Micro Exam 3

1. Imagine a 2,000-acre park with picnic benches, trees, and a pond. Suppose it is publicly owned, and people are invited to enjoy its beauty. When the weather is nice, it is difficult to find parking on summer afternoons. Otherwise, it is a great place. An efficient solution to the parking problem would be to
a. prohibit parking in the vicinity of the park.
b. charge higher prices for parking at busy times.
c. police the parking area and ticket cars that are parked illegally.
d. do nothing.
1. Imagine a 2,000-acre park with picnic benches, trees, and a pond. Suppose it is publicly owned, and people are invited to enjoy its beauty. When the weather is nice, it is difficult to find parking on summer afternoons. Otherwise, it is a great place. An efficient solution to the parking problem would be to
a. prohibit parking in the vicinity of the park.
b. charge higher prices for parking at busy times.
c. police the parking area and ticket cars that are parked illegally.
d. do nothing.
2. Road Rage is a town of 50 people with no stoplights or road signs. Suppose that each resident values a stoplight at $12.8. Suppose that the cost of providing a stoplight is $40. Which of the following is true?
a. The efficient number of stoplights will be privately provided by the market.
b. Too few stoplights will be privately provided by the market.
c. Too many stoplights will be privately provided by the market.
d. The efficient number of stoplights would be privately provided if each person valued a stoplight at $100.
2. Road Rage is a town of 50 people with no stoplights or road signs. Suppose that each resident values a stoplight at $12.8. Suppose that the cost of providing a stoplight is $40. Which of the following is true?
a. The efficient number of stoplights will be privately provided by the market.
b. Too few stoplights will be privately provided by the market.
c. Too many stoplights will be privately provided by the market.
d. The efficient number of stoplights would be privately provided if each person valued a stoplight at $100.
3. The government provides public goods because
a. private markets are incapable of producing these types of goods.
b. free-riders make it difficult for private markets to supply the socially optimal quantity.
c. markets are always better off with some government oversight.
d. external benefits will accrue to private producers.
3. The government provides public goods because
a. private markets are incapable of producing these types of goods.
b. free-riders make it difficult for private markets to supply the socially optimal quantity.
c. markets are always better off with some government oversight.
d. external benefits will accrue to private producers.
4. An externality is an example of
a. a corrective tax.
b. a tradable pollution permit.
c. a market failure.
d. Both a and b are correct.
4. An externality is an example of
a. a corrective tax.
b. a tradable pollution permit.
c. a market failure.
d. Both a and b are correct.
5. All externalities
a. cause markets to fail to allocate resources efficiently.
b. cause equilibrium prices to be too high.
c. benefit producers at the expense of consumers.
d. cause equilibrium prices to be too low.
5. All externalities
a. cause markets to fail to allocate resources efficiently.
b. cause equilibrium prices to be too high.
c. benefit producers at the expense of consumers.
d. cause equilibrium prices to be too low.
6. Which of the following statements is not correct?
a. Government policies may improve the market’s allocation of resources when negative externalities are present.
b. Government policies may improve the market’s allocation of resources when positive externalities are present.
c. A positive externality is an example of a market failure.
d. Without government intervention, the market will tend to undersupply products that produce negative externalities.
6. Which of the following statements is not correct?
a. Government policies may improve the market’s allocation of resources when negative externalities are present.
b. Government policies may improve the market’s allocation of resources when positive externalities are present.
c. A positive externality is an example of a market failure.
d. Without government intervention, the market will tend to undersupply products that produce negative externalities.
7. All remedies for externalities share the goal of
a. moving the allocation of resources toward the market equilibrium.
b. moving the allocation of resources toward the socially optimal equilibrium.
c. increasing the allocation of resources.
d. decreasing the allocation of resources.
7. All remedies for externalities share the goal of
a. moving the allocation of resources toward the market equilibrium.
b. moving the allocation of resources toward the socially optimal equilibrium.
c. increasing the allocation of resources.
d. decreasing the allocation of resources.
This figure reflects the market for outdoor concerts in a public park surrounded by residential neighborhoods.

Figure 10-3

8. Refer to Figure 10-3. The difference between the MSC curve and the MPC curve reflects the
a. profit margin of each concert.
b. external costs from the concert (e.g., noise and traffic).
c. value of concerts to society as a whole.
d. amount by which the city should subsidize the concert organizers.

This figure reflects the market for outdoor concerts in a public park surrounded by residential neighborhoods.

Figure 10-3

8. Refer to Figure 10-3. The difference between the MSC curve and the MPC curve reflects the
a. profit margin of each concert.
b. external costs from the concert (e.g., noise and traffic).
c. value of concerts to society as a whole.
d. amount by which the city should subsidize the concert organizers.

