Increasing opportunity cost tends to occur if
A. management is disorganized.
B. markets do not equate money and opportunity cost.
C. production is inefficient.
D. resources are scarce.
E. resources are specialized.
Answer: E
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A soybean farmer sells soybeans in a perfectly competitive market and hires labor in a perfectly competitive market. The market price of soybeans is $6 a bushel, the wage rate is $30, the farmer employs eight workers and the marginal product of the eighth worker is 4 bushels. What would you advise this farmer to do?
A. Reduce employment because the wage paid is more than the marginal revenue product. B. Increase employment because the wage paid is less than the marginal revenue product. C. Do nothing because the wage rate and the marginal product of the last worker hired are equal. D. Reduce the product price so that the wage and marginal revenue product will be equal.
If a restaurant runs a special and sells a lobster dinner for $4.50, Amy buys one lobster dinner a week. If lobster dinners are not on special and the price is $16.00, Amy buys zero lobster dinners per week. Which of the following is true?
A. Amy's marginal utility from a lobster dinner is less than $4.50. B. Amy's marginal utility from a lobster dinner is greater than $16.00. C. The value of Amy's marginal utility from a lobster dinner is at least $4.50 and less than $16.00. D. Amy's demand for lobster is inelastic.
Railway engines create sparks, which sometimes set fire to crops planted near the tracks. A large number of farmers are affected, and transactions costs prevent the farmers and the railroad from negotiating bribes or side payments. The price of railway service is $250 per train, and each train causes $50 of crop damage. The accompanying diagram shows the relevant market for railway service.
(i) Suppose a Pigovian tax of $50 per train is imposed on the railroad. By how much will social gain increase?
(ii) Suppose that the farmers can move their crops away from the tracks at a cost of $2,400 per month. If the goal is to achieve economic efficiency, who should be made liable for the crop damage? What will be the resulting social gain?
(iii) Suppose that farmers still have the option of moving their crops as described in part ii. Also suppose that the railroad can install safety equipment that will prevent the engine sparks at a cost of $25 per train. If the goal is to achieve economic efficiency, who should be made liable for the crop damage? What will be the resulting social gain?
If a country has Y > C + I + G, then
a. S > I and it has a trade surplus. b. S > I and it has a trade deficit. c. S < I and it has a trade surplus. d. S < I and it has a trade deficit.