ECO 1104 Lecture Notes - Lecture 10: Marginal Cost, Social Cost, Marginal Utility

68 views3 pages

yellowmule951

12 Oct 2018

School

Department

Course

Professor

For unlimited access to Class Notes, a Class+ subscription is required.

3363410481 and 38221 others unlocked

ECO 1104 Full Course Notes

Verified Note

16 documents

Document Summary

Marginal private cost (mpc: the cost of producing an additional unit of a good or service that is borne by the producer of that good/service. Marginal external cost (mec: the cost of producing an additional unit of a good/service that falls on people other than the producer. Marginal social cost (msc) = mpc + mec. The marginal cost incurred by the entire society by the producer and by everyone else on whom the cost falls. It is the sum of marginal private cost and marginal external cost. Example: air pollution from a factory: the firm does not bear the full cost of production; therefore will produce more than the socially efficient quantity. External benefit the value of the positive impact on bystanders. >q, social value of additional unites exceeds their cost. The marginal benefit enjoyed by society- by the consumers of a goods/service and by everyone else who benefits from it.

Related Questions

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

pinkmink286

Question 1

An externality

		enhances market efficiency.
		is a private cost or benefit that results from the production or consumption of a good or service that is external to a market.
		is a benefit or cost that affects someone who is not directly involved in the production or consumption of a good or service.
		refers to production or consumption that occurs outdoors.

5 points

Question 2

Externalities can be produced by:

		the high price of goods and services
		individuals; firms
		market prices; market incomes
		oceans; streams

5 points

Question 3

When an external cost exists that is NOT taken into account in the production of a product,

		the level of output is too high, and the supply curve should shift to the left to account for the externality.
		the price of the product is too high, and production should be expanded to lower the price.
		the level of output is optimal, and there should be no change in the supply curve.
		the level of output is too low, and the supply curve should shift to the right to account for the externality.

5 points

Question 4

Which of the following is correct?

		MSC = MPC - MD
		MPC = MSC + MD
		MSC = MPC + MD
		MD = MSC + MPC

5 points

Question 5

If external costs (costs of cleaning up) are included and added to a firm's private costs, then

		the demand curve will shift to the left.
		the supply curve will shift to the right.
		the demand curve will shift to the right
		the supply curve will shift to the left.

5 points

Question 6

The Coase Theorem states that

		government intervention is always needed if externalities are present.
		assigning property rights is the only thing the government should do in a market economy.
		if transaction costs are low, private bargaining will result in an efficient solution to the problem of externalities.
		a free-market equilibrium is the best solution to address externalities.

5 points

Question 7

Buffalo in the United States almost became extinct while cattle, an animal that provides similar products, never have been close to extinction. The difference is due to

		the use of private property rights on cattle and common property rights on buffalo.
		the greater marginal value of a head of cattle relative to buffalo, leading to over-hunting of buffalo.
		cattle existing in Europe also while buffalo were specific to North America.
		the greater marginal value of a buffalo relative to a steer, leading to the overharvesting of buffalo.

5 points

Question 8

In theory, the Emissions Fee would

		cause firms to generate less pollution than their allowed limits.
		raise the production costs of all firms.
		cause firms to generate more pollution than their allowed limits.
		lower the production costs of all firms.

5 points

Question 9

A cap-and-trade policy

		has a set number of permits.
		allows polluters to trade permits.
		caps the total level of pollution allowed.
		all of the above.

Question 10

A Pigouvian tax corrects for

		market congestion.
		market losses.
		inefficient sales.
		low market prices.

harlequingoldfish8

17. Which of the following is a determinant of supply?

A. Tastes and preferences

B. Price of a complementary good

C. Consumer income

D. Technology

18. A market is in equilibrium:

A. provided there is no surplus of the product

B. at all prices above that shown by the intersection of the supply and demand curves

C. if the amount producers want to sell is equal to the amount consumers want to buy

D. whenever the demand curve is downsloping and the supply curve is upsloping.

19. If the market price is above the equilibrium price:

A. A shortage will occur and producers will produce more and lower prices

B. A surplus will occur and producers will produce less and lower prices

C. A surplus will result and consumers will bid prices up

D. Producers will make extremely high profits

20. The market system automatically corrects a surplus condition in a competitive market by:

A. Raising the price of the commodity in question while increasing the quantity demanded

B. Raising the price of the commodity in question while decreasing the quantity demanded

C. Reducing the price of the commodity in question while increasing the quantity demanded

D. Reducing the price of the commodity in question while decreasing the quantity demanded

21. The price elasticity of demand measures:

A. buyer responsiveness to price changes.

B. the extent to which demand curve shifts as incomes change.

C. the slope of the demand curve.

D. how far business executives can stretch their fixed costs

22. The elasticity of demand for a product is likely to be greater:

A. if the product is a necessity, rather than a luxury good.

B. the greater the amount of time over which buyers adjust to a price change

C. the smaller the proportion of one's income spent on the product.

D. the smaller the number of substitute products available.

23. Market failure is said to occur whenever:

A. private markets do not allocate resources in the most economically desirable way

B. prices rise

C. some consumers who want a good do not obtain it because the price is higher than they are willing to pay

D. government intervenes in the functioning of private markets.

24. A negative externality or spillover cost occurs when:

A. firms fail to achieve allocative efficiency.

B. firms fail to achieve productive efficiency.

C. the price of the good exceeds the marginal cost of producing it.

D. the total cost of producing a good exceeds the costs borne by the producer

violethare146

ECO 1104 Lecture Notes - Lecture 10: Marginal Cost, Social Cost, Marginal Utility

ECO 1104 Full Course Notes

Document Summary

Get access

Related textbook solutions

Principles of Economics

Principles of Macroeconomics

Principles of Microeconomics

Related Documents

ECO 1104 Lecture Notes - Lecture 10: Smog, Market Power, Social Cost

ECO 1104 Lecture 11: Externalities

ECO 1104 Chapter Notes - Chapter 10: Economic Equilibrium, Industrial Policy, Demand Curve

Related Questions