Midterm Exam 3 with Solutions - Principles of Economics | ECON 2005, Exams of Microeconomics

Download Midterm Exam 3 with Solutions - Principles of Economics | ECON 2005 and more Exams Microeconomics in PDF only on Docsity! Third Midterm Examination (Answer) Econ 2005: Principles of Microeconomics 1. When externalities exist, buyers and sellers a. neglect the external effects of their actions but the market equilibrium is still efficient. b. do not neglect the external effects of their actions and the market equilibrium is efficient. c. neglect the external effects of their actions and the market equilibrium is not efficient. d. do not neglect the external effects of their actions and the market equilibrium is not efficient. ANSWER: c. neglect the external effects of their actions and the market equilibrium is not efficient. 2. According to the Coase theorem a. private parties can bargain to reach an efficient outcome. b. government assistance is necessary for markets with externalities to reach an efficient outcome. c. externalities, both positive and negative, will always cause markets to be inefficient. d. no market will experience long-term externalities, since normal market adjustments will eliminate externalities. ANSWER: a. private parties can bargain to reach an efficient outcome. 3. Pigovian taxes a. encourage consumers to avoid sales taxes by shopping online. b. are frequently used to discourage imports. c. are rarely preferred to direct regulation. d. give factory owners an economic incentive to reduce pollution. ANSWER: d. give factory owners an economic incentive to reduce pollution. 1 4. In some cases, pollution permits may be better than a Pigovian tax because a. pollution permits allow for a market solution while a Pigovian tax does not. b. pollution permits generate more revenue for the government than a Pigovian tax. c. Pollution permits are never preferred over a Pigovian tax. d. the government can set a maximum level of pollution using permits. ANSWER: d.the government can set a maximum level of pollution using permits. 5. A good is excludable if a. one person's use of the good diminishes another person's enjoyment of it. b. the government can regulate its availability. c. it is not a normal good. d. people can be prevented from using it. ANSWER: d. people can be prevented from using it. 6. Goods that are rival include both a. natural monopolies and public goods. b. public goods and common resources. c. common resources and private goods. d. private goods and natural monopolies. ANSWER: c. common resources and private goods. 7. Goods that are both excludable and rival would be considered a. natural monopolies. b. common resources. 2 b. always falling. c. constant. d. U-shaped. ANSWER: d. U-shaped. 14. Average fixed cost will be a. always rising. b. always falling. c. U-shaped. d. constant. ANSWER: b. always falling. 15. Average variable cost will be a. always rising. b. always falling. c. U-shaped. d. constant. ANSWER: a. always rising. 16. Marginal cost will be a. always rising. b. always falling. c. U-shaped. d. constant. 5 ANSWER: a. always rising. 17. When marginal cost exceeds average total cost, a. average fixed cost must be rising. b. average total cost must be rising. c. average total cost must be falling. d. marginal cost must be falling. ANSWER: b. average total cost must be rising. 18. The marginal cost curve crosses the average total cost curve at a. the efficient scale. b. the minimum point on the average total cost curve. c. a point where the marginal cost curve is rising. d. All of the above are correct. ANSWER: d. All of the above are correct. Refer to the following information to answer Questions 19 through 23. A certain firm produces and sells staplers. Last year, it produced 5,000 staplers and sold each stapler for $8. In producing the 5,000 staplers, it incurred variable costs of $30,000 and a total cost of $45,000. 19. The firm’s fixed costs amounted to a. $15,000. b. $30,000. c. $40,000. d. $50,000. 6 ANSWER: a. $15,000. 20. In producing the 5,000 staplers, the firm’s average fixed cost was a. $3. b. $4. c. $5. d. $7. ANSWER: a. $3. 21. In producing the 5,000 staplers, the firm’s average variable cost was a. $2. b. $4. c. $6. d. $8. ANSWER: c. $6. 22. In producing the 5,000 staplers, the firm’s average total cost was a. $6. b. $7. c. $8. d. $9. ANSWER: d. $9. 23. The firm’s economic profit for the year was a. $–35,000. 7