1. The marginal product of labor is:
A. equal to the demand for labor.
B. the payment made to workers for their contribution to the output they produce.
C. the change in a firm's revenue as a result of hiring one more worker.
D. the additional output a firm produces as a result of hiring one more worker.
2. What does the phrase "internalizing an external cost" mean?
A. limiting the extent to which domestic firms can outsource production
B. prohibiting economic activities that create externalities
C. finding a way to address cross-border pollution
D. forcing producers to factor into their production costs the cost of the externalities created in the production of their output
3. The highest-valued alternative that must be given up to engage in an activity is the definition of
A. implicit cost
B. opportunity cost.
C. utility.
D. economic sacrifice.
4. What is market failure?
A. It refers to the inability of the market to allocate resources efficiently up to the point where marginal social benefit equals marginal private cost.
B. It refers to a situation where an entire sector of the economy (for example, the airline industry) collapses because of some unforeseen event.
C. It refers to a breakdown in a market economy because of widespread corruption in government.
D. It refers to the inability of the market to allocate resources efficiently up to the point where marginal social benefit equals marginal social cost.
5. Suppose a competitive firm is paying a wage of $12 an hour and sells its product at $3 per unit. Assume that labor is the only input. If the last worker hired increases output by three units per hour, then to maximize profits the firm should
A. lay off some of its workers.
B. does not change the number of workers it currently hires.
C. hire additional workers.
D. There is not enough information to answer the question.
6. When the price of summer tank tops falls and you buy more of them because they are relatively less expensive, this is called
A. the deadweight loss effect.
B. the income effect.
C. the substitution effect.
D. the elasticity effect.
7. An externality is
A. a benefit realized by the purchaser of a good or service.
B. a benefit or cost experienced by someone who is not a producer or consumer of a good or service.
C. a cost paid for by the producer of a good or service.
D. anything that is external or not relevant to the production of a good or service.
8. Firms pay famous individuals to endorse their products because
A. apparently demand is affected not just by the number of people who use a product but also by the type of person that uses the product. '
B. famous people only consume high-quality products.
C. famous people obviously know what are the best goods and services.
D. the firms are irrational and are wasting advertising expenditures.
9. If a consumer receives 20 units of utility from consuming two candy bars, and 25 units of utility from consuming three candy bars, the marginal utility of the second candy bar is
A. 25 utility units.
B. 20 utility units.
C. 5 utility units.
D. unknown as more information is needed to determine the answer.
10. When there is a negative externality, the private cost of production ________ the social cost of production.
A. is less than
B. is greater than
C. eliminates
D. is equal to
