1.The law of diminishing returns states that ______________.
adding more of one factor of production eventually yields smaller increases in output
2. How do economic profit and accounting profit differ?
Economic profit includes implicit (opportunity) costs and accounting profit does not.
3. Economic costs include _______________.
accounting costs plus opportunity costs
4. Which of the following are variable costs?
Employee wages and raw materials
5. The production function gives the relationship between:
a given combination of inputs and all possible levels of output
6. Total cost is equal to ___________.
Fixed cost plus variable cost
7. Which of the following is NOT a reason for market failure?
Abundance of public goods
8. Which of the following is an example of government regulation?
The legal prohibition of an act with negative externalities
9. How do corrective taxes address negative externalities?
By increasing the private cost of producing a good or service generating the externality
10. Which of the following is a public good?
Clean air
11. A firm sells boxes of cereal for $5 each. With 20 workers the firm produces 80 boxes an hour, and with 21 workers it produces 82 boxes an hour. If the firm has 21 workers at the competitive equilibrium, what is the MRPL and what is the wage rate?
$10; $10
12. According to economic theory, wages are correlated with _____________.
the marginal revenue product of labor
13. Which of the following is a possible contributor to racial wage differentials?
All of these answers
14. Which of the following could shift a firm’s labor demand curve?
All of these answers
15. Which of the following is equivalent to the marginal revenue product of labor?
The marginal product of labor multiplied by the price of output
16. A competitive employer will hire additional labor as long as:
MRPL exceeds the wage rate
17. A factory is an example of which type of factor of production?
Capital.
18. According to Coase, what conditions must be met in order for a private solution to externalities to be successful?
Well defined property rights and no transaction costs
19. To solve the problem of externality, all of the following are valid measures except:
The use of government regulations
20. Which of the following is an example of a permit system?
Entities purchase the rights to produce a given amount of negative externalities
21. Which of the following is an example of an individual who is not involved in a transaction but is bearing some cost?
An individual exposed to secondhand smoke
22. Why is the Coase theorem often inapplicable to real world situations?
Transaction costs are rarely low
23. Levying environmental taxes and creating cap-and-trade quotas for emissions are both methods governments may use to reduce negative externalities. Which of the following best explains the economic rationale behind these policies?The policies ____.
place a monetary price on social costs so firms can guage their true costs accordingly
24. Which of these is true about the backward-bending supply curve of labor theory?
At low wage levels the substitution effect dominates the income effect
25. A chemical plant is located close to a river and the residue from the plant sometimes drains into that river. Although this act of polluting the river is not taken into account by the firm, this “negative externality†results in:
The firm’s social marginal costs exceeding the firm’s private marginal costs
26. Consider an individual who decides to pursue higher education. Who might experience positive externalities from this decision?
Members of society who benefit from a more productive community
27. When is it appropriate for a government to provide a subsidy?
When a transaction has positive externalities
28. What is the primary activity of unions?
Negotiating
29. A worker takes a position in a dangerous area and receives hazard pay. This is an example of which of the following wage differentials?
Compensating differential
30. Which of these may be a topic of collective bargaining between a union and an employer?
All of these answers
31. In the case of positive externalities, social marginal benefits __________ private marginal benefits.
exceed
32. At equilibrium, an additional unit of capital increases output by 30 and is associated with additional $300 in labor cost. If the wage rate is $20/hour, what is the marginal product of labor?
2 units of output
33. If the demand for labor increases and the supply of labor remains unchanged, what will happen to the wage rate?
Wages will increase
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