question
A country is using a proportional tax when
answer
its marginal tax rate equals its average tax rate
question
An efficient tax system is one that
answer
imposes small deadweight losses and small administrative burdens
question
Rick buys a 1966 Mustang for $3,000, planning to restore and sell the car. He goes on to spend $9,000 restoring the car. At this point he can sell the car for $10,000. As an alternative, he can spend an additional $3,0
answer
indifferent between both options
question
Suppose that the demand for digital cameras is elastic, and the supply of digital cameras is inelastic. A tax of $20 per camera levied on digital cameras will decrease the effective price received by sellers of digital cameras by
answer
between $10 and $20.
question
Under which of the following market structures would consumers likely pay the highest price for a product?
answer
monopoly
question
Firm A produces and sells in a market that is characterized by highly differentiated consumer goods. Firm B produces and sells industrial products. Firm C produces and sells an agricultural commodity. Which firm is likely to spend the greatest portion of its total revenue on advertising?
answer
firm A (highly differentiated consumer goods)
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normative statement
answer
statement which describes how the world should be
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positive statement
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statement which describes the world as it is
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Which of the following would likely have the smallest deadweight loss relative to the tax revenue?
answer
a head tax (that is, a tax everyone must pay regardless of what one does or buys)
question
What formula is an example of a negative income tax proposal?
answer
Taxes Owed = (1/3 of Income) - $10,000
question
Which of the following statements illustrates diminishing marginal utility?
answer
An extra dollar of income to a poor person provides that person with more additional utility than does an extra dollar to a rich person.
question
Assume that the government proposes a negative income tax that calculates the taxes owed as follows: Taxes Owed = (1/3 × Income) - 10,000. If a family doesn't earn any income, how does the negative income tax affect it?
answer
It will receive an income subsidy of $10,000.
question
What event could decrease the demand for labor?
answer
A decrease in demand for the final product produced by labor
question
Suppose that workers from northern Minnesota, North Dakota, and Montana decide to emigrate to southern Canada. In the labor market in southern Canada, the equilibrium wage
answer
will fall, and the equilibrium quantity of labor will rise.
question
John owns a number of hot dog stands in New York City. He hires workers to sell hot dogs at his stands. What event will lead to a decrease in John's demand for hot dog vendors?
answer
The price of hot dogs falls.
question
Suppose that a given firm experiences decreasing marginal product of labor with the addition of each worker regardless of the current output level. Average total cost will be
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U-shaped.
question
Today's demand curve for gasoline could shift in response to a change in
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the expected future price of gasoline.
question
Music compact discs are normal goods. What will happen to the equilibrium price and quantity of music compact discs if musicians accept lower royalties, compact disc players become cheaper, more firms start producing music compact discs, and music lovers experience an increase in income?
answer
Quantity will rise, and the effect on price is ambiguous.
question
Granting a pharmaceutical company a patent for a new medicine will lead to
answer
- a product that is priced higher than it would be without the exclusive rights.
- incentives for pharmaceutical companies to invest in research and development.
- incentives for pharmaceutical companies to invest in research and development.
question
A profit-maximizing monopolist charges a price of $12. The intersection of the marginal revenue and marginal cost curves occurs where output is 10 units and marginal cost is $6. Average total cost for 10 units of output is $5. What is the monopolist's profit?
answer
$70
question
The after-school tutoring industry is competitive, and so is the labor market for after-school tutors. Suppose male and female tutors have equal experience and skill. Currently, some tutoring centers are biased and will only hire male tutors, while unbiased tutoring centers desire to hire the cheapest tutors and do not care about their genders. As a result, the equilibrium wage for male tutors is higher than that of female tutors.
If consumers do not discriminate between biased and unbiased tutoring centers, then
If consumers do not discriminate between biased and unbiased tutoring centers, then
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unbiased tutoring centers will be more profitable than biased tutoring centers in the short run.
question
Which of the following statements is not correct?
answer
If discriminating wage differentials persist in competitive markets, it is primarily because employers chose to discriminate even in spite of customer preferences.