This figure reflects the market for outdoor concerts in a public park surrounded by residential neighborhoods.
Figure 10-3
8. Refer to Figure 10-3. The difference between the MSC curve and the MPC curve reflects the
a. profit margin of each concert.
b. external costs from the concert (e.g., noise and traffic).
c. value of concerts to society as a whole.
d. amount by which the city should subsidize the concert organizers.
B
9. Refer to Figure 10-3. At the private market outcome, the equilibrium price will be
a. P0.
b. P1.
c. P2.
d. None of the above is correct.
B
B
10. Refer to Figure 10-3. What price and quantity combination best represents the optimum price and number of concerts that should be organized (social optimum)?
a. P1, Q1
b. P2, Q0
c. P2, Q1
d. The optimum quantity is zero concerts as long as residents in surrounding neighborhoods are adversely affected by noise and congestion.
B
D
11. Altering incentives so that people take account of the external effects of their actions
a. is called internalizing the externality.
b. can be done by imposing a corrective tax.
c. is the role of government in markets with externalities.
d. all of the above.
A
12. Suppose that alcohol consumption creates a negative externality. What can the government do to equate the equilibrium quantity of alcohol and the socially optimal quantity of alcohol?
a. impose a tax on alcohol that is equal to the per-unit externality
b. offer a subsidy on alcohol that is equal to the per-unit externality
c. impose a regulation limiting the amount of alcohol that each consumer can purchase
d. nothing
A
13. Research into new technologies
a. provides positive externalities because it creates knowledge others can use.
b. results in negative externalities because government funding for research causes less government spending in other areas.
c. is protected by patent laws, which eliminates the need for government intervention.
d. should only be funded by the corporations that will receive the profits from the research.
B
14. Goods that are not rival in consumption include both
a. private goods and common resources.
b. natural monopolies and public goods.
c. common resources and public goods.
d. private goods and natural monopolies.
A
15. When a good is rival in consumption,
a. one person’s use of the good diminishes another person’s ability to use it.
b. people can be prevented from using the good.
c. no more than one person can use the good at the same time.
d. everyone will be excluded from obtaining the good.
A
16. A cheeseburger is
a. excludable and rival in consumption.
b. excludable and nonrival in consumption.
c. nonexcludable and rival in consumption.
d. nonexcludable and nonrival in consumption.
C
17. Suppose that everyone prefers to live in a society without poverty. Further suppose that some private charities are successful in reducing poverty. People who do not contribute to the charities
a. receive no external benefit from private antipoverty programs.
b. decrease the reliance of individuals on antipoverty programs.
c. can free ride on the generosity of others.
d. are most likely to be in favor of government-sponsored programs.
B
18. The Tragedy of the Commons describes
a. government regulation that is necessary to combat externalities.
b. overuse of a common resource relative to its economically efficient use.
c. the nonrivalry feature of a common resource.
d. an effective cost-benefit analysis.
C
Consider the following daily production data for Wills Golf Balls. Wills sells golf balls for $2.50 cents each and pays the workers a wage of $325 per day.

19. Refer to Table 18-4. What is the third worker’s marginal product of labor?
a. 120 golf balls
b. 140 golf balls
c. 160 golf balls
d. 180 golf balls

C
B
The following table shows the production function for a particular business. The numbers represent the various labor and output combinations the firm may choose for its output on a daily basis.

20. Refer to Table 18-2. What is the marginal product of the third unit of labor?
a. 40 units
b. 50 units
c. 60 units
d. 180 units

B
A
21. Refer to Table 18-2. What is the marginal product of the fifth unit of labor?
a. 30 units
b. 40 units
c. 50 units
d. 250 units
A
A
22. Refer to Table 18-2. Suppose this firm is perfectly competitive and charges a price of $5 per unit of output and pays workers a wage equal to $160 per day. What is the marginal revenue product of labor for the second worker?
a. $300
b. $650
c. $9,600
d. $20,800
A
C
23. Refer to Table 18-2. Suppose this firm charges a price of $5 per unit of output and pays workers a wage equal to $160 per day. How many workers should this firm hire to maximize its profit?
a. 2 workers
b. 3 workers
c. 4 workers
d. 5 workers
C
B
24. If the demand curve for computer games shifts to the left, then the value of the marginal product of labor for computer game authors will
a. rise.
b. fall.
c. remain unchanged.
d. rise or fall; either is possible.
D
25. A sandwich shop hires workers to make sandwiches and sell them to customers. If the firm is competitive in both the market for sandwiches and in the market for sandwich-makers, then it has
a. some control over both the price of sandwiches and the wage it pays to its workers.
b. no control over the price of sandwiches but some control over the wage it pays to its workers.
c. some control over the price of sandwiches but no control over the wage it pays to its workers.
d. no control over either the price of sandwiches or the wage it pays to its workers.
D
26. Diminishing marginal product is closely related to
a. diminishing total cost.
b. diminishing marginal cost.
c. increasing price.
d. increasing marginal cost.
D
27. Which of the following events would bring about a change in the value of the marginal product of labor?
a. Technological progress
b. A change in the marginal product of labor
c. A change in the price of the product that the firm sells
d. All of the above are correct.
D
28. When a firm hires labor up to the point where the wage is equal to the marginal revenue product of labor, it is
a. minimizing labor costs.
b. guaranteeing that labor costs do not exceed fixed costs.
c. maximizing the number of workers it can hire and still experience a positive profit.
d. maximizing profit.
C
29. Immigration of workers into the United States is often an important source of
a. increases in the demand for labor in the United States.
b. decreases in the demand for labor in the United States.
c. increases in the supply of labor in the United States.
d. decreases in the supply of labor in the United States.
C
30. Labor-augmenting technology causes which of the following?
(i) The marginal productivity of labor increases.
(ii) The marginal productivity of labor decreases.
(iii) Labor demand shifts to the right.
(iv) Labor demand shifts to the left.

