WhizKids and members of the Flashnotes Honor Society Exam 2 Question 1 Which of the following is a likely result when the free rider problem exists Answers a The good will not be produced b Entrepreneurs will eventually find a way to make free riders pay their share c The market will devote too few resources to the production of the good d The cost of the good will always be more than the benefit of the good Question 2 From the standpoint of economic efficiency markets tend to provide Answers a less of a public good than would be efficient b more of a public good than would be efficient c exactly the amount of a public good that is efficient d none of the above Question 3 Why is a market unlikely to provide an efficient quantity of public goods Answers a 10 out of 10 points 10 out of 10 points 10 out of 10 points Only the government has the vast resources necessary to produce public goods b Private production of public goods generally results in a large amount of profit which is difficult for a firm to effectively pay out to shareholders c The technology involved in the production of public goods makes it difficult for private firms to produce them even though they could be produced efficiently d The nature of public goods makes it difficult for producers to withhold them from nonpaying consumers Question 4 In order for the law of diminishing returns to be present which of the following must be true Answers a There are simultaneous changes in labor and capital 10 out of 10 points b Output decreases as more laborers are hired c The price of labor increases as more workers are hired d Output doubles when labor input is doubled e At least one factor of production is fixed Question 5 Where marginal cost is less than average cost Answers a 10 out of 10 points marginal cost must be rising b marginal cost must be falling c opportunity cost must have been excluded from the calculation of marginal cost d marginal cost may be rising falling or constant Question 6 The relationship between average and marginal variables can be stated as follows if the marginal is greater than the average Answers 10 out of 10 points a the average is increasing b the total is decreasing c the marginal is decreasing d the average is decreasing e the marginal is increasing Question 7 10 out of 10 points The minimum points of the average variable cost and average total cost curves occur where Answers a the average variable cost and average total cost curves intersect b the marginal cost curve lies below the average variable cost and average total cost curves c the slope of total cost is the smallest d the marginal cost curve intersects those curves Question 8 If the price of apples decreases by 2 percent and causes apple consumption to increase by 4 percent the price elasticity of demand is indicating the demand is Answers a 10 out of 10 points 0 5 elastic b 2 inelastic c 0 5 inelastic d 2 elastic Question 9 The demand for salt is Answers a 10 out of 10 points inelastic because there are few substitutes for salt and it represents a small percentage of a consumer s budget b inelastic because there are few substitutes for salt and it represents a large percentage of a consumer s budget c elastic because there are many substitutes for salt and it represents a large percentage of a consumer s budget d elastic because there are no substitutes for salt and it represents a large percentage of a consumer s budget e inelastic because there are many substitutes for salt and it represents a large percentage of a consumer s budget Question 10 10 out of 10 points If people buy less chewing gum at every price when their incomes fall then Answers a the demand for chewing gum is positively sloped b demand for chewing gum has increased c there has been a decrease in population that changed demand d the price of chewing gum has increased e chewing gum is a normal good Question 11 10 out of 10 points Question 12 10 out of 10 points When a price floor is imposed above the equilibrium price of a commodity which of the following is true Answers a A surplus of the good will develop b A shortage of the good will develop c Quantity demanded will be greater than quantity supplied for the good d The quantity demanded by consumers will be greater than at the equilibrium price Suppose the market equilibrium price of wheat is 5 per bushel and the government sets a price floor of 7 per bushel to aid growers What is the most likely result of this action Answers a There will be a surplus of wheat b There will be a shortage of wheat c There will be an increase in the quantity of wheat demanded as the result of the price floor d There will be a decrease in the quantity of wheat supplied as the result of the price floor Question 13 Question 14 When policymakers impose price controls they Answers a are usually following the advice of mainstream economists b demonstrate a willingness to sacrifice equity in order to improve efficiency c usually improve the efficiency of economic activity d distort the signals that normally guide the allocation of resources When an economist says a firm is earning zero economic profit this implies that the firm Answers a is earning a zero rate of return on its assets b will be forced out of business in the near future unless market conditions change 10 out of 10 points 10 out of 10 points c is earning as high a rate of return now as could be earned in other industries d has an accounting profit of zero Question 15 If a 5 000 tax is placed legally statutorily on the sellers of new automobiles and as a result the price of automobiles to consumers rises by 4 000 then the actual burden of the tax Answers 10 out of 10 points a is 4 000 on automobile buyers and 1 000 on sellers b falls completely on automobile buyers c falls completely on automobile sellers d is 1 000 on automobile buyers and 4 000 on sellers Question 16 10 out of 10 points Suppose that a tax is placed on textbooks If the buyers end up bearing most of the tax burden this indicates that the Answers a government has required that buyers remit the tax payments b demand is more inelastic than the supply c supply is more inelastic than the demand d government has required that buyers remit the tax payments Question 17 The federal government currently levies a 15 3 percent payroll tax 7 65 percent on both the employer and employee on the wages of all workers If the supply of labor is relatively inelastic when compared to the elasticity of the demand for labor
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