Question 1
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 2
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 3
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 4
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 5
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 6
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 7
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 8
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 9
Which of the following would NOT be considered a public good?
A. national defense
B. radio broadcasts
C. police protection
D. a newspaper
Question 10
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 11
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 12
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 13
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 14
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 15
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 16
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 17
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 18
Which of the following would be classified as an external cost?
A. As more firms began hiring computer programmers, the salaries of computer programmers increased and therefore the firm's cost of production increased.
B. You eat too much pizza and end up with a stomach ache.
C. You are not able to study at night because there is so much noise coming from the dorm room next to yours.
D. When you purchase a prescription drug you are not made fully aware of all the possible side effects that may result from taking the drug.
Question 19
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 20
Chris buys pizza for his football party and he gets to decide who will have a slice of his pizza. This means his pizza is __________ .
A. nonrival and nonexcludable
B. a private good
C. a public good
D. rival, but nonexcludable
Question 21
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 22
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 23
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 24
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 25
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 26
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 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 of 40
2.5 Points
Suppose that MUx / Px < MUy / Py . This implies 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 29
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 30
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 31
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 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
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 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
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 36
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 37
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 38
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 39
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 40
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
