2nd test myecon lab

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Rank the following four goods from lowest income elasticity of demand LOADING... (1) to highest income elasticity of demand (4). a. Bread ▼ b. Pepsi ▼ 1 2 3 4 c. Mercedes-Benz automobiles ▼ 1 2 3 4 d. Laptop computers ▼ 1 2 3 4

1 2 4 3

A legally determined maximum that sellers may charge is known as a: A. price ceiling B. price floor C. marginal benefit

A legally determined minimum price that sellers must receive is known as a: A. price floor B. price ceiling C. marginal benefit

Income elasticity of demand is A. the percentage change in quantity demanded divided by the percentage change in income. B. the percentage change in quantity supplied divided by the percentage change in price. C. the percentage change in quantity demanded of one good divided by the percentage change in the price of another good. D. the percentage change in income divided by the percentage change in prices. E. the percentage change in quantity demanded divided by the percentage change in price. Use income elasticity to distinguish a normal good from an inferior good. For a normal good, the income elasticity of demand will be A. one, but for an inferior good, the income elasticity will be zero. B. negative, but for an inferior good, the income elasticity of demand will be positive. C. positive or negative, but for an inferior good, the income elasticity will be zero. D. inelastic, but for an inferior good, the income elasticity will be elastic. E. positive, but for an inferior good, the income elasticity of demand will be negative. Is it possible to tell from the income elasticity of demand whether a product is a luxury good or a necessity? A. No. It is not possible to tell from the income elasticity of demand whether a good is a luxury or a necessity. B. Yes. If the income elasticity of demand is greater than 10, then the good is a luxury. If the income elasticity of demand is positive but less than 10, then the good is a necessity. C. Yes. If the income elasticity of demand is positive, then the good is a necessity. If the income elasticity of demand is negative, then the good is a luxury. D. Yes. If the income elasticity of demand is greater than 1, then the good is a luxury. If the income elasticity of demand is positive but less than 1, then the good is a necessity. E. Yes. If the income elasticity of demand is greater than 1, then the good is a necessity. If the income elasticity of demand is positive but less than 1, then the good is a luxury.

A E D

Consumer surplus is A. the difference between the lowest price a firm would be willing to accept and the price it actually receives. B. the difference between the highest price a consumer is willing to pay and the price the consumer actually pays. C. the difference between the highest price a consumer is willing to pay and marginal benefit. D. the difference between the highest price a consumer is willing to pay and the lowest price a firm would be willing to accept. E. the highest price a consumer is willing to pay to consume a good or service.

How do externalities affect markets? If a negative externality in production is present in a market, then A. the market will achieve economic efficiency. B. the private cost of production will be different than the social cost of production. C. the private benefit from consumption will be different than the social benefit from consumption. D. the private cost of production will be equal to the private benefit from consumption. E. the social cost of production will be equal to the social benefit from consumption.

If a 20 percent increase in the price of Red Bull energy drinks results in a decrease in the quantity demanded of 25 percent, demand for Red Bull is _______ in this range. A. unit elastic B. elastic C. vertical D. inelastic

Nancy Folbre, an economist at the University of Massachusetts, Amherst, argued: "We must take responsibility for governing the commonslong dashnot just the quaint old-fashioned village green, but things that cannot easily be privatizedlong dash[such as] clean air..." Do you agree that clean air is like a common pasture in England in the Middle Ages? Briefly explain. Source: Nancy Folbre, "Taking Responsibility for the Commons," New York Times, February 26, 2009. Clean air A. is like a common pasture because there is no free riding. B. is like a common pasture because it is a good that is rival but not excludable. C. is like a common pasture because it is a good that is underused. D. is not like a common pasture because it is a public good. E. is like a common pasture because it is a good that is excludable but not rival.

One effect of tariffs and quotas A. is to reduce prices to domestic consumers as it protects jobs in the target industry. B. is to cost jobs outside the industries immediately affected. C. is generally a net gain for the nation enacting the protective legislation. D. is to create jobs outside the industries immediately affected.

Consumer surplus and producer surplus measure the total benefit consumers and producers receive from participating in a market. A. True B. False

B. NET

A negative externality causes the social cost of production to be: A. equal to the private cost B. less than the private cost C. greater than the private cost

According to an editorial in the Washington Post: "Sugar protectionism is a burden on consumers and a job-killer." Source: "Sourball," Washington Post, March 22, 2010. a. The United States practices "sugar protectionism" by A. encouraging sugar exporting countries to use voluntary export restraints. B. banning sugar imports. C. imposing a quota on sugar imports. D. charging sugar exporters a flat license fee to be able to export sugar in the United States.

Marginal benefit is A. a legally determined maximum price that sellers may charge. B. the additional cost of producing one more unit. C. the additional benefit from consuming one more unit. D. the difference between the highest price a consumer is willing to pay and the price the consumer actually pays.

The price elasticity of supply always has A. a zero value. B. a negative value. C. a positive value. D. None of the above.

When there are many people involved in attempting to reach an agreement, the transactions costs are often _______ than the net benefits from reducing an externality. In such cases, a private solution to an externality problem _______ feasible. A. lower; is B. higher; is C. higher; is not D. lower; is not

Deadweight loss is A. a measure of market equity. B. the reduction in consumer expenditure resulting from market failure. C. the reduction in economic surplus resulting from a market not being in competitive equilibrium. D. the reduction in sales revenue resulting from market distortions. Economic surplus is maximized when A. the marginal benefit of consumption is greater than the marginal costs of production. B. the marginal benefit of consumption is less than the marginal costs of production. C. the marginal benefit of consumption is equal to the marginal costs of production.

C C

The price elasticity of demand in the United States for crude oil has been estimated to be -0.061 in the short run and -0.453 in the long run. The demand for crude oil A. is equally price inelastic in both the short and long run as there are not many substitutes for crude oil. B. is price elastic in both the short and long run as there exists many substitutes for crude oil. C. is more price inelastic in the long run than in the short run because in the short run a substitute for crude oil may be found. D. is more price elastic in the long run than in the short run because in the long run a substitute for crude oil may be found.

The term tax incidence refers to A. the actual versus the desired division of a tax burden. B. the amount of revenue collected by the government from a tax. C. the type of product the tax is levied on. D. the actual division of the burden of a tax between buyers and sellers in a market.

An increase in the price of a substitute for iPads will lead to __________ in the quantity of iPads demanded, so the cross-price elasticity of demand will be _________. A. an increase; negative B. a decrease; negative C. a decrease; positive D. an increase; positive If Amazon.com raises its prices by 10 percent and, as a result, the quantity of books demanded on Barnesandnoble.com increases by 35 percent, what do consumers consider the two Web sites to be? A. close substitutes B. unrelated C. identical D. close complements

D A

Some people are opposed to globalization because they A. believe globalization destroys the distinctive cultures of many countries. B. want to erect trade barriers to protect domestic firms from foreign competition. C. believe globalization favors the interests of high-income countries at the expense of low-income countries. D. Only A and B above. E. All of the above.

When will the private benefit from consuming a good differ from the social benefit? A. when there is an externality, such as second-hand smoke generated by the consumption of cigarettes. B. when there is an externality, such as fewer diseases generated by the consumption of vaccines. C. when there is an externality, such as sulfur dioxide generated by the production of paper products. D. when there is no externality, such as in the consumption of apples. E. both a and b.

What is the name given to the sale of a product for a price below its cost of production? A. dumping B. bargain pricing C. grim-trigger pricing D. cut-throat pricing

How does consumer surplus change as the equilibrium price of a good rises or falls? As the price of a good rises, consumer surplus ▼ increases remains unchanged decreases , and as the price of a good falls, consumer surplus ▼ increases decreases remains unchanged .

dec inc

Suppose Wendy's hamburgers have many close substitutes available. If so, then an increase in the price of Wendy's hamburgers will likely A. increase the quantity of Wendy's hamburgers demanded by a relatively small amount. B. increase the quantity of Wendy's hamburgers demanded by a relatively large amount. C. not change the quantity of Wendy's hamburgers demanded. D. decrease the quantity of Wendy's hamburgers demanded by a relatively small amount. E. decrease the quantity of Wendy's hamburgersdemanded by a relatively large amount.

MIT economist Jerry Hausman has estimated the price elasticity of demand for Post Raisin Bran cereal to be minus2.5 and the price elasticity of demand for all types of breakfast cereals to be minus0.9. The demand for Post Raisin Bran cereal is ▼ inelastic elastic , and the demand for all types of breakfast cereals is ▼ inelastic elastic Why might the demand for Post Raisin Bran cereal be more elastic than the demand for all types of breakfast cereals? Post Raisin Bran cereal A. is more of a necessity. B. is defined more narrowly. C. is consumed over a shorter period of time. D. is a smaller share of a consumer's budget. E. has fewer substitutes available. .

elastic inelastic B

When the demand for a product is more elastic than supply, __ pay the majority of the tax on a product; when supply for a product is more elastic than the demand, __ pay the majority of the tax on the product.

firms consumers

According to a news story about the bus system in the Lehigh Valley in Pennsylvania, "Ridership fell 14 percent in 2012 after a 33 percent increase" in bus fares. Given this information, the demand for bus trips is elastic inelastic . The best explanation for this result is that A. over time people can find alternate forms of transportation. B. bus trips are a necessity for those without cars. C. these trips are a small portion of someone's budget. D. bus trips only appeal to a certain market.

in B

When lettuce prices doubled, from about $1.35 per head to about $2.70, the reaction of one consumer was quoted in a newspaper article: "I will not buy [lettuce] when it's $2.70 a head," she said, adding that other green vegetables can fill in for lettuce. "If bread were $5 a loaf we'd still have to buy it. But lettuce is not that important in our family." Source: Justin Bachman, "Sorry, Romaine Only," Associated Press, March 29, 2002. For this consumer's household, which product has the higher price elasticity of demand LOADING...: bread or lettuce? . For this consumer's household, is the cross-price elasticity of demand LOADING... between lettuce and other green vegetables positive or negative: .

lettuce positive

A price ceiling is a legally determined ▼ price that sellers may charge. A price floor is a legally determined ▼ market clearing maximum minimum neutral price that sellers may receive.

max min

Consumer and producer surplus measure the _____ benefit rather than the _____ benefit. A. subjective; objective B. net; total C. total; net D. marginal; additional

net total

Therefore, the cross-price elasticity of demand between "substitutes" is most likely pos/neg and the cross-price elasticities of demand between "complements" is most likely pos/neg .

pos neg

A numerical limit on the quantity of a good that can be imported is a: A. quota B. tariff C. voluntary export restraint

A marginal tax rate is A. the fraction of each additional dollar of income that must be paid in taxes, while the average tax rate is the total tax paid divided by total income. B. the total tax paid, while the average tax rate is the total tax paid divided by total income. C. a tax for which people with lower incomes pay a lower percentage of their income in tax than do people with higher incomes, while the average tax is a tax for which people with lower incomes pay a higher percentage of their income in tax than do people with higher incomes. D. a state or local tax, while the average tax rate is a federal tax. E. the fraction of income that must be paid in taxes, while the average tax rate is the total tax paid divided by total income.

