QUESTION 19The change in total utility arising from a one-unit increase in consumption of a good is referred to asa. average utilityb. the principle of diminishing marginal utilityc. real incomed. marginal utility e. priceQUESTION 20Because of the free rider problema. private solutions to externality problems are often neededb. side payments are needed in order to achieve Pareto improvementsc. governmental solutions to externality problems are often neededd. side payments are needed in order to solve externality problemse. private solutions to externality problems are commonQUESTION 21A manufacturer is less likely to offer warranties for its products if:a. Consumer misuse is a likely source of failure and difficult to detect.b. Its products are of higher quality than its competitors.c. Its products are of lower quality than its competitors.d. Choices a and b.e. Choices a and c.QUESTION 22An externality is defined asa. the revenue generated by a firm in the external marketb. a byproduct of a good or activity that affects someone not immediately involved in the transactionc. an additional cost of consumption that is borne by a third partyd. a cost or benefit arising from price changese. the value of a good or service to a consumerQUESTION 23A nation should only import those goods for which it hasa. lower opportunity costs than its trading partnerb. higher opportunity costs than its trading partnerc. zero transaction costsd. lower costs of production than its trading partnere. absolute advantage in production compared to its trading partnerQUESTION 2 4When a nation begins to export a good,a. the domestic price of that good fallsb. less of that good is produced domesticallyc. the domestic producers are made better offd. the domestic consumers are made better offe. both domestic and foreign consumers will purchase more of itQUESTION 25When renting a car, the rental company will sell you a waiver that releases you from any monetary liability for damage to the car from collisions. Compared to other types of car insurance, these waivers seem quite expensive. A possible explanation is:a. The moral hazard problem is more severe.b. The adverse selection problem is more severe.c. It is more expensive to repair rental cars.d. Choices a and b.e. Choices b and c.QUESTION 26The substitution effect measures howa. the quantity demanded of one good is influenced by a change in income, with prices constant b. the quantity demanded of one good is influenced by a change the price of another goodc. marginal utility per dollar spent is affected by income changesd. an increase in the price of a good is effectively the same as a reduction in incomee. the quantity demanded of one good is influenced by a change in the price of that good, with income constantQUESTION 27Which of the following is the most appropriate response of public policy to a negative externality like pollution?a. modernize, update, and restore homes in run down neighborhoods to decreaselittering.b. find ways to account for the social costs of the negative externality in economic decisions.c. encourage high standards of public education to increase innovation capacity of youth.d. assist the private party creating the negative externality to receive more social benefits.e. make sure lawsuits against polluters require overwhelming evidence in order to proceed.QUESTION 2 8What type of good are the police?a. publicb. privatec. common resourced. natural monopolye. clubQUESTION 2 9A consumer’s budget line showsa. the utility that an individual would receive from consuming various combinations of two goob. the combinations of two goods that an individual is able to purchase, given prices and incomc. how income is influenced by prices of goodsd. how changes in income affect utilitye. the relationship between prices and income?UESTION 3 0ABC Farms raises a substantial number of bees and sells the honey. ABC Farms is situated next to the XYZ Orchard. The bees from the farm pollinate apple trees in the orchard. In this example, ABC Farmsa. derives more private benefit and provides less social benefit.b. provides more social benefit than it derives in private benefit.c. provides a marginal social benefit and derives a complete private benefit.d. provides a complete social benefit and derives a marginal private benefite. comparison of social and private benefits cannot be ascertained.QUESTION 3 1If the price of gasoline rises at the Exxon gas station at a busy intersection, the Mobil stationat the same intersection will experiencea. an outward shift of the demand curve it facesb. an inward shift of the demand curve it facesc. a rightward movement along the same demand curve it facesd. a leftward movement along the same demand curve it facese. neither a shift in nor a movement along the demand curve it facesQUESTION 3 2As we move downward along a demand curve for apples,a. Consumer well-being decreases.b. The marginal utility of apples decreases.c. The marginal utility of apples increases.d. Both a and b are true.e. Both a and c are true.QUESTION 3 3How do the income and substitution effects work when the price of an inferior good decreases?a. the income effect and the substitution effect cause an increase in the quantity demanded of the good.b. the income effect and the substitution effect cause a decrease in the quantity demanded of the good.c. income effect causes an increase in the quantity demanded and the substitution effect causes a decrease in the quantity demanded.?. income effect causes a decrease in the quantity demanded and the substitution effect causes an increase in the quantity demanded.e. None of the above.QUESTION 3 4If marginal utility is negative, what must be true about total utility?a. Total utility increases with additional consumption.b. Total utility decreases with additional consumption.c. Total utility remains constant regardless of the number of units consumed.d. Total utility equals zero.e. None of the above.QUESTION 3 5According to the Coase theorem,a. government intervention is necessary in order to solve an externalityproblemb. an externality is a form of market failurec. under certain conditions, the private market will solve externality problems efficientlyd. the private market will usually solve externality problems, except when side payments are necessarye. negative externalities are less efficient than positive externalitiesQUESTION 3 6A utility-maximizing consumer will choose a collection of goodsa. represented by a point below her budget lineb. represented by a point above her budget linec. for which the marginal utility from each good is the samed. for which the marginal utility divided by the price is the same or each goode. for which the total utility from each good is the sameQUESTION 3 7When negative externalities are present, the private market output level will be:a. Too low.b. Too high.c. Socially optimal.d. At the intersection of demand and marginal social cost.e. At the point that minimizes the marginal external cost.?QUEST ION 3 8Assume that as the wage rate rises a worker’s substitution effect for leisure is larger than theincome effect. We can conclude that in this region, the worker’sa. Labor supply curve will be backward bending.b. Labor supply curve will have the usual upward slope.c. Labor supply curve will be completely inelastic.d. Supply curve will be horizontal.e. None of the above.QUESTION 3 9 If increasing your consumption of pizza from 3 to 4 slices increases your utility, which of the following must be true?a. The marginal utility of the 4th slice of pizza is equal to the total utility of 4 slices of pizza.b. The marginal utility of the 4th slice of pizza is greater than the marginal utility of the 3rd slice of pizza.c. The marginal utility of the 4th slice of pizza is positive.d. The marginal utility of the 3rd slice of pizza is negative.e. None of the above.QUESTION 4 0When a freeze in Florida increased the price of oranges in a recent year, total revenue earned by orange producers increased. We can infer from these facts that the demand for oranges is:A) inelastic B) unit elasticC) elasticD) upward slopingE) infinitely elasticBusinessEconomicsMicroeconomicsECON CT3RA
