PLAN103 Study Guide - Quiz Guide: Marginal Cost, Social Cost, European Cooperation In Science And Technology

1. Which of the following is an example of the source function of the environment?

A. Trees absorb some of the carbon dioxide emitted by human activity

B. Wetlands reduce the pollution levels in water

C. Winds carry air pollution away from a city

D. Humans harvest fish from the oceans

E. Bacteria break down discarded wastes

2. What is the primary external input into the broader ecological circular flow model?

A. Pollution

B. Solar energy

C. Fossil fuels

D. Geophysical cycles

E. Factors of production

3. What is the key reason that Malthusian predictions have not come true so far?

A. Increasing productivity per capita

B. Increasing population

C. Increasing natural capital

D. Increasing population density

E. Definition of property rights

4. Which one of the following statements is true regarding the rate of global population growth over the last 40 years?

A. Population has grown at a faster rate than agricultural production and energy use

B. Population has grown faster than energy use but not agricultural production

C. Population has grown faster than agricultural production but not energy use

D. Population, energy use, and agricultural production have all grown at about the same rate

E. Population has grown at a slower rate than agricultural production and energy use

5. Which one of the following is not a possible way to internalize externalities?

A. Eliminate government intervention

B. Raise taxes

C. Create subsidies

D. Create a system of tradable permits

E. Create new regulations

6. The efficient price of a license fee is determined by the difference between ...

A. Marginal revenue and marginal cost

B. Average revenue and marginal cost

C. Total revenue and total cost

D. Average revenue and total cost

E. Total revenue and marginal cost

7. Valuing environmental services based on estimating the value of different characteristics of market goods is called ...

A. Travel cost method

B. Contingent valuation

C. Hedonic pricing

D. Production function valuation

E. Avoided cost valuation

8. Which one of the following statements about national accounting is false?

A. Gross National Product does not account for natural capital depreciation

B. Net investment is gross investment minus depreciation

C. Capital depreciation accounts for wearing-out of human-made capital over time

D. A negative net investment implies a decline in national wealth

E. Net National Product does not account for capital depreciation

9. User costs will be incorporated into a market if ...

A. Interest rates are positive

B. Discount rates are zero

C. Resource owners foresee future shortages

D. Government intervention is eliminated

E. Discount rates are positive

10. Hotelling’s rule states that...

A. The net price of a resource is constant

B. The net price of a resource rises at a rate equal to the interest rate

C. The net price of a resource declines at a rate equal to the interest rate

D. The price of a resource depends on the allocation of property rights

E. The price of a resource is efficient as long as all user costs are internalized

11. Transferable permits are likely to result in less inefficiency, relative to a pollution tax, when...

A. The marginal costs of damage are steep and the marginal costs of pollution reduction are relatively stable

B. The marginal costs of damage are steep and the marginal costs of pollution reduction are steep

C. The marginal costs of damage are relatively stable and the marginal costs of pollution reduction are relatively stable

D. The marginal costs of damage are relatively stable and the marginal costs of pollution reduction are steep

E. The marginal costs of damage are elastic and the marginal costs of pollution reduction are also elastic

12. Which one of the following statements is false regarding a transferable pollution permit system?

A. Each firm will operate in an economically efficient manner

B. Total pollution levels in a region can be set by the government

C. The price of a permit will vary with changes in technology

D. The system is preferable to a pollution tax in all situations

E. Social benefits can be maximized

13. If a large percentage of people in a country are young, this is a sign that ...

A. The country has significant population momentum

B. The country is in the first stage of the demographic transition

C. The country’s population will shortly stabilize

D. The country’s population is declining

E. The country is in the last stage of the demographic transition

14. Which one of the following statements about the demographic transition theory is false?

A. Population levels are relatively stable in the first and last stages of the demographic transition

B. The demographic transition theory states that death rates will decrease before birth rates decrease

C. Many industrial countries have entered the third or fourth stage of the demographic transition

D. The demographic transition process has occurred at very different rates in different parts of the world

E. The demographic transition theory suggests that continued exponential population growth is possible with constant economic growth