A marketable pollution permit is a permit: A. that allows a firm to sell the right to pollute B. that allows governments to tax polluters C. sold by one country to other countries

A numerical limit on the quantity of a good that can be imported is known as a(n): A. quota B. tariff C. quantity

A perfectly inelastic supply curve: A. indicates the quantity supplied does not respond to a change in price B. is horizontal at a given price C. shows that quantity supplied is very responsive to a change in price

A sportswriter writing about the Cleveland Indians baseball team made the following observation: "If the Indians suddenly slashed all tickets to $10, would their attendance actually increase? Not all that much and revenue would drop dramatically." Source: David Schoenfiel, "Chat with David Schoenfield," espn.com, November 27, 2012. The sportswriter is assuming that the demand for Indians tickets is A. relatively price inelastic. B. perfectly price elastic. C. relatively price elastic. D. perfectly price inelastic.

According to the goal of economic efficiency, governments tend to favor taxes that A. create a small excess burden relative to revenue raised. B. raise the most revenue. C. create no efficiency loss. D. generate an equal division of the tax burden between buyers and sellers. E. raise the least revenue.

Along a linear demand curve, the slope __________ while the price elasticity of demand __________. A. is constant, changes from one point to another B. is constant, is constant C. changes from one point to another, is constant

Among the main sources of comparative advantage are the following: A. climate and natural resources, relative abundance of labor and capital, technology, external economies. B. climate and natural resources, relative abundance of labor and capital, technology, external diseconomies. C. climate and natural resources, relative scarcity of labor and capital, technology, external economies. D. climate and natural resources, relative abundance of labor and capital, inefficient technology, external economies.

An agreement negotiated between two countries that places a numerical limit on the quantity of a good that can be imported by one country from another country is known as a(n): A. voluntary export restraint B. quota C. import limitation

An increase in the price of a substitute for iPads will lead to __________ in the quantity demanded of iPads so the cross-price elasticity of demand will be __________. A. an increase, positive B. an increase, negative C. a decrease, positive

At current prices of a highly addictive drug the demand for the drug is highly price: A. inelastic B. elastic C. unit elastic

Black markets may arise A. in reaction to binding price ceilings. B. in reaction to non-binding price ceilings. C. in reaction to insufficient consumer surplus. D. in reaction to excessive producer surplus. E. both a and b.

Black markets may arise if: A. price ceilings exist B. the equilibrium price is too low C. governments do not intervene in the market

Consider a pair of Gap Jeans. Is the consumption of Gap Jeans rival and excludable The consumption of Gap Jeans is A. rival and excludable. B. nonrival and excludable. C. rival and nonexcludable. D. quasi-rival and quasi-excludable. E. nonrival and nonexcludable.

Costs that are only borne by the individuals that incur those costs are known as: A. Private costs B. Social costs C. External costs

Countries gain from specializing in producing goods in which they have a(n) __________ advantage and trading for goods in which other countries have a(n) __________ advantage. A. Comparative, comparative B. Comparative, absolute C. Absolute, comparative

Do producers tend to favor price floors or price ceilings? Why? Producers favor A. price floors because, when binding, price floors increase price above the equilibrium and may increase producer surplus. B. price ceilings because, when binding, price ceilings increase price above the equilibrium and may increase producer surplus. C. price floors because, when binding, price floors decrease price below the equilibrium and increase producer surplus. D. price floors because, when binding, price floors increase price above the equilibrium and decrease deadweight loss. E. price floors because, when non-binding, price floors increase price above the equilibrium and may increase producer surplus.

Economic surplus in a market is the sum of _____ surplus and _____ surplus. In a competitive market, with many buyers and sellers and no government restrictions, economic surplus is at a _____ when the market is in _____. A. consumer; producer; maximum; equilibrium B. consumer; producer; maximum; disequilibrium C. consumer; producer; minimum; equilibrium D. consumer; government; maximum; equilibrium

Economic surplus is the sum of consumer surplus and producer surplus. A. True B. False

Economists avoid confusion over units in the computation of elasticity by using: A. percentage changes B. simple differences C. aggregate values

For markets to generate the greatest benefit and function in the most efficient manner they must: A. be perfectly competitive B. have price floors established C. active government intervention

How is the price elasticity of demand measured? A. by dividing the percentage change in the quantity demanded of a product by the percentage change in the product's price B. by dividing the percentage change in the product's price by the percentage change in the quantity demanded of a product C. by multiplying the percentage change in the product's price by the percentage change in the quantity demanded of a product D. Any of these methods can be used in measuring the price elasticity of demand

If Damarius is willing to pay $100 for his economics textbook but instead only has to pay $80, his consumer surplus is: A. $20 B. $100 C. $80

If a 20 percent increase in the price of Red Bull energy drinks results in a decrease in quantity demanded of 25 percent, we say the demand for Red Bull is __________ in this range. A. elastic B. inelastic C. unit elastic

If a 20 percent increase in the price of Red Bull energy drinks results in a decrease in the quantity demanded of 25 percent, the price elasticity of demand is: A. -1.25 B. -0.80 C. -20.00

If a country has a comparative advantage in the production of a good, then that country: A. has a lower opportunity cost in the production of that good B. has an absolute advantage in the production of that good C. should allow another country to specialize in the production of that good

If a supply curve is a vertical line, it is ________, and if it is a horizontal line, it is ________. A. perfectly inelastic and has an elasticity value of zero; perfectly elastic and has an elasticity value of infinity B. perfectly elastic and has an elasticity value of zero; perfectly inelastic and has an elasticity value of infinity C. perfectly elastic and has an elasticity value of infinity; perfectly inelastic and has an elasticity value of zero D. perfectly inelastic and has an elasticity value of infinity; perfectly elastic and has an elasticity value of zero

If an effective minimum wage is imposed, then: A. more workers will be unable to find jobs B. employers will hire more workers C. unemployment rates will decrease

If polluters are charged to pollute, then: A. less pollution is a probable result B. pollution will disappear C. the environment will be damaged severely

If prices rise the quantity supplied will be greater: A. the longer the time that elapses B. the higher the consumer income C. if there are more substitutes

If the cross-price elasticity of demand between two products is -3.0, then the two products are: A. complements B. substitutes C. unrelated

If the income elasticity of SUVs is greater than 1, what is the good considered? A. A luxury B. A necessity C. A substitute

If the price elasticity of supply is 0.4, then a 20% increase in price will __________ the quantity supplied by __________ %. A. increase, 8.0 B. decrease, 8.0 C. increase, 50.0

If the supply of Good B is perfectly elastic and price falls the quantity supplied will: A. fall to zero B. rise C. remain unchanged

In addition to tariffs and quotas, governments sometimes erect other barriers to trade. For example, all governments require that imports meet certain health and safety requirements. Many governments also restrict imports of certain products on national security grounds. Explain whether you agree or disagree with the following statement: Sometimes, however, governments use these requirements to shield domestic firms from foreign competition. A. Yes, sometimes governments impose stricter health and safety requirements on imported goods than on goods produced by domestic firms. B. Yes, sometimes governments impose less strict health and safety requirements on imported goods than on goods produced by domestic firms. C. No, politicians never make choices that are more likely to lead to reelection when health and safety issues are involved. D. No, governments are always more concerned about national security than appeasing special interests.

In response to information regarding the salaries of executives at firms receiving bailout funds in the United States, some people called for a limit on the salaries paid to executives. Such a limit on the compensation executives can receive is an example of a: A. price ceiling B. price floor C. black market

Multinational corporations expanding into foreign markets often: A. provide thousands of jobs for foreign nationals B. cause massive job loss in the country they enter C. pay bribes to be able to begin operations in that country

Nations that use trade restrictions to pursue global environmental goals will: A. encounter resistance from the WTO B. find support in the WTO C. discover the WTO will be neutral

Once a country has lost its comparative advantage in producing a good, its income will be ________ and its economy will be ________ efficient if it switches from producing the good to importing it. A. higher; more B. lower; more C. lower; less D. higher; less

One idea often floated in the United States as a legislative response to global climate change is __________. A. cap-and-trade B. outsourcing manufacturing C. a limit on auto ownership

One reason pollution limits are difficult to implement is due to the __________. A. high cost to monitor compliance B. ease of assigning individual limits C. job loss from lack of implementation

Personal computers and computer display monitors are: A. complements B. substitutes C. unrelated goods

Price controls that put a price ceiling on goods and services create __________. A. shortages B. surpluses C. equilibrium

Price controls that put a price floor on goods and services create __________. A. surpluses B. shortages C. equilibrium

Price performs a(n) __________ function. Inputs or outputs go to the __________ bidders if people are free to exchange voluntarily in the markets without government intervention or other market friction. A. rationing, highest B. selling, lowest C. distribution, lowest

Prior to the 1997 federal tobacco settlement a pack of cigarettes sold for $2.48. The terms of the settlement required a decrease in teenage smoking of 60 percent. If the elasticity of cigarette demand for teenagers is about 1.3 then the price of cigarettes should rise to __________ in order to achieve the target reduction of 60 percent. A. $3.62 B. $4.08 C. $3.97

Prolonged agricultural surpluses can arise if governments: A. set the price above equilibrium B. allow the markets to function C. remove all subsidies and trade restrictions

Prolonged shortages arise if: A. prices are not allowed to rise to equilibrium B. price floors are set by governments C. buyers are allowed to compete for goods

