Exam 4

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ECON 101 Exam 4

  
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  • 1. 
    A natural monopoly is a desirable market structure because: 
    • A. 

      When unregulated, it offers a firm a higher profit margin which creates jobs for the economy.

    • B. 

      When regulated, it can be forced to produce at the same output level as an unregulated monopoly

    • C. 

      It can offer the products consumers want at the lowest possible price because of economies of scale.

    • D. 

      It generates more jobs for the economy than a competitive market structure does.


  • 2. 
    Natural monopolies: 
    • A. 

      Always face downward-sloping long-run average total cost curves.

    • B. 

      Capture economies of scale over the entire market.

    • C. 

      Incur losses if they produce where P = MC.

    • D. 

      D. All of the above.


  • 3. 
    The distinctive characteristic of a natural monopoly is its: 
    • A. 

      Horizontal demand curve.

    • B. 

      Downward-sloping average total cost curve at market output.

    • C. 

      Vertical marginal cost curve.

    • D. 

      Kinked demand curve.


  • 4. 
    The natural monopolist's preferred outcome violates the competitive principle of: 
    • A. 

      Laissez faire.

    • B. 

      Marginal cost pricing.

    • C. 

      Diminishing marginal returns.

    • D. 

      Economies of scale.


  • 5. 
    Which of the following is not a regulatory option when the government is trying to prevent market failure in the case of a natural monopoly? 
    • A. 

      Cost regulation.

    • B. 

      Profit regulation.

    • C. 

      Output regulation.

    • D. 

      Price regulation.


  • 6. 
    If the government forces a natural monopoly to produce the output where P = MC, the firm: 
    • A. 

      Will fail to produce efficiently.

    • B. 

      Will be producing less than the profit-maximizing level of output.

    • C. 

      Will incur losses.

    • D. 

      All of the above.


  • 7. 
    If a regulatory agency decides to pursue profit regulation of a natural monopoly, price and output will be determined by the: 
    • A. 

      Minimum point of ATC.

    • B. 

      Intersection of MR and MC.

    • C. 

      Intersection of the demand and ATC curves.

    • D. 

      Intersection of the demand and MC curves.


  • 8. 
    Output regulations
    • A. 

      Encourage quality decline.

    • B. 

      Violate the principle of marginal cost pricing.

    • C. 

      May jeopardize equity goals.

    • D. 

      All of the above.


  • 9. 
    From an economic standpoint, the pursuit of a pollution-free environment is: 
    • A. 

      The morally correct strategy and costs should not be a consideration.

    • B. 

      Probably not in society's best interest, in view of the very high opportunity costs.

    • C. 

      The economically correct strategy.

    • D. 

      The economically correct strategy as long as benefits accrue to society.


  • 10. 
    Assigning values to environmental damage is relatively: 
    • A. 

      Easy because of current scientific techniques

    • B. 

      Easy because all items have a market value

    • C. 

      . Difficult because many items have intangible benefits and therefore do not have a market price.

    • D. 

      Easy because the government has the legislative authority to assign prices .


  • 11. 
    The efficiency decision involves choosing: 
    • A. 

      The profit-maximizing level of output

    • B. 

      The socially most desirable production process for any given level of output.

    • C. 

      The lowest cost production process for any level of output.

    • D. 

      . A production process in which marginal social benefit exceeds marginal social cost.


  • 12. 
    Requiring that a firm engage in pollution abatement tends to: 
    • A. 

      Reduce profits for the firm.

    • B. 

      Reduce the amount of output the firm produces

    • C. 

      Shift the firm's MC and ATC curves upward.

    • D. 

      All of the above.


  • 13. 
    The reason pollution occurs is because people tend to: 
    • A. 

      Consider the impact of their activities on society first.

    • B. 

      Maximize their personal welfare, balancing private benefits against private costs

    • C. 

      Maximize their personal welfare, balancing social benefits social costs.

    • D. 

      Maximize society's welfare, balancing private benefits against private costs.


  • 14. 
    Social costs minus private costs equal: 
    • A. 

      Economic profit.

    • B. 

      Opportunity costs.

    • C. 

      Full resources costs.

    • D. 

      External costs


  • 15. 
    If firms were charged the full social opportunity cost of the resources they used, then there would be: 
    • A. 

      No external costs

    • B. 

      Government failure.

    • C. 

      Market failure.

    • D. 

      A need for government intervention.


  • 16. 
    A completely successful emission fee charge would: 
    • A. 

      Shift the private MC curve until the curve intersects with price at zero output and pollution is completely eliminated.

    • B. 

      Shift the private MC curve to the same position as the social MC curve.

    • C. 

      Shift the social MC curve to the same position as the private MC curve.

    • D. 

      Not shift either the private or social MC curve.


  • 17. 
    The primary purpose of tradable pollution permits is to: 
    • A. 

      Reduce the level of pollution to optimal levels

    • B. 

      Reduce the cost of pollution control.

    • C. 

      Eliminate private costs.

    • D. 

      Completely eliminate pollution.


  • 18. 
    Which of the following is true about marketable pollution permits? 
    • A. 

      They are auctioned at the Chicago Board of Trade.

    • B. 

      They were first used as an incentive to reduce pollution in 1992.

    • C. 

      They reduce the average cost of pollution control.

    • D. 

      All of the above.


  • 19. 
    The command-and-control strategy for pollution reduction refers to: 
    • A. 

      Material recycling.

    • B. 

      Standards on the methods used to reduce pollution.

    • C. 

      The use of tradable permits.

    • D. 

      Gradual development of standards through close monitoring of environmental changes.


  • 20. 
    Individual farmers cannot influence market prices because:
    • A. 

      They are price makers.

    • B. 

      They face downward-sloping demand curves for the firm.

    • C. 

      They have no market power.

    • D. 

      All of the above.


  • 21. 
    Individual farmers maximize profit by producing the level of output where: 
    • A. 

      Marginal cost equals average cost

    • B. 

      Marginal cost equals price.

    • C. 

      Marginal cost equals zero.

    • D. 

      Average cost equals zero.


  • 22. 
    Given the typical price elasticity of demand for food, a more abundant harvest than usual should, ceteris paribus, lead to: 
    • A. 

      Lower prices but higher total revenues

    • B. 

      Lower prices and lower total revenues

    • C. 

      Higher prices but lower total revenues.

    • D. 

      Higher prices and higher total revenues.


  • 23. 
    Response lags: 
    • A. 

      Reduce short-term price instability.

    • B. 

      Increase short-term price instability.

    • C. 

      Slow the long-tern downward trend in farm prices

    • D. 

      Increase the long-tern downward trend in farm prices.


  • 24. 
    Farm price-support programs most often take the form of price: 
    • A. 

      Ceilings which cause shortages.

    • B. 

      Ceilings which cause surpluses

    • C. 

      Floors which cause shortages

    • D. 

      Floors which cause surpluses.


  • 25. 
    The result of maintaining above-equilibrium market prices for agricultural products is: 
    • A. 

      Shortages of agricultural products

    • B. 

      More resources devoted to agriculture than is optimal.

    • C. 

      Redistribution of income from farmers to consumers.

    • D. 

      All of the above.


  • 26. 
    The impact of price supports is to: 
    • A. 

      Raise the market price.

    • B. 

      Shift the demand curve facing each farmer upward.

    • C. 

      Increase the output of farmers.

    • D. 

      All of the above.


  • 27. 
    Supply restrictions in the farming industry occur in the form of: 
    • A. 

      Acreage set-asides.

    • B. 

      Marketing orders.

    • C. 

      Import quotas.

    • D. 

      All of the above.


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