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Which of the following moves the wage above its equilibrium value?
answer
efficiency wages but not compensating differentials
question
Park rangers at Yellowstone National Park are known to have low wages. This is probably because
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their jobs are perceived to be "fun"
question
Suppose that a firm operating in perfectly competitive market sells 100 units of output. Its total revenues from the sale are $500. Meaning...
answer
Marginal revenue equals $5.
Average revenue equals $5.
Price equals $5.
Average revenue equals $5.
Price equals $5.
question
Robin owns a horse stables and riding academy and gives riding lessons for children at "pony camp." Her business operates in a competitive industry. Robin gives riding lessons to 20 children per month. Her monthly total revenue is $4,000. The marginal cost of pony camp is $200 per child. In order to maximize profits, Robin should
answer
continue to give riding lessons to 20 children per month.
question
A competitive firm has been selling its output for $20 per unit and has been maximizing its profit, which is positive. Then, the price rises to $25, and the firm makes whatever adjustments are necessary to maximize its profit at the now-higher price. Once the firm has adjusted, its
answer
quantity of output is higher than it was previously.
average total cost is higher than it was previously.
marginal revenue is higher than it was previously.
average total cost is higher than it was previously.
marginal revenue is higher than it was previously.
question
Suppose that cookie producers create a positive externality equal to $2 per dozen. What is the relationship between the equilibrium quantity and the socially optimal quantity of cookies to be produced?
answer
The equilibrium quantity is less than the socially optimal quantity.
question
Suppose that Bill wants to dine at a fancy restaurant, but the only available table is in the smoking section. Bill dislikes the smell of cigarette smoke. He notices that only one person, Peter, is smoking in the smoking section. Bill values the absence of smoke at $15. Peter values the ability to smoke in the restaurant at $10. In order for Bill to pay Peter not to smoke, he will need to tip the waiter $10 to facilitate the transaction. Which of the following represents an efficient solution?
answer
Peter continues to smoke because the cost to Bill to pay him not to smoke is between $20 and $25, which exceeds the benefit to him of no smoking ($15).
question
Cameron lives in an apartment building and gets a $700 benefit from playing his stereo. Renee, who lives next door to Cameron and often loses sleep due to the music coming from Cameron's stereo, bears a $1,000 cost from the noise. At which of the following offers from Renee could both Renee and Cameron benefit from the silencing of Cameron's stereo?
answer
$750
question
A drought in California destroys many red grapes. As a result of the drought, the consumer surplus in the market for red grapes
answer
decreases, and the consumer surplus in the market for red wine decreases.
question
Dallas buys strawberries, and he would be willing to pay more than he now pays. Suppose that Dallas has a change in his tastes such that he values strawberries more than before. If the market price is the same as before, then
answer
Dallas's consumer surplus would increase.
question
Assume for Brazil that the opportunity cost of each cashew is 100 peanuts. Which of these pairs of points could be on Brazil's production possibilities frontier?
answer
(200 cashews, 30,000 peanuts) and (150 cashews, 35,000 peanuts)
question
Ken places a $20 value on a cigar, and Mark places a $17 value on it. The equilibrium price for this brand of cigar is $15.
Refer to Scenario 12-1.Suppose the government levies a tax of $1 on each cigar, and the equilibrium price of a cigar increases to $16. Because total consumer surplus has
Refer to Scenario 12-1.Suppose the government levies a tax of $1 on each cigar, and the equilibrium price of a cigar increases to $16. Because total consumer surplus has
answer
fallen by exactly the amount of the tax revenue, the tax has no deadweight loss.
question
When the government prevents prices from adjusting naturally to supply and demand,
answer
it adversely affects the allocation of resources.
question
Consider Paul's decision to go to college. If he goes to college, he will spend $90,000 on tuition, $15,000 on room and board, and $7,000 on books. If he does not go to college, he will earn $22,000 working at a construction job and he will spend $11,000 on room and board. Paul's cost of going to college is
answer
123,000$
question
Consider the US market for chocolate, a market in which the government has imposed a price ceiling. Which of the following events could convert the price ceiling from a nonbinding to a binding price ceiling?
answer
a sharp drop in consumer income; chocolate is a normal good.