Public choice theory indicates that one of government's purposes is to __________. A. help people make collective decisions B. help people make decisions about their individual careers C. produce goods that only provide external costs

Rent controls: A. make tenants less mobile B. are a form of price floor C. reduce litigation in society

Social benefit is the total benefit from the consumption of a good or service that includes: A. both private and external benefits B. only the private benefits C. only the external benefits

Some people believe there should be a legally determined minimum price for farm products such as milk. A limit on the price of milk would be an example of: A. price floor B. price ceiling C. marginal benefit

The 1990 Clean Air Act is administered by the __________. A. Environmental Protection Agency B. Federal Reserve C. U.S. Quality Control Agency

The Coase theorem postulates that private solutions to the problem of negative externalities are possible if: A. transaction costs are low B. transaction costs are high C. we legislate the solution

The World Trade Organization (WTO) determines that dumping has occurred if: A. a product is exported for a lower price than it sells for in a home market B. a product is imported for a lower price than it sells for in a home market C. firms are selling products for a price that exceeds the cost of production

The __________ is a measure of responsiveness of the change in quantity demanded of a good to the change in its price. A. price elasticity of demand B. price elasticity of supply C. unit-elasticity of demand

The association formed to lower trade barriers and encourage trade between Canada, the United States and Mexico is known as: A. NAFTA B. GATT C. WTO

The costs associated with engaging in a process to solve a particular pollution problem are referred to as: A. transaction costs B. implicit costs C. social costs

The current price of wheat is $1.00 per bushel, and the price elasticity of demand for wheat is known to be 0.50. A bad harvest causes the supply of wheat to decrease and as a result the price of wheat rises by 20%. What will be the percentage change in quantity demanded for wheat and will farm revenues rise or fall? A. 10%, rise B. 20%, rise C. 10%, fall

The difference between the highest price a consumer is willing to pay for a good or service, and the price they actually pay is called: A. consumer surplus. B. producer surplus. C. marginal benefit.

The disappearance of the family farm can be partially attributed to the fact that the elasticity of demand for wheat is __________, while at the same time, the income elasticity for wheat is __________. A. inelastic, low B. elastic, low C. inelastic, high

The global trend towards large multinational firms is partially driven by __________. A. comparative advantage B. protectionism C. the zero-sum game

The head of the United Kumquat Growers Association makes the following statement. "The federal government is considering implementing a price floor in the market for kumquats. The government will not be able to buy any surplus kumquats produced at the price floor or to pay us any other subsidy. Because the demand for kumquats is elastic LOADING..., I believe this program will make us worse off, and I say we should oppose it." Do you agree or disagree with this reasoning? A. I agree with this reasoning. Since the demand for kumquats is elastic, the revenues will fall significantly with a price floor. B. I disagree with this reasoning. Although the revenues will fall, it would fall even if the demand for kumquats is inelastic. The fact that the demand for kumquats is elastic has little to do with their revenue. C. I agree with this reasoning. Since the demand for kumquats is elastic, the revenues will rise significantly with a price floor. D. I disagree with this reasoning. Although the revenues will fall, it will be insignificant since the demand for kumquats is elastic.

The idea of a pollution tax is the internalize the externality, which happens when the tax: A. equals the external cost B. is greater than the external cost C. is less than the external cost

The income elasticity for peanut butter is -3. This defines peanut butter as what type of good? A. An inferior good B. A necessity C. A luxury

The lack of clearly assigned __________ contributes to __________ of common resources. A. property rights, overuse B. property rights, underuse C. benefits, overuse

The lack of private ownership of certain resources like public lands or water can contribute to overuse. This is known as: A. the tragedy of the commons B. common resource misuse C. externality farming

The marginal cost of eliminating the first 20% of pollution is much __________ than the marginal cost of eliminating the last 20% of pollution. A. less expensive B. more expensive C. harder to justify

The more substitutes available for a product, the greater the price elasticity of demand. A. True B. False

The more substitutes that exist for a particular product, the __________ the price elasticity of demand. A. greater B. smaller C. steeper

The opponents of globalization contend that: A. globalization destroys cultures B. globalization harms poor countries C. globalization benefits only the wealthy

The price elasticity of supply always has a: A. positive value B. negative value C. zero value

The private cost of producing a good will differ from the social cost A. when there is an externality, such as acid rain generated by the production of electricity. B. when there is an externality, such as lower crime rates generated by the consumption of education. C. when there is no externality, such as in the production of ice cream. D. when there are property rights, where individuals or businesses have exclusive use of their property. E. both a and b.

The sugar quota in the United States creates winners and losers. The winners are __________ and the losers are __________. A. U.S. sugar producers, U.S. sugar consumers B. U.S. sugar consumers, U.S. sugar producers C. foreign sugar consumers, foreign sugar producers

The use of trade barriers to shield domestic companies from foreign competition is called __________. A. protectionism B. dumping C. globalization

Uber is a company that offers people transportation by drivers who use their own cars for this purpose. Customers pay for their rides with their smartphone apps. Uber's prices fluctuate with the demand for the service. This "surge pricing" can result in markedly different prices for the same distance traveled at different times of day or days of the week. Annie Lowrey, a writer for the New York Times, explained that she paid $13 for a 10 p.m. two-mile trip in downtown Washington, D.C. on New Year's Eve. Three hours later she paid $47 for the return trip to her home. Did she receive negative consumer surplus on her return trip? A. Her willingness to pay was no less than $47, so she did not receive negative consumer surplus from this trip. B. Yes, because $47 is too muh to pay for a two-mile trip. C. Yes, because her willingness to pay was $13 based on her earlier trip. D. We don't know becuase we don't know if she knew the prices in advance.

Under a policy strategy in which a government imposes an emissions cap and issues tradable emissions-allowance permits to firms, the government: A. seeks to cap nationwide emissions and then distributes emission-allowance permits across firms B. issues an unlimited number of emission-allowance permits C. places a limit on how many emission-allowance permits each firm may buy or sell

What is a market failure? A. A market failure is when the market fails to produce the efficient level of output. B. A market failure is when consumption occurs at low social benefit. C. A market failure is when production occurs at high social cost. D. A market failure is when the market fails to produce deadweight loss. E. All of the above.

What is the cross-price elasticity of demand for two goods that are unrelated? A. Zero B. One C. Negative

What is the name given to the sale of a product for a price below its cost of production? A. Dumping B. Cut-throat pricing C. Bargain pricing

When a firm buys or builds facilities in a foreign country it is known as: A. foreign direct investment B. foreign portfolio investment C. factoring

When a private cost is different than the social cost there is an: A. external cost being borne by someone else B. internal cost being borne by someone else C. internal benefit being received by someone else

When no one owns a specific resource, there is: A. no incentive to consider negative externalities that impact that resource B. too much incentive to consider negative externalities that impact that resource C. incentive to take care of it for the common good

When the elasticity of demand for a product is __________ the elasticity of supply, consumers pay __________ of the tax on the product. A. smaller than; the majority B. smaller than; very little C. larger than; the majority D. None of the above.

When you compute a price elasticity of demand the answer is always: A. negative B. positive C. greater than 1

Which of the following gives people an economic incentive to actively assist in repopulating an endangered species? A. Allowing people to own the endangered species and to charge the public to view them in nature displays, safaris, and other natural venues B. Making it illegal to hunt the endangered species C. Legalizing the trade in hides and other body parts of the endangered species

Which of the following goods is probably the most highly income elastic? A. Private education B. Salt C. Food

Which of the following groups of people are opposed to the World Trade Organization (WTO)? A. People who want to protect domestic firms B. People who favor globalization C. People who believe low-income countries derive no benefit from trade

Which of the following is a drawback to the infant industry justification for protectionism? A. The industries under protection may never become efficient enough to compete with foreign firms. B. Learning by doing can never occur without foreign competitors. C. Most infant industries do not have a comparative advantage in production.

Which of the following is a source of comparative advantage? A. The relative abundance of capital and labor B. Absolute advantage C. Autarky

Which of the following is an example of positive economic analysis? A. Measuring the effect of the sugar quota on the U.S. economy. B. Asserting that the sugar quota is bad public policy and should be eliminated. C. Justifying the profits of U.S. sugar companies based on the number of workers they employ. D. All of the above are examples of positive economic analysis.

Which of the following statements about a shortage is correct? A. There is no shortage of most scarce goods. B. There is a shortage of every good that is scarce. C. Scarcity and shortage mean the same thing to economists.

Which of the following terms corresponds to a market where buying and selling take place at prices that violate government price regulations? A. Black market B. Competitive market C. Conspiracy market

Which of the folowing is an example of a good or service having the effects of a negative externality? A. Cigarette smoking. B. A fireworks display. C. Technological research. D. An ice cream. E. Both a and b.

Which of these is the preferred method to reduce the external cost (pollution) of traffic congestion according to an economist? A. Levy a tax that varies with the level of congestion B. Add more traffic police dedicated to enforcing emission violations C. Limit the number of autos allowed on the road

Which one of the following will not help to reduce the problem that exists when social costs exceed social benefits? A. Subsidize polluters B. Charge polluters to pollute C. Subsidize parties damaged by pollution

Why is the supply curve referred to as a marginal cost curve? A. It shows the willingness of firms to supply a product at different prices. B. It shows the difference between the highest price a consumer is willing to pay and the lowest price a firm would be willing to accept. C. It shows the difference between the lowest price a firm would be willing to accept and the marginal cost of production. D. It shows the price producers actually receive in the market. E. It shows the willingness of consumers to purchase a product at different prices.

You and your neighbor pick apples and cherries. If you can pick apples at a lower opportunity cost than your neighbor can, which of the following is true? A. You have a comparative advantage in picking apples. B. You have a comparative advantage in picking cherries. C. You should specialize in picking cherries.

[Related to the Making the Connection] Amazon allows authors who self-publish their e-books to set the prices they charge. One author was quoted as saying: "I am able to drop prices and, by sheer volume of sales, increase my income." The demand for this author's books was price A. elastic because a decrease in price resulted in higher revenue. B. elastic because an increase in price resulted in higher revenue. C. inelastic because a decrease in price resulted in higher revenue. D. inelastic because a decrease in price resulted in lower revenue.