15. Which one of the following policies would not reduce water use?

A. Full marginal-cost pricing

B. Microirrigation technology

C. Reusing wastewater for industrial uses

D. Subsidizing irrigation systems

E. Removing water subsidies

16. Which one of the following statements is false?

A. Carbon dioxide is a stock pollutant

B. Without the natural greenhouse effect, life could exist on earth

C. The atmosphere is an example of a global commons

D. Global carbon dioxide concentrations in the atmosphere have increased since the Industrial Revolution

E. Global climate change results from ozone layer depletion

17. Which one of the following statements regarding carbon taxes is false?

A. Carbon taxes would have the most impact on coal prices

B. Carbon taxes would reduce negative environmental externalities

C. Carbon taxes would not set the exact level of carbon emissions

D. The effect of a carbon tax depends on the elasticity of demand for fossil fuels

E. A revenue-neutral carbon tax implies an increase in income taxes and/or other taxes

18. The elasticity of demand for carbon-based fuel sources is ...

A. Low in the short term but higher in the long term

B. High in the short term but lower in the long term

C. High in both the long and short term

D. Low in both the long and short term

E. Zero in the short term and positive in the long term

19. Which one of the following statements is false?

A. The World Bank currently screens all projects for potential environmental impacts.

B. World Bank loans are often coupled with grants from other organizations

C. World Bank funding for environmental projects has steadily increased since 1994

D. World Bank projects include both a ‘brown’ and a ‘green’ agenda

E. World Bank loans must eventually be repaid

20. Which one of the following statements is true?

A. Strong sustainability assumes that most resources can be substituted for one another

B. Strong sustainability is easier to achieve that weak sustainability

C. Instituting strong sustainability would require extensive government intervention in markets

D. Strong sustainability is supported by traditional economic theory

E. Strong sustainability dictates that no non-renewable resources be used

1).

A consumer spends more time searching for a good when her reservation price is:

increased.

reduced.

fixed.

None of the statements is correct.

2).

In the game shown below, firms 1 and 2 must independently decide whether to charge high or low prices.



Which of the following are Nash equilibrium payoffs in the one-shot game?

(0, 0)

(5, -5)

(-5, 5)

(10, 10)

3).

A risk-neutral individual would:

prefer $5 with certainty to a risky prospect with the expected value of $5.

prefer a risky prospect with an expected value of $5 to a certain amount of $5.

be indifferent between a risky prospect with an expect value of $5 to a certain amount of $5.

prefer a risky prospect with the expected value of $0.50 to $5 with certainty.

4).

Snowpeak Ski Resort offers a price for a lift ticket that is barely over its marginal cost, but the high equipment rental fee keeps generating big profits. Which pricing strategy is the management using?

Price discrimination

Two-part pricing

Commodity bundling

Cross-subsidization

5).

The short run is defined as the time frame:

in which there are no fixed factors of production.

in which there are fixed factors of production.

less than one year.

less than three years.

6).

Fixed costs exist only in:

the long run.

capital-intensive markets.

the short run.

labor-intensive markets.

7).

Top of Form

Non-fed ground beef is an inferior good. In economic booms, grocery managers should:

increase their orders of non-fed ground beef.

reduce their orders of non-fed ground beef.

not change their orders of non-fed ground beef.

neither increase, reduce, nor maintain their current orders for non-fed ground beef.

Bottom of Form

8).

Which of the following pricing strategies is NOT used in markets with special cost and demand structures?

Peak-load pricing

Cross-subsidization

Transfer pricing

Low-price guarantees

9).

A perfectly competitive firm faces a:

perfectly elastic demand function.

perfectly inelastic demand function.

demand function with unitary elasticity.

None of the answers is correct.

10).

The special demand structure that induces a firm to use a cross-subsidization strategy is:

perfect substitution among products.

imperfect substitution among products.

independent demand for products.

interdependent demand for products.

11).

Which of the following factors reduces the need for government involvement in the marketplace?

The presence of externalities

The incentive to rent-seek

The need for public goods

Incomplete information

12).

Which of the following statements is true?

A mineral rights auction is not the same as a common-value auction.

An auctioneer is always indifferent between different kinds of auctions.

The Dutch and first-price, sealed-bid auctions are strategically equivalent.

An English auction always yields lower expected revenues than a second-price, sealed-bid auction.

13).