a. (i) only
b. (ii) only
c. (i) and (iii)
d. (ii) and (iv)

B
31. A competitive firm sells its output for $30 per unit. The marginal product of the 10th worker is 20 units of output per day; the marginal product of the 11th worker is 16 units of output per day. The firm pays its workers a wage of $150 per day.
a. For the 11th worker, the marginal revenue product of labor is $120.
b. For the 11th worker, the marginal revenue product of labor is $480.
c. For the 11th worker, the marginal revenue product of labor is $600.
d. For the 11th worker, the marginal revenue product of labor is $2,400.
C
32. What happens to the labor supply curves in both countries when Mexican workers leave Mexico and move to the United States?
a. Labor supply decreases in Mexico and decreases in the United States.
b. Labor supply increases in the United States and increases in Mexico.
c. Labor supply increases in the United States and decreases in Mexico.
d. Labor supply increases in Mexico and decreases in United States.
C
33. A household member’s decision about how much labor to supply is most closely linked to
a. the supply of factors of production other than labor.
b. technological change.
c. the tradeoff between leisure and work.
d. immigration trends.
C
34. If Celeste has $47,000 in taxable income, her tax liability will be
a. $6,900.
b. $7,600.
c. $8,400.
d. $11,750.
C
B
35. Medicaid is
a. the government’s health plan for the elderly.
b. the government’s health plan for the poor.
c. another name for Social Security.
d. Both a and c are correct.
A
36. Taxes on specific goods such as gasoline and alcoholic beverages are called
a. excise taxes.
b. payroll taxes.
c. sales taxes.
d. social insurance taxes.
B
37. A tax system where the percentage of income owed in taxes decreases as income increases is called
a. Progressive.
b. Regressive.
c. Flat.
d. Excise.
C
38. Suppose that you are offering health insurance and your customers fall into three categories: Risky (likely to get sick), moderate risk, safe (not likely to get sick). The more risky the customer, the higher the costs to you as demonstrated below in the table. Unfortunately, you cannot identify which type any customer is so you have to offer one price for insurance to all customers. Suppose you believe the probability that the customer is risky is 0.20, the probability of moderate is 0.60, and the probability of being safe of 0.20. In this case, you will offer insurance for a price of _______________

a. 500
b. 1000.
c. 1100.
d. 1400.

C
C
39. In the problem above, if you offer the insurance for the price you calculated in 38, which type of customers will buy insurance?
a. Risky.
b. Moderate.
c. Moderate and Risky
d. Safe.
C
C
40. What causes the labor demand curve to shift?
(i) changes in productivity
(ii) changes in wages
(iii) changes in output prices

a. (i) and (ii)
b. (ii) and (iii)
c. (i) and (iii)
d. All of the above are correct.

D
41. Suppose sellers of liquor are required to send $1.00 to the government for every bottle of liquor they sell. Further, suppose this tax causes the price paid by buyers of liquor to rise by $0.80 per bottle. Which of the following statements is correct?
a. This tax causes the supply curve for liquor to shift upward by $1.00 at each quantity of liquor.
b. The effective price received by sellers is $0.20 per bottle less than it was before the tax.
c. Eighty percent of the burden of the tax falls on buyers.
d. All of the above are correct.
D
42. Refer to the graph above. The price paid by buyers after the tax is imposed is
a. $2.50.
b. $3.50.
c. $5.00.
d. $6.00.
D
B
43. Refer to Figure 10-5. Which price and quantity combination represents the social optimum?
a. P0 and Q1.
b. P2 and Q1.
c. P1 and Q0.
d. P2 and Q0.
B
C
44. Refer to Figure 10-5. Calculate the DWL to society.
a. Q1*P3
b. Q0*P3
c. 0.5(Q0-Q1)(P3-P1)
d. (Q0-Q1)(P3-P1)
C
D
45. Suppose sellers of liquor are required to send $1.00 to the government for every bottle of liquor they sell. Further, suppose this tax causes the price paid by buyers of liquor to rise by $0.80 per bottle. Which of the following statements is correct?
a. This tax causes the supply curve for liquor to shift upward by $1.00 at each quantity of liquor.
b. The effective price received by sellers is $0.20 per bottle less than it was before the tax.
c. Eighty percent of the burden of the tax falls on buyers.
d. All of the above are correct.
D
46. Refer to the graph above. The price paid by buyers after the tax is imposed is
a. $2.50.
b. $3.50.
c. $5.00.
d. $6.00.
D