Practice Exam 3 Principles of Microeconomics ECO 203 Autumn 2021 1 A positive externality arises when a person engages in an activity that has a an adverse effect on a bystander who is not compensated by the person who causes the effect effect effect b an adverse effect on a bystander who is compensated by the person who causes the c a beneficial effect on a bystander who pays the person who causes the effect d a beneficial effect on a bystander who does not pay the person who causes the 2 Which of the following represents a negative externality a Research and development b Education c Vaccination d Pollution 3 Refer to the above Figure The graph depicts the market for plastic Suppose that the production of plastic creates a social cost which is depicted in the graph above Without any government regulation how much plastic will be produced a 200 b 500 c 650 d 900 4 Which of the following is not an advantage of corrective taxes a They raise revenues for the government b They enhance economic efficiency c They subsidize the production of goods with positive externalities d They move the allocation of resources closer to the social optimum 5 Consider the following two statements i the socially optimal quantity is smaller than the market equilibrium quantity when there is a negative externality ii the socially optimal quantity is larger than the market equilibrium quantity when there is a positive externality a i is true ii is true b i is false ii is true c i is fale ii is true d i is false ii is false 6 Refer to the Figure above What Price and Quantity combination is socially optimal a P1 and Q0 b P2 and Q0 c P1 and Q1 d P2 and Q1 Rival in Consumption Yes Excludable Yes A C No No B D 7 Refer to the Figure above Emma s use of good x does not affect anyone else s use of good x Neither Emma nor anyone else can be prevented from using the good Good x is an example of the type of good that belongs in a Box A which represents private goods b Box B which represents common resources c Box C which represents common resources d Box D which represents public goods 8 Which of the following is an example of the free rider problem a Both Zoe and Zach receive low cost dental care at the local dental school so neither of them pays the full cost of the care b Alfred receives a free lunch from the local Meals on Wheels program because of his low monthly income Yet his next door neighbor Alice is not eligible for the free lunch c Bruce owns Buster a large dog who barks whenever anyone walks near his house Betty lives next to Bruce and Buster s barking can be heard whenever anyone walks near her house too Thus Betty receives free protection from burglars because of Buster s barking d Sam purchases a burger at a fast food restaurant and gets a second burger free because the restaurant is having a buy one get one free sale 9 The Tragedy of the Commons a occurs most often with public goods b is only applicable to shared grazing rights among sheep herders c is eliminated when property rights are assigned to individuals d occurs when social incentives are in line with private incentives 10 Anya has decided to start her own hair styling salon To purchase the necessary equipment Anya withdrew 10 000 from her savings account which was earning 3 interest and borrowed an additional 5 000 from the bank at an interest rate of 8 What is Anya s annual opportunity cost of the financial capital that has been invested in the business a 300 b 400 c 700 d 1 650 11 The marginal product of an input in the production process is the increase in a total revenue obtained from an additional unit of that input b profit obtained from an additional unit of that input c total revenue obtained from an additional unit of that input d quantity of output obtained from an additional unit of that input 12 Which of the following expressions is correct a marginal cost change in quantity of output change in total b average total cost total cost quantity of output c total cost variable cost marginal cost d average variable cost quantity of output total variable cost 13 The average fixed cost curve a is constant b is always decreasing c intersects marginal cost at the minimum of average fixed d intersects marginal cost at the minimum of marginal cost cost cost 14 Economies of scale occur when a firm s a marginal costs are constant as output increases b long run average total costs are decreasing as output increases c long run average total costs are increasing as output increases d marginal costs are equal to average total costs for all levels of output 15 Let L represent the number of workers hired by a firm and let Q represent that firm s quantity of output Assume two points on the firm s production function are L 5 Q 125 and L 6 Q 152 Then the marginal product of the 6th worker is a 25 units of output b 27 units of output c 37 units of output d 162 units of output Quantity of Output 0 1 2 3 4 5 6 Fixed Cost 20 20 20 20 20 20 20 Variable Cost 0 10 40 80 130 200 300 16 Refer to the above table What is the average variable cost of producing 5 units of output a 4 b 5 c 40 d 44 17 In calculating accounting profit accountants typically don t include a long run costs b sunk costs c explicit costs of production d opportunity costs that do not involve an outflow of money 18 Economists normally assume that the goal of a firm is to a maximize its total revenue b maximize its profit c minimize its explicit costs d minimize its total cost 19 Which of the following is a characteristic of a competitive market a There are many buyers but few sellers b Firms sell differentiated products c There are many barriers to entry d Buyers and sellers are price takers 20 If a competitive firm is currently producing a level of output at which marginal cost exceeds marginal revenue then a a one unit increase in output will increase the firm s profit b a one unit decrease in output will increase the firm s profit c total revenue exceeds total cost d total cost exceeds total revenue The table represents a demand curve faced by a firm in a competitive market Price 3 3 3 3 3 3 Quantity 0 1 2 3 4 5 21 Refer to the corresponding table For this firm the marginal revenue from selling the 3rd unit is a 12 b 4 c 3 d 1 Suppose that a firm in a competitive market faces the following revenues and costs Quantity 0 1 …