Question

49. Scenario: Meryl and Steve are two classmates who form a study group. The graph below shows the production possibilities curves for each of them.




Refer to the scenario above. If Meryl and Steve decide to join forces to do school work and trade, then ________.

Econ Homework Meryl Steve 1 2 3 4 5 6 7 8 9 10 Lab Reports

a. Steve should specialize in doing Econ homework assignments, and Meryl should specialize in writing lab reports

b. Meryl should specialize in doing Econ homework assignments, and Steve should specialize in writing lab reports

c. Meryl should do all of the Econ homework assignments and all of the Lab Reports, and Steve should do nothing

d. Meryl should do half the Econ homework assignments and write half the lab reports, and Steve should do the same

50. Which of the following is the best definition of an externality?

a. When a worker takes a job "off the books" to avoid paying taxes

b. When government intervention in a market reduces consumer surplus

c. When an economic activity imposes spillover costs or benefits on a third party

d. When firms sell products at a price greater than marginal cost

51. A ________ occurs when an economic activity has a spillover cost that does not affect those directly engaged in the activity.

a. positive externality

b. negative externality

c. gain in consumer surplus

d. gain in producer surplus

52. If negative externalities are present in a market, ________.

a. the marginal social cost of production is lower than the marginal private cost

b. the quantity supplied in the market is larger than the socially optimal level

c. the average cost of production exceeds the marginal cost of production at all output levels

d. the market price is higher than the socially optimal price

Answer 1

49) a

Meryl opportunity cost of lab reports = 9/9= 1

Steve opportunity cost of lab reports= 4/8= 0.5

So steve should specialize in lab report and Meryl should specialize in econ homework.

50) c

Externality refers to cost or benefit of an economic activity to the third party.

51) b

Negative externality has spillover cost

52) b

Social optimal quantity is less than market equilibrium quantity.