__________ is the difference between what a producer receives for a good or service and the lowest amount they would accept for that good or service. A. Producer surplus B. Consumer surplus C. Marginal benefit

"Rent controls, government farm programs, and other price ceilings and price floors are bad." This is an example of a A. normative statement. The statement is concerned with what should be. B. positive statement. The statement is concerned with what is. C. positive statement. The statement is concerned with what should be. D. normative statement. The statement is concerned with what is.

"Sugar protectionism" is viewed as a "job killer" because A. it leads to job losses in the candy industry and various food manufacturing industries that use sugar. B. it adversely affects the stock market by raising the price of "sugar futures". C. it leads to job losses in the sugar industry. D. any regulation such as a sugar quota leads to a recession and economy-wide job loss.

Tax incidence indicates A. the actual division of the burden of a tax. B. the burden of a tax on consumers. C. who is not legally required to send a tax payment to the government. D. the burden of a tax on producers. E. who is legally required to send a tax payment to the government. Do the people who are legally required to pay a tax always bear the burden of the tax? Briefly explain. A. No. Whoever bears the burden of the tax is not affected by who legally is required to pay the tax to the government. B. Yes. Those who are legally required to send a tax payment to the government bear the burden of the tax. C. No. Consumers always bear the burden of the tax. D. No. Producers always bear the burden of the tax. E. No. Those who are legally required to send a tax payment to the government never bear the burden of the tax.

A A

The income elasticity of demand for a normal good is _____ and for an inferior good is ______. A. positive; negative B. negative; positive C. negative; negative D. positive; positive If the income elasticity of SUVs is greater than 1, what is the good considered? A. a luxury B. a necessity C. an inferior good D. a substitute good

A A

The private benefit is ________, while the social benefit is ________. A. the benefit received by the consumer of a good or service; the total benefits from consuming the good or service B. the benefit received by the consumer of a good or service; the external benefit C. the total benefit from consuming the good or service; the benefit received by the consumer of a good or service D. None of the above. A positive externality causes A. the social benefit from consuming the good to be the same as the private benefit. B. the social benefit from consuming the good to be greater than the private benefit. C. the social benefit from consuming the good to be less than the private benefit. D. None of the above.

A B

[Related to the Making the Connection] According to an article in the Wall Street Journal, some small publishers have argued that Amazon has been increasing the prices it sells their books for on its Web site. Amazon was increasing the prices by reducing the discount it offered consumers on the retail prices of the books. One small nonfiction publisher said that Amazon had reduced the discount on its books from about 30 percent to about 16 percent. According to the author of the article: "For this publisher, that means less revenue and less profit as some buyers reject the more expensive books." Source: David Streitfield, "As Competition Wanes, Amazon Cuts Back Its Discounts," Wall Street Journal, July 4, 2013 Some buyers will no longer buy the publisher's books at a higher price. The publisher will earn less revenue only if A. sales fall significantly. B. sales fall slightly. C. they don't market properly. D. they don't scale back. The author's statement would be correct if the price elasticity of demand for the publisher's books is A. less than one in absolute value. B. more than one in absolute value. C. equal to one in absolute value. D. equal to zero.

A B

When quantity demanded is completely unresponsive to price, what is the value of price elasticity of demand? A. 0 B. A negative number C. 1 D. A number between 0 and 1 If demand is perfectly elastic, then what is the effect of an increase in price? A. a change in quantity demanded exactly equal to the change in price B. a very small change in quantity demanded C. a decrease in quantity demanded to zero D. no change in quantity demanded

A C

Which of the following is an example of a transaction cost LOADING... associated with negotiating the reduction of a negative externality? An example of a transaction cost is A. the cost associated with drawing up a binding contract to reduce a negative externality. B. the cost associated with not reducing a negative externality. C. the cost of a negative externality on others. D. the total cost of reducing a negative externality. E. the marginal cost of reducing a negative externality. How might transaction costs affect private solutions to externality problems? Transaction costs A. may provide additional incentive for private solutions to reduce negative externalities. B. do not affect private solutions to reduce negative externalities. C. may make private solutions to reduce negative externalities no longer feasible. D. may make private solutions to reduce negative externalities easier. E. may make private solutions to reduce negative externalities unnecessary.

A C

Which of the following is the average tax rate? A. the total tax paid divided by total income B. the income range within which a tax rate applies C. the tax rate paid by the average taxpayer D. the fraction of each additional dollar of income that must be paid in taxes Which of the following tax rates has the greatest effect on people's willingness to work, save, and invest? A. Neither the average tax rate nor the marginal tax rate affects those decisions. B. The average tax rate. C. The marginal tax rate. D. The average and the marginal tax rates have the same effect.

A C

A tax is efficient if it imposes __________ relative to the tax revenue it raises. A. a small excess burden B. a large excess burden C. a large deadweight loss D. None of the above. The ability-to-pay principle of taxes is best achieved using A. a poverty tax. B. a proportional tax. C. a progressive tax. D. a regressive tax. Which of the following represents the horizontal-equity principle of taxation? A. People who receive the benefits from a government program should pay the taxes that support that program. B. People in the same economic situation should be treated equally. C. A greater share of the tax burden should be borne by people who have a greater ability to pay. D. Two people with the same income receive equal utility from consumption.

A C B

An article in a Federal Reserve publication notes that "nearly all taxes create some market inefficiency in the form of deadweight loss." The article notes that when something is taxed the result is "an outcome in which both [buyers and sellers] would gain from more production." Source: Tim Sablik, "Taxing the Behemoths," Federal Reserve Bank of Richmond, Econ Focus, Third Quarter 2013. Taxes result in deadweight loss because A. the equilibrium price rises, and the equilibrium quantity falls; some consumer surplus and some producer surplus become tax revenue for the government, and some becomes deadweight loss. B. the equilibrium price rises, and the equilibrium quantity rises; the economic surplus becomes deadweight loss. C. the equilibrium price falls, and the equilibrium quantity rises; some consumer surplus and some producer surplus become tax revenue for the government, and some becomes deadweight loss. D. the equilibrium price falls, and the equilibrium quantity falls; the economic surplus becomes deadweight loss. Although buyers and sellers would gain from more production of a good or service that is taxed, more of the good or service does not get produced because the price that A. producers pay for inputs is too high. B. consumers pay is increased, so their incentive to buy is decreased. C. the government sets is too low. D. producers receive is lowered, so their incentive to produce is lowered.

A D

An article in the Wall Street Journal about the financial problems of the New York Metropolitan Opera contained the observation that "a ticket-price increase in 2012 backfired." a. The observation that an increase in ticket prices to the opera "backfired' means that A. total revenue from ticket sales decreased following the price increase. B. ticket sales increased following the price increase. C. total revenue from ticket sales increased following the price increase. D. ticket sales decreased following the price increase. b. The demand for opera tickets to the Metropolitan Opera is A. inelastic because total revenue from ticket sales decreased following the price increase. B. elastic because total revenue from ticket sales increased following the price increase. C. inelastic because total revenue from ticket sales increased following the price increase. D. elastic because total revenue from ticket sales decreased following the price increase.

A D

Yellowstone National Park is in bear country. The National Park Service, at its Yellowstone Web site, states the following about camping and hiking in bear country: Do not leave packs containing food unattended, even for a few minutes. Allowing a bear to obtain human food even once often results in the bear becoming aggressive about obtaining such food in the future. Aggressive bears present a threat to human safety and eventually must be destroyed or removed from the park. Please obey the law and do not allow bears or other wildlife to obtain human food. What externality does obtaining human food pose for the bear? When campers and hikers leave human food for bears to consume, that poses A. a negative externality for the bears because the taste of human food often causes the bears to be aggressive and since they pose a threat to human safety, they are eventually removed from the park or even destroyed. B. no externality for the bears because they do not consume human food. C. a negative externality for the bears because they dislike human food. D. a positive externality for the bears because they enjoy consuming human food. What externality does the bear's obtaining human food pose for future campers and hikers? When campers and hikers leave human food for bears to consume, that poses A. a negative externality for the campers and hikers who leave food unattended because bears eat up their supplies. B. no externality because there is a very small chance that they will have any encounter with a bear in the park. C. a negative externality for the future campers and hikers because aggressive bears may be destroyed. D. a negative externality for the future campers and hikers since they may be attacked by aggressive bears who are searching for more human food.

A D

Coca-Cola has been focusing on selling more 7.5-ounce cans in displays near supermarket checkout lines. Previously, Coke had relied more heavily on 20-ounce bottles displayed in the beverage sections of supermarkets. A news story noted that, "The smaller 7.5 ounce mini-cans are typically priced at five to seven cents an ounce, compared with three or four cents an ounce for 12-ounce cans." It quoted a Coca-Cola executive as arguing about consumers that, "They don't care about the price. They will pick it up if you put Coke within arm's reach". a. The Coca-Cola executive is assuming that the demand for Coke is A. inelastic because he says consumers "don't care about the price." B. elastic because he says consumers "don't care about the price." C. elastic because the executive is ignoring consumer behavior. D. inelastic because the executive is ignoring consumer behavior. b. If the Coca-Cola executive is correct, the effect of this marketing strategy should be to A. increase the firm's quantity of Cokes sold. B. decrease the firm's revenue. C. have no influence on the firm's quantity of Cokes sold. D. increase the firm's revenue. The executive believed that having the cans "within arm's reach" in the checkout line was important because it could result in A. less impulse buying on the part of shoppers, conflicting with the elasticity of demand. B. more impulse buying on the part of shoppers, conflicting with the elasticity of demand. C. more impulse buying on the part of shoppers, reinforcing the elasticity of demand. D. less impulse buying on the part of shoppers, reinforcing the elasticity of demand.

A D C

A student argues: "Economic surplus is greatest at the level of output where the difference between marginal benefit and marginal cost is largest." This statement is false because A. the level of output where the difference between marginal benefit and marginal cost is largest will be above the output level needed to have the maximum economic surplus. B. the level of output where the difference between marginal benefit and marginal cost is largest will be below the output level needed to have the maximum economic surplus. C. the marginal benefit and marginal cost relationship has no relevance to economic surplus. D. the level of output where the difference between marginal benefit and marginal cost is largest will also have the highest producer and consumer surplus.

