Microeconomics Exam 3 Terms & Definitions - MSU Study Set

The marginal private benefit curve is also the:

supply curve

marginal external benefit curve minus the marginal social benefit curve

demand curve

marginal personal benefit curve

demand curve

When someone can enjoy the benefits of a good without bearing the cost, the good:

is subject to the free-rider problem

is excludable and rival

is a nonmarket good

is attractive to manufacturers

is subject to the free-rider problem

The marginal private benefit plus the marginal external benefit equals the _____ benefit.

total public

total externality

marginal social

marginal public

marginal social

Marginal social cost equals marginal ______ cost plus marginal ______ cost.

consumer; production

government; private

private; external

public; internal

private; external

When a good is nonrival and nonexcludable, the good is referred to as:

a free-ride benefit good

an external good

a private good

a public good

a public good

A tax designed to induce people to take account of the negative externalities that they cause is referred to as ______ tax.

an externality

an open offset

a corrective

a compensatory

a corrective

A corrective tax designed to resolve a negative externality problem is typically set at an amount equal to the ______ cost.

marginal social

marginal external

total externality

total social

marginal external

Which of the following is the amount of a corrective tax that would resolve a negative externality problem?

the marginal social cost

the total social cost

the total external cost

the marginal external cost

the marginal external cost

An externality is defined as:

the effect of an activity undertaken outside a building rather than inside a building.

an effect of market activity that impacts the opposite side of the market from the side whose decision caused the effect.

a side-effect of an activity that affects bystanders whose interests are not taken into account.

the impact of an activity on buyers and sellers in the market where the activity takes place.

a side-effect of an activity that affects bystanders whose interests are not taken into account

Use the data in Table: Wendy's Windows to answer the question.

If Wendy uses the Rational Rule for Employers, how many workers will she hire?

three

In a labor market, workers ____ labor, and employers _____ labor.

supply; demand

demand; supply

hire; use

use; hire

supply; demand

An employer's labor demand curve is equal to the

marginal revenue product curve

marginal product curve

marginal revenue curve

rational product curve

marginal revenue product curve

The ______________ measures how people respond to a change in relative prices when the wage rises.

substitution effect

income effect

opportunity cost

marginal benefit

substitution effect

An employer should hire one more worker if

the total benefit exceeds the total cost

the marginal cost is falling

the marginal benefit exceeds the marginal cost

demand is rising

the marginal benefit exceeds the marginal cost

When the income effect dominates, an individual's labor supply curve

slopes upward

slopes downward

is horizontal

is vertical

slopes downward

Which graph shows the scenario where the income effect dominates labor supply decisions only at high wages? 2

Graph A 2

When making labor supply decisions, your options are

working or doing homework

working, shopping, or relaxing

working or leisure

working, sleeping, or leisure

working or leisure

The labor demand is a/an ______ demand

modified

imputer

derived

inferred

derived

Workers on the night shift at a factory earn more per hour than workers on the day shift, although their human capital and productivity are the same. This is an example of:

discrimination based on time preferences

irrational decision making by an employer

a compensating differential

an efficiency wage

a compensating differential

The accumulated knowledge and skills that make a worker more productive are known as:

human capital

labor enhancement

labor factoring

efficiency investment

human capital

Which of the following is an example of a labor market characterized by compensating differentials?

a nursery school teacher earns less than a university professor

two real estate agents paid on commission earn different salaries due to different listings and sales volume

adjustments are made to the salaries of teachers in different states to equalize the purchasing power of income

outside window washers of skyscrapers earn higher salaries than outside window washers of single family homes

outside window washers of skyscrapers earn higher salaries than outside window washers of single family homes

An efficiency wage improves efficiency when:

the increase in worker effort and reduced turnover cover the cost of the higher wage

it is structured so that only the most productive workers receive a higher wage

capital costs are reduced enough to cover wage costs

improved technology accompanies the worker training

the increase in worker effort and reduced turnover cover the cost of the higher wage

The government increases the training requirements to obtain an electrician's license. What impact will this have in the labor market for electricians?

the demand for electricians will decrease, resulting in a lower wage and lower quantity of labor.

