Microeconomics: Elasticity, Externalities, Public Goods, and Costs

The price elasticity of demand measures

buyers' responsiveness to a change in the price of a good.[cite: 29]

For a good that is a luxury, demand

tends to be elastic.[cite: 29]

If the price of natural gas rises, when is the price elasticity of demand likely to be the highest?

One year after the price increase[cite: 30]

If the price of walnuts rises, many people would switch from consuming walnuts to consuming pecans. But if the price of salt rises, people would have difficulty purchasing something to use in its place. These examples illustrate the importance of

the availability of close substitutes in determining the price elasticity of demand.[cite: 30]

Which of the following is likely to have the most price elastic demand?

Tommy Hilfiger jeans[cite: 30]

Suppose the price of a bag of frozen chicken nuggets decreases from $6.50 to $5.75 and, as a result, the quantity of bags demanded increases from 600 to 800. Using the midpoint method, the percentage change in quantity?

28.5%

If a 15% increase in price for a good results in a 20 percent decrease in quantity demanded, the price elasticity of demand is

1.33.[cite: 31]

Marcus says that he would smoke one pack of cigarettes each day regardless of the price. If he is telling the truth, Marcus's

demand for cigarettes is perfectly inelastic.[cite: 31]

You are in charge of the local city-owned aquatic center. You need to increase the revenue generated by the aquatic center to meet expenses. The mayor advises you to increase the price of a day pass. The city manager recommends reducing the price of a day pass. You realize that

the mayor thinks demand is inelastic, and the city manager thinks demand is elastic.[cite: 31, 32]

Dioxin emission that results from the production of paper is a good example of a negative externality, because

self-interested paper producers will not consider the full cost of the dioxin pollution they create.

Which of the following statements is not correct?

Without government intervention, the market will tend to undersupply products that produce negative externalities.[cite: 33]

Which of the following illustrates the concept of a negative externality?

A college student plays loud music on their new stereo system at 2:00 a.m.[cite: 35, 36]

Suppose that coal producers create a negative externality equal to $5 per ton of coal. What is the relationship between the equilibrium quantity of coal and the socially optimal quantity of coal?

The equilibrium quantity is greater than the socially optimal quantity.[cite: 36]

Which of the following is an example of a positive externality?

The mayor of a small town plants flowers in the city park.[cite: 37]

Flu shots provide a positive externality. Suppose that the market for vaccinations is perfectly competitive. Without government intervention in the vaccination market, which of the following statements is correct?

At the current output level, the marginal social benefit exceeds the marginal private benefit.[cite: 37]

Education yields positive externalities. For example,

a more educated population tends to result in lower crime rates.[cite: 37, 38]

If the government were to limit the release of air pollution produced by a glue factory to 75 parts per million, the policy would be considered a

command-and-control policy.[cite: 38]

Which of the following is not a characteristic of pollution permits?

Allowing firms to trade their permits reduces the total quantity of pollution beyond the initial allocation.[cite: 38]

Two types of private solutions to the problem of externalities are

charities and the Golden Rule.

Zaria and Hannah are roommates. Zaria assigns a $30 value to smoking cigarettes. Hannah values smoke-free air at $15. Which of the following scenarios is a successful example of the Coase theorem?

Zaria pays Hannah $16 so that Zaria can smoke.

Governments can improve market outcomes for

both public goods and common resources.

Goods that are rival in consumption but not excludable would be considered

common resources.

Which of the following goods is rival and excludable?

A congested toll road[cite: 39]

A traffic light at an intersection is

not rival and not excludable in consumption.

The U.S. military defends Jacob from foreign conflict. The fact that Jacob enjoys this protection does not detract from other Americans' enjoyment of it. For this reason, we say that national defense is

not rival in consumption.[cite: 40]

Who among the following is a free rider?

Ernie listens to National Public Radio, but does not contribute to any fundraising efforts.[cite: 40]

Which of the following is not a common resource?

A vegetable garden

The overuse of a common resource relative to its economically efficient use is called

the Tragedy of the Commons.[cite: 41]

The goal of requiring licenses for hunting and fishing is to

reduce the use of a common resource.[cite: 41]

The Three Amigo's company produced and sold 500 dog beds. The average cost of production per dog bed was $15. Each dog bed can be sold for a price of $65. The Three Amigo's total costs are

$7,500.[cite: 41]

Bubba is a shrimp fisherman who could earn $5,000 as a fishing tour guide. Instead, he is a full-time shrimp fisherman. In calculating the economic profit of his shrimp business, the $5,000 that Bubba gave up is counted as part of the shrimp business's

implicit costs.[cite: 42]

Jane was a partner at a law firm earning $223,000 per year. She left the firm to open her own law practice. In the first year of business she generated revenues of $347,000 and incurred explicit costs of $163,000. Jane's economic profit from her first year in her own practice is

-$39,000.[cite: 42]

If a firm uses labor to produce output, the firm's production function depicts the relationship between

the number of workers and the quantity of output.[cite: 42]

For a large firm that produces and sells automobiles, which of the following costs would be a variable cost?

The cost of the steel that is used in producing automobiles[cite: 45]

Cindy's Car Wash has average variable costs of $2 and average fixed costs of $3 when it produces 100 units of output (car washes). The firm's total cost is

$500.[cite: 45]

In the short run, a firm that produces and sells house paint can adjust

how many workers to hire.[cite: 46]

In the long run,

inputs that were fixed in the short run become variable.[cite: 47]

Suppose that a firm's long-run average total costs of producing televisions decreases as it produces between 10,000 and 20,000 televisions. For this range of output, the firm is experiencing

economies of scale.

Per the article Measles cases hit new record as vaccination rates wane what is the average dollar cost for each case of measles including lost wages and medical expenses?

a) $100,000[cite: 47]

Per the article Measles cases hit new record as vaccination rates wane what is the minimum desired vaccination rate for a population in order to prevent spread of measles?

b) 95%[cite: 48