Briefly explain whether you agree with the following statement: "If at the current quantity marginal benefit LOADING... is greater than marginal cost LOADING..., there will be deadweight loss in the market. However, there is no deadweight loss when marginal cost is greater than marginal benefit." A. The statement is incorrect. There is always deadweight loss. B. The statement is incorrect. If marginal cost is greater than marginal benefit (just as when marginal benefit is greater than marginal cost), there will be deadweight loss. C. The statement is incorrect. There will only be deadweight loss when marginal cost equals marginal benefit. D. The statement is correct. E. The statement is incorrect. If marginal benefit is greater than marginal cost, there will be no deadweight loss. However, there is deadweight loss when marginal cost is greater than marginal benefit.

Currently, the Social Security and Medicare programs are funded by payroll taxes rather than by the federal personal income tax. In 2017, the payroll tax for Social Security was 12.4 percent on wage, salary, and self-employment income up to $127,200. (Half of the tax is collected from employers and half from employees.) Above that income level, the tax dropped to zero. The Medicare tax was 2.9 percent on all wage, salary, and self-employment income. Some economists and policymakers have proposed eliminating the payroll tax and shifting to funding Social Security and Medicare out of the federal personal income tax. This proposal would make the federal income tax system as a whole A. less progressive because some people can use tax loopholes to avoid the income tax. B. more progressive because those in the higher income brackets would have an additional tax liability. C. less progressive because all taxpayers would have a higher tax liability. D. more progressive because all taxpayers would have a higher tax liability.

How do property rights affect externalities and market failure? A. Externalities and market failure will not occur when property rights are difficult to enforce. B. Externalities and market failure will result from incomplete property rights. C. Externalities and market failure will result from producers having all the property rights. D. Externalities will be positive and market failure will not occur when property rights are enforced. E. Externalities will be positive and market failure will not occur when property rights are divided equally among market participants.

In what way is sugar protectionism a burden on consumers? As far as the effect of "sugar protectionism" on U.S. consumers is concerned, A. it limits the quantity of sugar that a consumer is eligible to buy. B. it raises the prices of sugar and candy that consumers have to pay and leads to a loss of consumer surplus. C. it requires a consumer to pay a license fee to buy large quantities of sugar. D. it has no appreciable effect on sugar prices.

Is the demand for agricultural products elastic or inelastic? Why? The demand for agricultural products is A. elastic because they are perishable products. B. inelastic because such products represent a small share in the consumer's budget. C. elastic because the markets for such products are defined very broadly. D. inelastic because such products have many close substitutes. E. inelastic because such products are luxuries.

When a competitive market is in equilibrium, what is the economically efficient level of output? A. any output level where marginal benefit is greater than marginal cost B. the output level where marginal cost is equal to marginal benefit C. any output level where marginal cost is greater than marginal benefit D. All of the above.

When demand curves intersect, the curve with the larger slope in absolute value (the steeper demand curve) is more elastic. A. True B. False

Like many other cities, Denver experienced a sharp decline in construction of new houses in the years following 2006. Many carpenters, roofers, and other skilled workers left the area or found jobs in other industries. In addition, builders stopped buying and preparing home lots for construction. According to an article in the Wall Street Journal, by 2014, as consumers increased their demand for new homes in Denver, "New-home prices have surged over the past two years ... amid a shortage of home lots and skilled construction workers." Source: Kris Hudson, "Labor Shortage Besets Home Builders," Wall Street Journal, May 1, 2014. In the future, the price increases of new houses in Denver can be expected to be A. larger because supply is more elastic over time. B. smaller because supply is more elastic over time. C. larger because supply is less elastic over time. D. smaller because supply is less elastic over time.

Mabel is an advocate for a "zero tolerance" policy regarding all illegal street drugs, including cocaine, marijuana, and heroin. Mabel has witnessed high crime and violence in her neighborhood and believes that only by arresting and prosecuting anyone who sells or uses illegal drugs will she and her neighbors and their children live without fear. The policy that Mabel endorses is A. economically efficient because the additional benefit from reducing drug use would be more than the additional cost. B. not economically efficient because at some point the additional benefit from reducing drug use would be less than the additional cost. C. economically efficient because the additional benefit from reducing drug use would be less than the additional cost. D. not economically efficient because the additional benefit from reducing drug use would be more than the additional cost.

Producer surplus is A. the difference between the highest price a consumer is willing to pay and the lowest price a firm would be willing to accept. B. the difference between the lowest price a firm would be willing to accept and the price it actually receives. C. the difference between the lowest price a firm would be willing to accept and marginal cost. D. the difference between the highest price a consumer is willing to pay and the price the consumer actually pays. E. the market price multiplied by the number of units sold by a firm.

Related to the Making the Connection] The elasticities reported in this Making the Connection were calculated using price data for many brands of beer. Price elasticity estimates for a product might be less reliable if calculated using only one brand instead of a cross section of brands because A. that one brand might take advantage of its status to increase market share. B. one brand may not be representative of the elasticity for the entire category. C. one brand might be a better substitute for premium beer than another brand. D. that one brand might go out of business leaving no available data for the calculation.

Suppose the government eliminates the income tax and replaces it with a consumption tax. With a consumption tax, individuals pay a tax on only the part of the income they spend rather than save. Think about the effect of this change on the market for automobiles. Can you necessarily tell what will happen to the price and quantity of automobiles? A. The equilibrium quantity will be higher and the equilibrium price will be lower. B. The equilibrium quantity will be lower and the equilibrium price will be higher. C. A consumption tax would have no effect on the market for automobiles. D. The equilibrium quantity will be lower and the equilibrium price will be lower.

The Coase Theorem states that A. if transaction costs are low, the government will regulate an efficient solution to the problem of externalities. B. if transaction costs are low, private bargaining will result in an efficient solution to the problem of externalities. C. if transaction costs are low, private markets will create externalities and result in efficient outcomes. D. if transaction costs are low, private deals will create externalities and result in inefficient outcomes. E. if imposed on free markets, government regulations will result in inefficient outcomes and create deadweight loss.

The demand curve for a luxury is less elastic than the demand curve for a necessity. A. True B. False

The formula for the price elasticity of supply is A. the change in price divided by the change in quantity supplied. B. the percentage change in quantity supplied divided by the percentage change in price. C. the change in quantity supplied divided by the price. D. the percentage change in price divided by the percentage change in quantity supplied. E. the percentage change in quantity supplied divided by the percentage change in quantity demanded.

The more time that passes, the more inelastic the demand for a product becomes. A. True B. False

The term external economies refers to: A. the process of turning inputs into goods and services B. the reduction of costs resulting from industry concentration in a given area C. the relative distribution of skilled labor in a region

The use of trade barriers to shield domestic companies from foreign competition is called A. globalization. B. protectionism. C. dumping. D. patriotism.

What information must economists have to estimate the price elasticity of demand? To estimate the price elasticity of demand, economists need to know A. the supply curve for a product. B. the demand curve for a product. C. the market price and quantity sold. D. total revenue. E. the change in price.

When demand increases, equilibrium price will rise ____________ when supply is _________ elastic. A. more; more B. more; less C. less; less D. None of the above. Supply elasticity does not matter when determining the effect of a shift in demand on the equilibrium price.

Which of the following arguments is used to justify protectionism? A. Tariffs and quotas lower prices to domestic consumers B. Tariffs and quotas protect infant industries C. Tariffs and quotas increase foreign standards of living

Which of the following statements is correct? A. The corporate income tax eliminates the double taxation of dividends. B. Many corporations are taxed at the highest tax rate of 35 percent. C. The individual income tax is progressive, but the corporate income tax is regressive. D. All of the above are correct.

Which type of tax raises the most revenue for state and local governments? A. Individual income tax. B. Sales tax. C. Corporate income tax. D. Property tax.

Your neighbor John has a barking dog. Which of the following statements is true? A. It creates only a negative externality by disrupting your sleep. B. It can create negative externalities by disrupting your sleep and can also create positive externalities by discouraging intruders. C. It does not create any externality because John bought the dog from a shelter. D. It does not create any externalities because you do not own the dog.

[Related to Solved Problem #3] Two managers have the following conversation. Manager 1: "The only way we can increase the revenue LOADING... we receive from selling our graphing calculators is by cutting the price." Manager 2: "Cutting the price of a product never increases the amount of revenue you receive. If we want to increase revenue, we have to increase price." Do you agree with the reasoning of Manager 2? A. I agree. Cutting the price will never increase the amount of revenue you receive. B. I disagree. Cutting the price will increase the revenue if the demand is price elastic. C. I disagree. Cutting the price will increase the revenue only if the demand is inelastic. D. I agree. Cutting the price will not increase the amount of revenue, you have to increase price.

[Related to the Chapter Opener] If San Francisco were to repeal its rent control law, the prices for short rentals in the city listed on Airbnb and other peer-to-peer sites would likely A. rise because there would be fewer apartments available. B. fall because more housing units would become available as the average rent increased. C. rise because so many more people would use these sites. D. fall because there would be fewer apartments available.

A tax where people with lower incomes pay a higher percentage of their income in tax than do people with higher incomes is called a A. proportional tax B. regressive tax. C. progressive tax D. social insurance tax. As presented in the text, how is the federal income tax structured? A. The rate at which income is taxed increases as income increases. Up to a limit, additional amounts of income are taxed at ever greater rates. B. All taxpayers pay the same tax rate. The dollar amount of the tax is equal to this tax rate times their taxable income. C. The federal income tax is an example of a regressive tax. D. The rate at which income is taxed decreases as income increases. Up to a limit, additional amounts of income are taxed at ever lower rates.

B A

Almost all states levy sales taxes on retail products, but about half of them exempt purchases of food. In addition, virtually all services are exempt from state sales taxes. a. The exemption of food from sales taxes is most likely explained by what? A. Attaining social objectives. B. The ability-to-pay principle. C. The benefits-received principle. D. The horizontal-equity principle. The exemption of services from sales taxes is most likely explained by what? A. Attaining social objectives such as avoiding tax evasion. B. The ability-to-pay principle. C. The benefits-received principle. D. The horizontal-equity principle.