the demand for electricians will increase, resulting in a higher wage and higher quantity of labor.

the supply of electricians will decrease, resulting in a higher wage and lower quantity of labor.

the supply of electricians will increase, resulting in a lower wage and higher quantity of labor.

the supply of electricians will decrease, resulting in a higher wage and lower quantity of labor

There is evidence that, despite antidiscrimination laws, discrimination _____ in labor markets.

impacts wages

exists but has no impact

benefits groups that are discriminated against

accounts for all differences in wages across groups of workers

impacts wages

Which of the following is an example of statistical discrimination?

no companies will hire Marcella because they do not want to hire women

Arturo is unaware that he avoids hiring Asians

an employer relies on stereotypes in making hiring decisions

Ingrid refuses to hire people who do not have at least five years of experiences in their previous jobs

an employer relies on stereotypes in making hiring decisions

Explain Collusion

an agreement between sellers to limit competition (price fixing)

Which of the following is consistent with current US law on monopolies?

being a monopoly is illegal

gaining monopoly or market power through specified exclusionary business practices is illegal

monopolizing is legal

companies can act to reduce the number of competitors but cannot discourage new entrants

gaining monopoly or market power through specified exclusionary business practices is illegal

The market power of a firm is its:

ranking based on units sold compared to other firms selling the same product

ability to cause other firms in its market to drop out of the market

ability to raise its price without losing many of its customers to competing businesses

market shared based on the percentage of total market revenue

ability to raise its price without losing many of its customers to competing businesses

In which market structure do the actions of a rival have a significant impact on your operations?

monopoly

monopolistic competition

oligopoly

perfect competition

oligopoly

Imperfect competition stems from ____ and whether or not the product is _____.

the product price; produced by all firms in the market

the costs of production; identical across firms

market power; a good or a service

the number of sellers; differentiated

the number of sellers; differentiated

In a market, when a company's owner tries to make its product slightly different from the output of other companies so that it is more attractive to buyers, the company is engaged in

market fixation

product differentiation

dominant rivalry

rational competition

product differentiation

Walmart has a large aisle that displays many different types of shampoos. This observation indicated that the shampoo market is

a perfectly competitive market

a monopoly

an oligopoly

a monopolistically competitive market

a monopolistic competitive market

What type of relationship exists between the level of a company's market power and the price that its owner is able to charge for its product?

circular

positive

negative

opposing

positive

Companies with market power face a trade-off between

gaining market share and reducing costs

having a higher marginal cost and a reduction in output

reducing costs and increasing profit

having a higher profit margin and selling a larger quantity

having a higher profit margin and selling a larger quantity

With a _____ number of sellers in a market, _____ market power tends to exist in the market

smaller; more

small; less consistent

greater; more

greater; less consistent

smaller; more

When a seller is able to differentiate its product successfully, the seller

has a reduction in costs of production

takes its market closer to perfect competition

loses market share

gains market power

gains market power

A characteristic of oligopoly that is not present in any other market structure is that there

is only one seller and that seller has a high level of market power

are many sellers and each produces its own version of the product

are a small number of sellers with considerable market power

are many sellers that produce identical products

are a small number of sellers with considerable market power

The marginal private benefit is the:

extra benefit enjoyed by the buyer of one extra unit of a good or service

extra benefit that goes to bystanders for each additional unit of a good consumed by other

addition to the satisfaction a buyer receives from the total quantity of a product consumed

total extra benefit society gains from the consumption of an extra unit of a good

extra benefit enjoyed by the buyer of one extra unit of a good or service

A good is characterized as ____ when one person's use of the good does not reduce another person's ability to use the same unit of the good.

nonexcludable

nonrival

shareable

free

nonrival

The Nobel Prize‑winning economist Oliver Hart once said, "If we know the marginal social cost [of pollution] emissions, a tax is better, but if we know the optimal quantity, cap and trade is better." Given this statement and the knowledge of ways governments can intervene in markets, evaluate the following statement: Any outcome that can be achieved by taxing can also be accomplished by establishing a quota. This is because:

if we know the marginal social cost, we can set the tax so that price is equal to the optimal price. As a result, the optimal quantity will be achieved. If we know the optimal quantity, we can set a quota and the market will find the optimal price.

if we know the optimal quantity, cap and trade can be used to set the price. If we know the marginal social cost, a tax can be used to set the quantity.

if we know the marginal social cost, we can set the optimal quantity equal to the optimal price. If

if we know the marginal social cost, we can set the tax so that price is equal to the optimal price. As a result, the optimal quantity will be achieved. If we know the optimal quantity, we can set a quota and the market will find the optimal price.