Which of the following is true concerning negative externalities?

Firms tend to produce more than the efficient level of output.

Society gains because firms do not pay the external costs of production.

Perfect competition is better than monopoly from the viewpoint of society even in the presence of negative externalities.

With negative externalities, a monopoly will always produce an output level less than is socially efficient.

14).

Which of the following is true under monopoly?

P > ATC

P > MC

P = MR

P = ATC

15).

Differentiated goods are NOT a feature of a:

perfectly competitive market.

monopolistically competitive market.

monopolistic market.

perfectly competitive market and monopolistic market.

16).

Producer surplus is measured as the area

below the demand curve and above the market price.

above the demand curve and below the market price.

above the supply curve and below the market price.

below the supply curve and above the market price.

17).

Jaynet spends $25,000 per year on painting supplies and storage space. She recently received two job offers from a famous marketing firm – one offer was for $105,000 per year, and the other was for $85,000. However, she turned both jobs down to continue a painting career. If Jaynet sells 30 paintings per year at a price of $9,000 each:

a. What are her accounting profits?

$

b. What are her economic profits?

$

18).

You are the manager of a monopoly that sells a product to two groups of consumers in different parts of the country. Group 1’s elasticity of demand is -2, while group 2’s is -4. Your marginal cost of producing the product is $40.

a. Determine your optimal markups and prices under third-degree price discrimination.

Instruction: Round your answers to two decimal places.

Markup for group 1:
Price for group 1: $

Markup for group 2:
Price for group 2: $


b. Which of the following are necessary conditions for third-degree price discrimination to enhance profits.

Instructions: You may select more than one answer. Click the box with a check mark for the correct answers and click twice to empty the box for the wrong answers. You must click to select or deselect each option in order to receive full credit.

19).

You are the manager of a firm that receives revenues of $60,000 per year from product X and $80,000 per year from product Y. The own price elasticity of demand for product X is -1.5, and the cross-price elasticity of demand between productY and X is -1.4.

How much will your firm's total revenues (revenues from both products) change if you increase the price of good X by 2 percent?

Instructions: Round your answer to the nearest dollar. Include a minus (-) sign if applicable.

$

In 1981, a Boston-based gas station owner set the highest gasoline prices in the nation. During that summer, he charged $1.69 per gallon for unleaded gas during the daytime and $2.59 per gallon at night, when other downtown gas stations were closed. His all-time high price was $3.99. Even at these extreme prices, however, the station owner sold an average of 3,000 gallons per week, half of this at night. Despite catcalls, pickets, and even vandalism from angry motorists during the gasoline crisis, the owner "stuck by his pumps"; he even charged $1 for air. As he put it, "People think of gas stations as public mammary glands, but they're wrong. This is a business, and it's important to generate profits from every part of it. If I can use a resource, like air, to pay for the electric bill, so much the better. If you allow capitalism in its true form, it works beautifully".

The station owner was an avowed profit maximizer, albeit not a very attractive one. How did he profit from his dual-price policy? The answer is price discrimination. Although his costs varied little day and night, the elasticity of demand varied greatly. He maximized his profit by charging a higher price at night when demand is much more inelastic than during the day. In fact, we could go so far as to say that he operated under different market structures, day and night. At night, he appeared to have a pure local monopoly. Motorists desperate for gas had to drive miles to find another station open during those hours. Thus, the owner sold gas even at gouging prices. At those prices, the motorist may have preferred to buy five gallons rather than a full tank. During the day, he faced many competitors within blocks and numerous stations in neighboring Cambridge. That is, the market resembled monopolistic competition. There was some product differentiation due to locational convenience and brand allegiance. Nonetheless, in normal times excess profits are limited by the relatively free entry of new firms. (The gasoline crisis and accompanying supply shortage afforded sellers short-run, excess profits.)

A. Suppose that, during the day, the station owner's demand is given by PD = 2.06 - .00025QD. The marginal cost of selling gasoline is $1.31 per gallon. At his current $1.69 price, he sells 1,500 gallons per week. Is this price-output combination optimal? Explain.

B. The station owner sells an equal number of gallons at night, setting PN = $2.59. Suppose elasticity of demand is EP = -3. According to the optimal markup rule, is this price profit-maximizing?