B A

Suppose you are explaining the benefits of free trade and someone states, "I don't understand all the principles of comparative advantage and gains from trade. I just know that if I buy something produced in America, I create a job for an American, and if I buy something produced in Brazil, I create a job for a Brazilian." Are they correct in asserting that free trade costs U.S. jobs? A. Yes, since purchasing a domestically-produced good helps the U.S. economy but purchasing an imported good helps a foreign economy. B. No, since free trade creates more jobs for the U.S. economy than it costs the U.S. C. Yes, since any time we buy an imported good we ship a job abroad but do not create a job in the U.S. to compensate for the job loss. D. No, since international trade does not affect jobs, only domestic taxes and regulations do. All of the following statements correctly describe the outcomes when the U.S. imports products in which it does not have a comparative advantage, except that A. the number of jobs in the U.S is reduced. B. the U.S. helps its trading partners to improve their income and employment as well. C. the U.S. tends to organize its production efficiently by focusing on products where it has a comparative advantage. D. although jobs are lost in some industries that compete with foreign imports, more jobs are created in the economy.

B A

Which one of the following factors helps determine the marginal cost of reducing crime? A. property damage from crime. B. resources devoted to courts. C. medical expenses. Which one of the following factors helps determine the marginal benefit of reducing crime? A. personal injury from crime. B. resources devoted to education. C. resources devoted to prison guards. Would it be economically efficient to reduce the amount of crime to zero? Briefly explain. A. Yes. Crime should be completely reduced. B. No. It would not be efficient to completely reduce crime because the marginal benefit of doing so likely exceeds the marginal cost. C. No. Crime should not be completely reduced because the social cost of crime exceeds the private cost of crime. D. No. Crime should never be reduced. E. No. It would not be efficient to completely reduce crime because the marginal cost of doing so likely exceeds the marginal benefit.

B A E

Which of the following is the definition of producer surplus? A. the additional benefit to a consumer from consuming one more unit of a good or service B. the difference between the highest price a consumer is willing to pay and the price the consumer actually pays C. the difference between the lowest price a firm would have been willing to accept and the price it actually receives D. the additional cost to a firm of producing one more unit of a good or service

The cross-price elasticity of demand is A. the percentage change in quantity demanded divided by the percentage change in price. B. the percentage change in quantity demanded of one good divided by the percentage change in the price of another good. C. the percentage change in quantity demanded divided by the percentage change in income. D. the percentage change in quantity supplied divided by the percentage change in price. E. the percentage change in quantity demanded of one good divided by the percentage change in the quantity of another good. If the cross-price elasticity of demand is negative, then the products are: A. substitutes, but if it is positive, then the products are complements. B. complements, but if it is positive, then the products are substitutes. C. necessities, but if it is positive, then the products are luxuries. D. related, but if it is positive, then the products are unrelated. E. inferior goods, but if it is positive, then the products are normal goods.

B B

[Related to the Chapter Opener] According to an article on the Boston Globe's Web site, during the last three months of 2014, gasoline prices dropped 33 percent at the same time as ridership on mass transit, such as subways and trains increased by 1 percent. According to a spokesperson for the American Public Transportation Association, a group that lobbies Congress in behalf of public transit systems, "Even with gas prices dropping like a rock, the public is still demanding more transit options." a. Gasoline and rides on mass transit are A. substitutes because the cross-price elasticity of demand is positive. B. complements because the cross-price elasticity of demand is negative. C. complements because the cross-price elasticity of demand is positive. D. substitutes because the cross-price elasticity of demand is negative. b. During this period the unemployment rate was declining, the news story also included the observation, "An improving economy means more people need to get to work." Given this observation, A. the cross-price elasticity of demand between gasoline and rides on mass transit is likely to be zero. B. the cross-price elasticity of demand between gasoline and rides on mass transit is likely to be more negative. C. we can no longer be sure of the value of the cross-price elasticity of demand between gasoline and rides on mass transit. D. the cross-price elasticity of demand between gasoline and rides on mass transit is likely to be positive.

B C

_____ is a situation in which a country does not trade with other countries. The _____ is the ratio at which a country can trade its exports for imports from other countries. A. Plutarky, price ratio B. Autarky, terms of trade C. Terms of trade, autarky D. Oikonomia, prices By trading, countries are able to consume more than they could without trade. This outcome is possible because A. shifting production to the more efficient countrylong dashthe one with the comparative advantagelong dashincreases total production. B. world production of both goods increases after trade. C. inefficiencies in resource allocation are reduced. D. all of the above.

B D

[Related to Making the Connection] A Wall Street Journal article noted that a study by the U.S. Congressional Budget Office "estimated raising the minimum wage to $10.10 an hour would reduce U.S. employment by 500,000 but lift 900,000 Americans out of poverty." The minimum wage might reduce employment because A. the increase raises the wage for all workers. B. employer costs would increase. C. it would require training and benefits which would be too expensive to hire new workers. D. some workers may choose not to work at the higher wage. The minimum wage might raise some people out of poverty because A. more training would be available for workers. B. income support programs would also raise the payments. C. the standard of living for everyone would increase. D. it would increase the incomes of people who had minimum wage jobs previously. These estimates influence the normative analysis of the minimum wage because they A. do not acknowledge the trade-off between raising the standard of living of low-income workers and eliminating some low wage jobs. B. influence the judgement of policymakers and members of the general republic regarding this issue. C. can accurately predict what will happen if the minimum wage changes. D. confuse the general public and make the debate senseless.

B D B

[Related to the Making the Connection] In the first years following the passage of the Clean Air Act in 1970, air pollution declined sharply, and there were important health benefits, including a decline in infant mortality. According to an article in the Economist magazine, however, recently some policymakers "worry that the EPA is constantly tightening restrictions on pollution, at ever higher cost to business but with diminishing returns in terms of public health." Source: "Soaring Emissions," Economist, June 2, 2011. Additional reductions in air pollution might come at "ever higher cost" because A. the marginal cost of additional pollution reduction falls as there is less pollution to reduce. B. the marginal cost of additional pollution reduction rises as there is less pollution to reduce. C. as pollution is reduced, the cost of producing goods increases. D. there are penalties charged for pollution. When the article says that these reductions will result in "ever diminishing returns in terms of public health," it means that A. the additional public health gains will get smaller if there is more pollution. B. the total public health gains will get smaller as there are more reductions in pollution. C. public health will not improve if there is less pollution. D. the additional public health gains will get smaller as there are more reductions in pollution. The government should take action to reduce air pollution further if A. it doesn't cost very much. B. the marginal cost of reducing air pollution exceeds the marginal benefit of reducing air pollution. C. it will lower the damage from air pollution. D. the marginal cost of reducing air pollution is less than the marginal benefit of reducing air pollution.

B D D

A student makes the following argument: "When a market is in equilibrium, there is no consumer surplus LOADING.... We know this because in equilibrium, the market price is equal to the price consumers are willing to pay for the good." Briefly explain whether you agree with the student's argument. A. The student is incorrect because the market price is greater than marginal cost. B. The student is incorrect because consumer surplus equals the price consumers are willing to pay for a good, which is a positive amount. C. The student is incorrect because the price consumers are willing to pay and the market price are only equal for the last unit consumed. D. The student is correct because the highest price consumers are willing to pay and the price consumers actually pay are equal. E. The student is correct because the highest price consumers are willing to pay and the lowest price firms are willing to accept are equal.

According to an article in the New York Times, the Venezuelan government "imposes strict price controls that are intended to make a range of foods and other goods more affordable for the poor. They are often the very products that are the hardest to find." Source: William Neuman, "With Venezuelan Cupboards Bare, Some Blame Price Controls," New York Times, April 20, 2012. Imposing price controls on goods would make them hard to find because A. there would be too much of the product supplied and the price would fall. B. the high price level would encourage producers to supply more, but buyers would not want to pay the higher price. C. producers would not want to supply as much as they did before the price controls. D. the high price level would discourage buyers.

According to economists, an efficient tax is one that A. splits the tax burden equally between consumers and producers. B. is relatively easy to collect relative to the revenue it generates. C. imposes a small excess burden relative to the tax revenue it raises. D. maximizes tax revenue for government.

As explained in the chapter, economic efficiency is an outcome in a market when the marginal benefit to consumers of the last unit produced is equal to its marginal cost of production. Considering this explanation of economic efficiency, why does a tax creates deadweight loss (i.e. reduce surplus)? What is the impact of a production tax on the equilibrium price? The equilibrium price A. falls and the equilibrium quantity rises. B. rises and the equilibrium quantity rises. C. rises and the equilibrium quantity falls. D. falls and the equilibrium quantity falls.

Briefly explain whether you agree or disagree with the following statement: "International trade is more important to the U.S. economy than to most other economies." A. Agree. The U.S. is the largest exporter of goods and services in the world. B. Agree. The U.S. economy relies on low priced imports to keep inflation under control. C. Disagree. Exports and imports are a relatively small fraction of the United States GDP. D. Disagree. Since the U.S. has an absolute advantage in the production of most goods, it doesn't gain from trade.

Briefly explain whether you agree with the following statement: "If consumer surplus LOADING... in a market increases, producer surplus LOADING... must decrease." A. The statement is correct. B. The statement is incorrect. Consumer surplus (and producer surplus) could increase by decreasing economic surplus. C. The statement is incorrect. Consumer surplus (and producer surplus) could increase by decreasing deadweight loss. D. The statement is incorrect. Consumer surplus (and producer surplus) could increase by decreasing economic efficiency. E. The statement is incorrect. Consumer surplus (and producer surplus) could increase if the government intervenes in a market by imposing a price ceiling.

Consider the consumption of public pasture land. What type of good is public pasture land? Public pasture land is A. a public good. B. a private good. C. a common resource. D. an externality. E. a quasi minus public good.

Does it matter whether buyers or sellers are legally responsible for paying a tax? A. Yes, the tax is more equitable if sellers pay the tax. B. Yes, the tax is more efficient if consumers pay the tax. C. No, the market price to consumers and net proceeds to sellers are the same independent of who pays the tax.

From 1950 to 2012, wheat production in the United States increased dramatically, resulting in a substantial decline in wheat prices. Two key factors explaining this decline in prices are that the demand for wheat is ________, and the income elasticity of demand for wheat is ________. A. price elastic; low B. price inelastic; high C. price inelastic; low D. price elastic; high

How is the price elasticity of demand measured? The price elasticity of demand is measured as A. price divided by the quantity demanded. B. the slope of the demand curve. C. the percentage change in the quantity demanded divided by the percentage change in price. D. the percentage change in the quantity supplied divided by the percentage change in the quantity demanded. E. the change in the quantity demanded divided by the change in price.