A good has a free-rider problem when:

someone can enjoy the benefits of the good without bearing the costs

any seller provides it for free as a special promotion

it has no negative externalities but only positive externalities

it can be transported at no cost to the consumer, with sellers bearing all transportation costs

someone can enjoy the benefits of the good without bearing the costs

Which of the following illustrates a positive externality?

Artem loses sleep when an airport is built near his home, and planes fly overhead

the value of Maria's house rises when the city builds a park nearby, enhancing her view

Ella can buy a shirt at half price because someone else returned it

Martin's company experiences an increase in profits due to his cost-cutting initiatives

the value of Maria's house rises when the city builds a park nearby, enhancing her view

Which of the following would be both nonrival and nonexcludable?

an immunization

a road

a museum

a siren tornado warning

a siren tornado warning

The Rational Rule for Society is that society should produce another unit of a good if:

the marginal private benefit exceeds the marginal private cost

the marginal social benefit exceeds the marginal social cost

gains to the producer exceed losses to the producer

the total social benefit exceeds the total social cost

the marginal social benefit exceeds the marginal social cost

Which of the following statements describes the Coase Theorem?

even if bargaining is not costless, and property rights are unclear, externality problems can be solved through private bargaining

if the marginal benefit of a good exceeds the good's marginal cost, more of it should be produced

elimination of an externality is possible only when the marginal benefit of a good is no higher than its marginal cost

if bargaining is costless, and property rights are clearly established and enforced, then externality problems can be solved through private bargaining

if bargaining is costless, and property rights are clearly established and enforced, then externality problems can be solved through private bargaining

Externalities tend to occur because decision makers consider ____ and do NOT consider ____.

their own income as limitless; their income as limited

their own costs and benefits; the effects of their actions on others

the welfare of others; their own welfare

their own needs as most important; the fact that others also have needs

their own costs and benefits; the effects of their actions on others

Marjean walks to work every day along a busy road. As she does so, she breathes in the fumes of many cars, often arriving at work coughing. The economic term for the impact of the cars on Marjean is:

an externality

exploitative supply

a nonmarket repercussion

an alternative action

an externality

By contrast with a market that produces the socially optimal output, a market with negative externalities will:

overproduce

produce no output

underproduce

produce the correct output

overproduce

What conditions must be met for private bargaining to be effective in resolving an externality?

bargaining costs must be low, and property rights must be clear

property rights must be clear, and production must begin at a socially optimal level

taxes must be low, and regulations must be minimal

there must be trade in public goods

bargaining costs must be low, and property rights must be clear

The graph shows the marginal social cost, supply, and demand curves in the hand sanitizer market. At what quantity could the government set a quota to control their externality?

8

The outcome that is most efficient for society as a whole -- including the interests of buyers, sellers, and bystanders -- is the _____ outcome.

public optimal

externally optimal

socially optimal

social benefit maximizing

socially optimal

In a perfectly competitive labor market, employers will not pay less than the market wage because at a wage below the equilibrium:

they would not be able to hire anyone

the equilibrium wage would rise

they would be inundated with excess workers

there would be a surplus of workers

they would not be able to hire anyone

Which of the following are true of statistical discrimination? There may be more than one correct answer.

"Ban the box" laws not allowing employers to ask potential employees whether or not they have been in jail is increasing discrimination against Black men, particularly those without a college degree.

Statistical discrimination occurs when firms base hiring decisions on which candidate will improve the firm's diversity statistics.

Some employers run complex statistical analysis of candidates' resumes before deciding who to interview for a position.