question
When a new firm enters a monopolistically competitive market, the individual demand curves faced by all existing firms in that market will
answer
shift to the right
question
A monopolistically competitive firm is currently earning a positive economic profit. If other firms enter the market, we would expect that the added competition will cause this firm to adjust its output such that it
answer
will operate further from its efficient scale.
question
The Hicks family owns a blueberry farm in Maine. The Ward family owns a blueberry farm in Massachusetts. A drought in Massachusetts destroys half of the Ward family's harvest for one year. For the Ward family, their
answer
permanent income likely exceeds their transitory income for the year of the drought.
question
If one firm left a duopoly market where the firms did not cooperate then
answer
price would rise and quantity would fall.
question
If the value of the marginal product of labor exceeds the wage, then the firm could
answer
increase profit by hiring additional labor.
question
Suppose that a given firm experiences decreasing marginal product of labor with the addition of each worker regardless of the current output level.
Refer to Scenario 13-20.Average total cost will be
Refer to Scenario 13-20.Average total cost will be
answer
u shaped
question
Suppose that for a particular firm the only variable input into the production process is labor and that output equals zero when no workers are hired. In addition, suppose that when four units of output are produced, the total cost is $175, and the average variable cost is $33.75. What would the average fixed cost be if ten units were produced?
answer
$40
question
A profit-maximizing monopolist charges a price of $12. The intersection of the marginal revenue and marginal cost curves occurs where output is 10 units and marginal cost is $6. Average total cost for 10 units of output is $5. What is the monopolist's profit?
answer
$70
question
Granting a pharmaceutical company a patent for a new medicine will lead to
(i)
a product that is priced higher than it would be without the exclusive rights.
(ii)
incentives for pharmaceutical companies to invest in research and development.
(iii)
higher quantities of output than without the patent.
(i)
a product that is priced higher than it would be without the exclusive rights.
(ii)
incentives for pharmaceutical companies to invest in research and development.
(iii)
higher quantities of output than without the patent.
answer
i and ii
question
Suppose that an employer can hire workers with brown hair and workers with blonde hair. Each type of worker has the same productivity. Which of the following is correct if the employer discriminates by hiring only workers with brown hair?
answer
The employer will face higher costs than firms that focus only on maximizing profits.
question
Evidence of differences in the average wages of black workers compared to white workers
answer
does not alone provide conclusive evidence of discrimination.
question
In order to explain the changing gap in earnings between skilled and unskilled workers in recent years, economists have proposed two hypotheses. One hypothesis emphasizes
answer
the increasing importance of international trade.
question
Your younger sister needs $50 to buy a new bike. She has opened a lemonade stand to make the money she needs. Your mother is paying for all of the ingredients. She currently is charging 25 cents per cup, but she wants to adjust her price to earn the $50 faster. If you know that the demand for lemonade is elastic, what is your advice to her?
answer
lower the price to increase revenue
question
Tyler purchases 5 pounds of hot dogs per month when his monthly income is $2,000 and 4 pounds of hot dogs per month when his monthly income is $2,200. Tyler's income elasticity of demand for hot dogs is
answer
-2.33, and hot dogs are an inferior good.
question
Robin owns a horse stables and riding academy and gives riding lessons for children at "pony camp." Her business operates in a competitive industry. Robin gives riding lessons to 20 children per month. Her monthly total revenue is $4,000. The marginal cost of pony camp is $200 per child. In order to maximize profits, Robin should
answer
continue giving lessons to 20 kids a month
question
Suppose that an MBA degree creates no externality because the benefits of an MBA are internalized by the student in the form of higher wages. If the government offers subsidies for MBAs, then which of the following statements is correct?
answer
The equilibrium quantity of MBAs will be greater than the socially optimal quantity of MBAs.
question
Joe's Juice Shop operates in a monopolistically competitive market. Joe's is currently producing where its average total cost is minimized. In the long run we would expect Joe's output to
answer
decrease and average total cost to increase.
question
When a firm hires labor up to the point where the wage is equal to the value of the marginal product of labor, it is
answer
maximizing profit.
question
Which of the following factors does not affect the value of a worker's marginal product?
answer
a worker's level of disposable income
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