is to maximize __________ .
A. his company's revenues
B. his company's total out-of-pocket costs
C. his company's opportunity costs of each factor of production
D. his company's economic profits, the difference between total revenue and total cost
Question 36
You are the owner and only employee of a company that repairs computers. Last year, you earned total revenues of $75,000. Your costs for equipment, rent, and supplies were $10,000. To start this business you quit a job at another computer software firm that paid $40,000 a year. During the year, your economic costs were __________ .
A. $10,000
B. $40,000
C. $50,000
D. $75,000
Question 37
You are the owner and only employee of a company that repairs computers. Last year, you earned total revenues of $75,000. Your costs for equipment, rent, and supplies were $10,000. To start this business you quit a job at another computer software firm that paid $40,000 a year. Last year, your economic profits were __________ .
A. $100,000
B. $75,000
C. $50,000
D. $25,000
Question 38
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 39
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 40
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