If the marginal cost of reducing a certain type of pollution is zero, should all of that pollution be eliminated? Briefly explain. A. Economic theory typically shows that it is efficient to completely reduce pollution because the marginal cost of doing so typically exceeds the marginal benefit. However, one instance when pollution should not completely be eliminated is when the marginal cost of reducing pollution is zero. B. Economic theory typically shows that it is not efficient to completely reduce pollution because the marginal benefit of doing so typically exceeds the marginal cost. However, one instance when pollution should completely be eliminated is when the marginal cost of reducing pollution equals zero. C. Economic theory typically shows that it is not efficient to completely reduce pollution because the marginal cost of doing so typically exceeds the marginal benefit. However, one instance when pollution should completely be eliminated is when the marginal cost of reducing pollution is zero. D. Economic theory shows that it is always efficient to completely eliminate pollution. E. Economic theory never shows that it is efficient to completely reduce pollution.

In England during the Middle Ages, each village had an area of pasture, known as a commons, on which any family in the village was allowed to graze its cows or sheep without charge. Was the common land used optimally? A. The commons was underused due to free riding. B. The commons was overused because the commons was an excludable good. C. Grazing created a negative externality, resulting in the commons being overused. D. The commons was underused because the commons was a rival good. E. Grazing created no externality, resulting in the commons being used optimally.

Who is harmed when individual nations move from autarky to free trade? A. The domestic customers of the firms that went out of business. B. The foreign customers of the firms that now specialize. C. The owners of the firms that went out of business. D. The nation taken as a whole.

In 2012, Congress and President Barack Obama passed legislation raising tax rates on families earning $450,000 or more. Did this change in the law make the U.S. tax system more progressive or less progressive? Raising taxes on high-earning families will cause the U.S. tax system to become A. more progressive because taxes on those with higher incomes are more efficient. B. less progressive because those with lower incomes will not experience a tax increase. C. more progressive because those with higher incomes will pay a larger percentage of their incomes in tax. D. less progressive because not everyone will pay the tax increases. E. less progressive because the portion of taxes that are federal will increase.

Marginal cost is A. the cost of producing output. B. the additional benefit from consuming one more unit. C. the additional cost of producing one more unit. D. the difference between the lowest price a firm would be willing to accept and the price it actually receives. E. a legally determined minimum price that sellers may charge.

Protectionism is the use of trade barriers to shield domestic firms from foreign competition. Protectionism is usually justified on the basis of several arguments which include: A. protecting national security, promoting the wants of select industries, and saving jobs. B. protecting high wages, protecting mature industries, and protecting national security. C. saving jobs, protecting infant industries, and protecting national security. D. protecting high wages, protecting national security, and maintaining high prices for imports.

What happens when the quantity demanded is very responsive to changes in price? The percentage change in quantity demanded will be A. equal to the percentage change in price. B. unrelated to the percentage change in price. C. greater than the percentage change in price. D. less than the percentage change in price.

What is an externality? A. The highest valued alternative that must be given up to engage in an activity. B. The combined benefit and cost to those directly involved in production and consumption of a good or service. C. A benefit or cost that affects someone who is not directly involved in the production or consumption of a good or service. D. A fixed or variable cost incurred by firms to produce a good or service. E. The ability of an individual, a firm, or a country to produce a good or service at a lower opportunity cost than other producers.

What is a quota? A. An agreement negotiated between two countries that places a numerical limit on the quantity of a good that can be imported by one country from the other country. B. A quota is the same thing as a voluntary export restraint. C. A numerical limit a government imposes on the quantity of a good that can be imported into a country. D. All of the above.

What is economic efficiency? A. Economic efficiency is where deadweight loss is maximized. B. Economic efficiency is where consumer surplus is maximized. C. Economic efficiency is where consumer surplus and producer surplus are maximized. D. Economic efficiency is where producer surplus is maximized. E. Economic efficiency is where government revenue is maximized.

What is the advantage of the midpoint method? A. The midpoint formula will give the same value as the price elasticity of demand when using the final price and the final quantity. B. The midpoint formula is easier to calculate. C. The midpoint formula will give the same value whether moving from the higher price to the lower price or from the lower price to the higher price. D. The midpoint formula will give the same value as the price elasticity of demand when using the higher price and the lower quantity. E. The midpoint formula will give the same value as the price elasticity of demand when using the higher price and the higher quantity.

What is the formula for the price elasticity of demand? The formula for the price elasticity of demand is A. the percentage change in quantity supplied divided by the percentage change in quantity demanded. B. the change in quantity demanded divided by the change in price. C. the percentage change in quantity demanded divided by the percentage change in price. D. the change in quantity demanded divided by the price. E. the percentage change in price divided by the percentage change in quantity demanded.

What is the midpoint method for calculating price elasticity of demand? The midpoint method for calculating price elasticity of demand is: A. the change in quantity divided by the initial quantity divided by the change in price divided by the initial price. B. the change in quantity divided by the average of the initial and final quantities divided by price. C. the change in quantity divided by the average of the initial and final quantities divided by the change in price divided by the average of the initial and final prices. D. the change in quantity divided by the average of the initial and final quantities divided by the change in price divided by the initial price. E. the average of the initial and final quantities divided by the average of the initial and final prices.

What must be true for the Coase Theorem to hold? For the Coase Theorem to hold, A. transaction costs to obtain an agreement must be high. B. the government must monitor the negotiations to obtain an agreement. C. all parties to an agreement must have full information about the costs and benefits of the externality. D. all parties to an agreement must be willing to bluff. E. the externality must be generated by the consumption of a good or service.

Which of the following is a primary determinant of the price elasticity of supply LOADING...? The price elasticity of supply is affected by A. the share of the good in consumer budgets. B. the definition of the market. C. the passage of time. D. whether the good produced is a luxury or a necessity. E. whether the good produced has close substitutes available.

Why do some consumers tend to favor price controls while others tend to oppose them? A. Price ceilings generate shortages. Consequently, consumers surplus increases, but producer surplus decreases. B. Price ceilings generate surpluses. Consequently, consumers who obtain the product at a lower price win, but consumers who obtain the product at a higher price lose. C. Price ceilings generate shortages. Consequently, the consumers who obtain the product at a lower price win, but other consumers will lose because they would like to purchase the product but are unable to because of a shortage. D. Price floors generate shortages. Consequently, the consumers who obtain the product at a lower price win, but other consumers will lose because they would like to purchase the product but are unable to because of a shortage. E. None of the above.

Why is the demand curve referred to as a marginal benefit curve? A. It shows the difference between the highest price a consumer is willing to pay and the marginal benefit of consumption. B. It shows the willingness of firms to supply a product at different prices. C. It shows the willingness of consumers to purchase a product at different prices. D. It shows the price consumers actually pay to consume a product. E. It shows the difference between the highest price a consumer is willing to pay and the lowest price a firm would be willing to accept.

Why isn't elasticity just measured by the slope of the demand curve? A. The slope of the demand curve is negative. B. The slope of the demand curve changes along the curve. C. The slope can change dramatically comma depending on the units chosen for quantity and price. D. The slope of the demand curve is often unknown. E. Price elasticity of demand is the same as the slope of the demand curve.

[Related to Making the Connection] According to a news story, Pennsylvania's liquor tax is "paid by the seller--the restaurant or bar owner--when the seller buys liquor from state-run wine and spirit stores." The way in which liquor taxes in Pennsylvania are collected influences the price of a glass of wine purchased by a consumer in a restaurant by A. increasing supply and decreasing the price of wine and other liquor drinks in stores. B. decreasing demand and decreasing the price of wine and other liquor drinks in stores. C. decreasing supply and increasing the price of wine and other liquor drinks in stores. D. increasing demand and increasing the price of wine and other liquor drinks in stores.

[Related to the Making the Connection] An article in the Wall Street Journal notes that although U.S. oil production has increased rapidly in recent years, the increase has still amounted to only 5 percent of world production. Still, that increase has been "enough to help trigger a price collapse." Source: Georgi Kantchev and Bill Spindle, "Shale-Oil Producers Ready to Raise Output," Wall Street Journal, May 13, 2015. A small increase in supply can lead to a large decline in equilibrium price when A. demand is relatively elastic. B. supply is perfectly elastic. C. demand is relatively inelastic. D. demand is perfectly elastic.

[Related to Don't Let This Happen to You] The publisher of a magazine gives his staff the information in the table below. He tells them, "Our costs are currently $150,000 more than our revenues each month. I propose to eliminate this problem by raising the price of the magazine to $3.00 per issue. This will result in our revenue LOADING... being exactly equal to our cost." Current price $2.00 per issue Current sales 150,000 copies per month Current total costs $450,000 per month In order for the publisher's analysis to be correct, A. demand is elastic. B. demand is perfectly elastic. C. demand is perfectly inelastic. D. demand is inelastic.

John Cassidy, a writer for the New Yorker magazine, wrote a blog post arguing against New York City's having installed bike lanes. Cassidy complained that the bike lanes had eliminated traffic lanes on some streets as well as some on-street parking. A writer for the Economist magazine disputed Cassidy's argument by writing: "I hate to belabour the point, but driving, as it turns out, is associated with a number of negative externalities." Sources: John Cassidy, "Battle of the Bike Lanes," New Yorker, March 8, 2011; and "The World Is His Parking Spot," Economist, March 9, 2011. One such negative externality associated with driving is due to the A. high price of the cars. B. ability of the cars to reduce commuting time for an individual. C. emissions from automobiles that create air pollution. D. tendency of the car drivers not to obey the speed limit. In big cities, city officials may favor installing more bike lanes because A. bike lanes reduce on street parking. B. automobiles create negative externalities. C. more bike lanes increase demand for bikes. D. bikers on bike lanes interfere with pedestrians.

C B

[Related to Making the Connection] According to a news story, after taxi drivers in Paris protested Uber, the government passed a new regulation "requiring a minimum 15-minute wait between the time a car is booked and the passenger is picked up." Source: Carol Matlack, "Paris Cabbies Slash Tires, Smash Windshields in Protest Against Uber," businessweek.com, January 13, 2014. Taxi drivers believe they would benefit from such a regulation because A. they don't really understand the regulation. B. they can better organize the traffic flow to the customer. C. it restricts the services of competitors such as Uber. D. it allows them more time to reach the customer. The regulation would be likely to A. increase efficiency in the market for hired rides. B. decrease efficiency in the market for hired rides. C. have no affect on the efficiency in the market for hired rides.