Statistical discrimination occurs when employers discriminate against job candidates based on an irrelevant but observable characteristic which correlates to an unmeasurable but relevant characteristic.

"Ban the box" laws not allowing employers to ask potential employees whether or not they have been in jail is increasing discrimination against Black men, particularly those without a college degree

Statistical discrimination occurs when employers discriminate against job candidates based on an irrelevant but observable characteristic which correlates to an unmeasurable but relevant characteristic

Which graph shows the scenario where the substitution effect dominates labor supply decisions?

Graph A

In a labor market graph, ____ is measured on the vertical axis, and ___ is measured on the horizontal axis.

product price; number of workers

hours of labor; wage

wage; hours of labor

number of workers; product price

wage; hours of labor

The graphs show individual labor supply curves for two different people. Use the graphs to answer the questions.

In Graph 1, ____ dominates ____.

In Graph 2, ____ dominates ____.

the substitution effect; the income effect

the income effect; the substitution effect

How many workers would the firm hire if it were required to pay a wage of $14/hour?

If the Federal minimum wage was suddenly increased to $20/hour, how many workers would the firm then employ?

4 workers

3 workers

Why does an employer's labor demand curve slope downward?

diminishing product demand

marginal cost adjustment

diminishing marginal product

substitution rule

diminishing marginal product

The Rational Rule for Employers implies that they keep hiring until

marginal product equals marginal revenue

the wage equals the marginal revenue product of the last worker hired

revenue equals cost

the wage equals marginal product

the wage equals the marginal revenue product of the last worker hired

Alena manages a small theme park. She hires one more custodian at $450 per week, and her park is cleaner and more attractive. As a result of this improvement, ticket sales rise by 40 tickets per week. Tickets sell for $12. Use the Rational Rule for Employers to determine if hiring the extra custodian was a good move.

No, it was a bad move because it added more to cost than revenue.

Yes, it was a good move because the ticket sales rose more than price.

Yes, it was a good move because it added more to revenue than to cost.

No, it was a bad move because price did not rise as much as ticket sales.

Yes, it was a good move because it added more to revenue than to cost

The marginal revenue from hiring an additional worker is known as:

marginal revenue product

labor marginal product

marginal worker revenue

labor marginal revenue

marginal revenue product

When a company has market power, it is ____ in its market

not able to impact the market equilibrium price

not a price-taker

a producer of nondifferentiated products

one of many small companies

not a price-taker

Based on the demand curves for four sellers, which of the following sellers has the most market power?

firm C (vertical line)

firm A (horizontal line)

firm B (downward sloping a lot)

firm D (downward sloping not that much)

firm C (vertical line)

Which of the following is a characteristic of monopoly that is not present in other market structures?

the product is identical across all sellers

sellers are price-takers

there is only one seller

there are many buyers

there is only one seller

In which market structure do the actions of a rival have a significant impact on your operations?

monopolistic competition

monopoly

perfect competition

oligopoly

oligopoly

What type of relationship exists between the level of a company's market power and the price that its owner is able to charge for its product?

circular

negative

postive

opposing

positive

Patents on drugs to treat AIDS were removed in South Africa. How would the market for these drugs have been different if there had never been patents on drugs?

the drug prices would have been lower from the start

the drug prices would have been even higher

the drugs would not have been developed

larger quantities of the drugs would have been produced

the drugs would not have been developed

To avoid harm to society, the government often becomes the supplier of a good or service when the respective market

would be a natural monopoly, and the good or service is considered essential

has high profit, and the government can use those to replace tax revenue

would be competitive enough to cause surpluses to develop

has been engaging in illegal activities that the government seeks to eliminate

would be a natural monopoly, and the good or service is considered essential

What is collusion?

a merger of two sellers

cooperation between sellers to increase the level of competition

regulatory restrictions on the entry of new sellers into an industry

agreements between sellers to increase their market power

agreements between sellers to increase their market power

Walmart has a large aisle that displays many different kinds of toothpastes. This observation indicates that the toothpaste market is:

an oligopoly

a monopoly

a monopolistic competitive market

a perfectly competitive market

a monopolistic competitive market