1. Which of the following is a positive externality? a. Inoculations against a d
ID: 1113179 • Letter: 1
Question
1. Which of the following is a positive externality?
a. Inoculations against a disease that reduce the likelihood of transmitting it to others
b. phosphate from laundry detergents
c. litter from fast food containers
d. ozane depletion due to the production of fast containers
e. the greenhouse effect
2. If the minimum efficient scale in microwave oven production is 100,000 units per year, it implies that:
a. the average cost of producing 50,000 microwave ovens is greater than the average cost of producing 100,000 microwave ovens
b. the average cost of producing 50,000, microwave ovens is equal to the average cost of producing 100,000 microwave ovens
c. the total cost of producing 50,000 microwave ovens is greater than the total cost of producing 100,000 microwave ovens
d. the firm should not produce more than 50,000 microwave ovens
e. marginal cost exceeds average cost at 100,000 microwave ovens
3. One result of asymmetric information in the market for used cars is that:
a. few used cars are offered for sale
b. few lemons are offered for sale
c. more lemons may be offered for sale than good cars
d. buyers benefit at the expense of sellers
e. good cars sell at a price that is higher than their market value
Explanation / Answer
Question 1. Which of the following is a positive externality?
a. Inoculations against a disease that reduce the likelihood of transmitting it to others
b. phosphate from laundry detergents
c. litter from fast food containers
d. ozane depletion due to the production of fast containers
e. the greenhouse effect
Answer: Part a ) Inoculations against a disease that reduce the likelihood of transmitting it to others
What: Positive Externality - This occurs when the consumption or production of a good causes a benefit to a third party. For example: When someone walk to work, it reduces congestion and pollution; this benefits everyone else in the city.
Our answer – When someone gets inoculated against a disease this would reduce its chances to get transmitted to others. Other options does not give any benefit to any unrelated party
2. If the minimum efficient scale in microwave oven production is 100,000 units per year, it implies that:
a. the average cost of producing 50,000 microwave ovens is greater than the average cost of producing 100,000 microwave ovens
b. the average cost of producing 50,000, microwave ovens is equal to the average cost of producing 100,000 microwave ovens
c. the total cost of producing 50,000 microwave ovens is greater than the total cost of producing 100,000 microwave ovens
d. the firm should not produce more than 50,000 microwave ovens
e. marginal cost exceeds average cost at 100,000 microwave ovens
Answer: a. the average cost of producing 50,000 microwave ovens is greater than the average cost of producing 100,000 microwave ovens
What: Minimum efficient scale (MES) or efficient scale of production is the lowest point where the plant (or firm) can produce at its lowest long run average cost.
Our answer – Average cost of producing 50,000 ovens is greater. As the production level increase average cost reduces and becomes minimum at 100,000 units level. Other options have either equal cost at different production level or refer to total cost. If firm does not produce more than 50,000 it would not achieve minimum average cost level and if marginal cost exceeds average cost at 100,000 microwave ovens than there is no minimum efficient scale at 100,000 units level.
3. One result of asymmetric information in the market for used cars is that:
a. few used cars are offered for sale
b. few lemons are offered for sale
c. more lemons may be offered for sale than good cars
d. buyers benefit at the expense of sellers
e. good cars sell at a price that is higher than their market value
Answer: c. more lemons may be offered for sale than good cars
What – this question is based upon a paper published in 1970 “he Market for Lemons: Quality Uncertainty and the Market Mechanism” by economist George Akerlof. In American slang, a lemonis a car that is found to be defective only after it has been bought.
Akerlof's paper shows how prices can determine the quality of goods traded on the market. Low prices drive away sellers of high-quality goods, leaving only lemons behind.
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