AP Micro Microeconomics: Factor Markets and Market Failures 2

Question 1

A monopsonist in the labor market hires fewer workers than a competitive firm because it:

Accepted Answer

Faces an upward-sloping labor supply curve and must raise wages for all workers

Answer

Sets the wage equal to the MRP

Answer

Has a perfectly elastic labor supply

Answer

Sets MRP equal to the market wage

Question 2

If the government imposes a per-unit tax on a good with a negative externality, the tax should equal:

Accepted Answer

The marginal external cost at the socially optimal quantity

Answer

The producer's marginal cost at equilibrium

Answer

The consumer's marginal benefit at the market equilibrium

Answer

The total external cost across all units produced

Question 3

Which condition characterizes the profit-maximizing input choice for a firm in a competitive factor market?

Accepted Answer

MRC = MRP

Answer

W = AVC

Answer

MFC > MRP

Answer

MRP = MRC = 0

Question 4

Public goods are characterized by non-rivalry and non-excludability. Which of the following is the best example?

Accepted Answer

National defense

Answer

A toll road

Answer

A local fishing lake

Answer

A private gym membership

Question 5

When a positive externality exists in a market, the private market will:

Accepted Answer

Underproduce relative to the social optimum

Answer

Overproduce relative to the social optimum

Answer

Produce exactly the socially optimal quantity

Answer

Produce where MSC equals MSB

Question 6

A firm's derived demand for labor is said to be 'derived' because it depends on:

Accepted Answer

The demand for the firm's output

Answer

The prevailing market wage rate

Answer

The number of firms in the labor market

Answer

The supply of capital available to the firm

Question 7

The Coase theorem suggests that externalities can be resolved through private bargaining when:

Accepted Answer

Property rights are well-defined and transaction costs are low

Answer

Transaction costs are high and property rights are clear

Answer

Government sets the correct Pigouvian tax

Answer

The market is monopolistic