C B

Economic efficiency is A. a government outcome in which the marginal benefit to consumers of the last unit produced is equal to its marginal cost of production and in which the sum of consumer surplus and producer surplus is at a maximum. B. a market outcome in which the marginal benefit to consumers of the last unit produced is equal to its marginal cost of production and in which the sum of consumer surplus and producer surplus is not at a maximum. C. a market outcome in which the marginal benefit to consumers of the last unit produced is greater than its marginal cost of production and in which the sum of consumer surplus and producer surplus is at a maximum. D. a market outcome in which the marginal benefit to consumers of the last unit produced is equal to its marginal cost of production and in which the sum of consumer surplus and producer surplus is at a maximum.

Externalities affect the economic efficiency of a market equilibrium by causing a difference between A. the private cost of production and the social cost of production. B. the private benefit of consumption and the social benefit of production. C. consumer surplus and producer surplus. D. both a and b. E. all of the above.

According to the analysis by Hufbauer and Lowry, of the additional $1.1 billion consumers spent on tires as a result of the tariff on Chinese tires, the workers whose jobs were saved in the U.S. tire industry received only about $48 million in wages. Source: Gary Clyde Hufbauer and Sean Lowry, "US Tire Tariffs: Saving Few Jobs at High Cost," Peterson Institute for International Economics, Policy Brief Number PB12-9, April 2012. Would it have been cheaper for the federal government to have raised taxes on U.S. consumers and given the money to tire workers rather than to have imposed a tariff? A. No, because Hufbauer and Lowry concluded that the tariff cost U.S. consumers about $19,000 per year for each job saved in the tire industry. B. No, because Hufbauer and Lowry concluded that the tariff cost U.S. consumers about $9,000 per year for each job saved in the tire industry. C. Yes, because Hufbauer and Lowry concluded that the tariff cost U.S. consumers more than $900,000 per year for each job saved in the tire industry. D. Yes, because Hufbauer and Lowry concluded that the tariff cost U.S. consumers more than $1,500,000 per year for each job saved in the tire industry. The federal government did not adopt this alternative policy because A. the Service Workers union threatened to only buy Chinese tires if the tariff was passed. B. the Chinese government had sufficient political power to persuade Congress to pass this tariff. C. the United Steelworkers Unions had sufficient political power to persuade Congress to pass this tariff. D. the Teamster union supported the tire workers and threatened to strike.

C C

As you move up a linear demand curve, the price elasticity of demand in absolute value A. stays the same. B. decreases. C. increases. D. None of the above. On the lower part of a linear demand curve below the midpoint, the demand is ________ and raising the price causes total revenue to _________. A. elastic; increase B. elastic; decrease C. inelastic; decrease D. inelastic; increase

C D

A black market is A. a market in which all transactions involve activities (such illicit drugs, prostitution, etc.) many in the population find morally offensive. B. very similar to a "gray" market except that the goods and services exchanged are imported. C. a market in which buying and selling take place at prices consistent with government price regulations. D. a market in which buying and selling take place at prices that violate government price regulations.

Briefly explain whether you agree with the following statement: "A lower price in a market always increases economic efficiency in that market." A. I agree, because the resulting increase in consumer surplus will more than offset the decline in producer surplus. B. I disagree, because shortages will result, thereby encouraging firms to be shoddy in how they operate and in what they produce. C. I agree, because falling prices for their products will inspire firms to operate as efficiently as possible. D. I disagree, because economic efficiency declines if price falls below the market equilibrium.

Can economic analysis provide a final answer to the question of whether the government should intervene in markets by imposing price ceilings and price floors? Why or why not? A. Economic analysis can provide such an answer because it seeks to address both positive and normative questions such as "what is" and "what ought to be." B. Economic analysis can provide such an answer because it seeks to address normative questions such as "what is." C. Economic analysis cannot provide such an answer because it seeks to address positive questions such as "what ought to be." D. Economic analysis cannot provide such an answer because it seeks to address positive questions such as "what is." E. Economic analysis can provide such an answer because it seeks to address normative questions such as "what ought to be."

Compare the demand for sugar with demand for clothes. The demand for sugar is likely A. more elastic because sugar tends to represent a smaller fraction of a consumer's budget. B. more elastic because sugar tends to be purchased in larger quantities. C. more elastic because sugar tends to represent a larger fraction of a consumer's budget. D. more inelastic because sugar tends to represent a smaller fraction of a consumer's budget. E. more inelastic because sugar tends to be purchased more frequently.

Compare the demand for water with the demand for wine. The demand for wine is likely A. relatively more elastic because wine is a necessity. B. relatively more inelastic because wine is a luxury. C. relatively more inelastic because wine is a necessity. D. relatively more elastic because wine is a luxury. E. equally elastic as the demand for water.

Consider firms selling three goodslong dashone firm sells a good with an income elasticity of demand less than zero, one firm sells a good with an income elasticity of demand greater than zero but less than one, and one firm sells a good with an income elasticity of demand greater than one. In a recession, sales of a good with A. an income elasticity of demand less than zero will decline along with the sales of a good with an income elasticity of demand greater than zero but less than one. B. an income elasticity of demand less than zero will increase along with the sales of a good with an income elasticity of demand greater than one. C. an income elasticity of demand greater than one will decline the most and sales of a good with an income elasticity of demand less than zero will increase the most. D. an income elasticity of demand less than zero will decline the most and sales of a good with an income elasticity of demand greater than one will increase the most.

Consider firms that introduce new products, such as DVDs in 2001. When firms introduce new products, how do they typically determine the price elasticity of demand for those products? Firms with new products often A. identify price elasticity of demand by asking for government assistance. B. identify price elasticity of demand by using price controls to set price ceilings. C. guess price elasticity of demand based on market competition. D. estimate price elasticity of demand by experimenting with different prices. E. approximate price elasticity of demand with market signals such as shortages.

For which of the following products is the price elasticity of demand (in absolute value) the largest? A. cigarettes B. milk C. automobiles D. Tide liquid detergent

How else can you calculate the price elasticity of demand? A. Price elasticity of demand can be calculated using initial values for price and quantity. B. Price elasticity of demand can be calculated using final values for price and quantity. C. Price elasticity of demand can be calculated by finding the slope of the demand curve. D. Both a and b. E. All of the above.

If sugar protectionism has the bad effects as stated in the editorial, which of the following is a likely reason why Congress and the president do not eliminate it? A. There is little political support for the elimination of the quota. B. Sugar growers have a very strong lobby in Washington. C. Consumers are unaware of the existence of the quota. D. All of the above.

In discussing the reduction of air pollution in the developing world, Richard Fuller of Blacksmith Institute, an environmental organization, observed, "It's the 90/10 rule. To do 90 percent of the work only costs 10 percent of the money. It's the last 10 percent of the cleanup that costs 90 percent of the money." Source: Tiffany M. Luck, "The World's Dirtiest Cities," Middle East Times, February 28, 2008. Why should it be any more costly to clean up the last 10 percent of polluted air than to clean up the first 90 percent? A. The total cost of cleaning up air pollution is increasing because the air that is easiest to clean up is cleaned up first. B. The marginal cost of cleaning up air pollution is increasing because the marginal benefit of cleaning up air pollution is decreasing. C. The total cost of cleaning up air pollution is increasing because the marginal cost of cleaning up air pollution is constant. D. The marginal cost of cleaning up air pollution is increasing because the air that is easiest to clean up is cleaned up first. E. The marginal cost of cleaning up air pollution is increasing because the air that is hardest to clean up is cleaned up first.

In general, the demand for a good will be _________ elastic the ___________ the share of the good in the average consumer's budget. A. more; smaller B. unit; larger C. less; larger D. less; smaller

Of the following countries, the only one whose corporate income tax rate did not decrease from 2000 to 2012 is A. Japan. B. Ireland. C. Spain. D. the United States.

On a shopping trip, Melanie decided to buy a light blue coat made from woven fabric. A tag on the coat stated that the price was $79.95. When she brought the coat to the store's sales clerk, Melanie was told that the coat was on sale, and she would pay 20 percent less than the price on the tag. After the discount was applied, Melanie paid $63.96, $15.99 less than the original price. The value of Melanie's consumer surplus from this purchase is A. $63.96 since this is the actual price she pays. B. $79.95 since this is the price she is willing to pay. C. exactly $15.99 since this is the difference between the maximum price Melanie is willing to pay for the coat and the actual price she pays. D. at least $15.99 since this is the difference between the price Melanie is willing to pay for the coat and the actual price she pays, but she could have be willing to pay more than $79.95 for the coat.

One study found that the price elasticity of demand for soda is minus0.78, while the price elasticity of demand for Coca-Cola is minus1.22. Source: Kelly D.Brownell and Thomas R. Frieden,"Ounces of Preventionlong dashThe Public Policy Case for Taxes on Sugared Beverages," New England Journal of Medicine, April 30, 2009, pp. 1805minus1808. The price elasticity of Coca-Cola is (interpret the absolute value of these elasticitiies, i.e., ignore the minus sign): A. less than it is for soda as a product because Coca-Cola usually has a higher price. B. less than it is for soda as a product because there are more substitutes for Coca-Cola than soda. C. greater than it is for soda as a product because soda is an inferior good. D. greater than it is for soda as a product because there are more substitutes for Coca-Cola than soda.

Over the past 30 years, the price of oil has been relatively unstable, fluctuating between $11.00 and well over $100 per barrel. Which of the following potentially contributes to oil-price instability? Oil prices are relatively unstable because A. OPEC has been successful in controlling the quantity of oil its members supply. B. the demand for oil is elastic. C. the income elasticity of demand for oil is negative. D. the supply of oil is inelastic. E. the market for oil is relatively competitive.

Suppose the production of electricity by a utility generates pollution that harms others. Suppose also that Coase bargaining LOADING...can occur between the utility and the victims of pollution but that the utility has not been legally liable for the damages from its pollution. How would making the utility legally liable for the damages from its pollution affect pollution reduction? If the electric utility and the people suffering the effects of the utility's pollution can bargain, then making the utility legally liable for the damages from its pollution will A. increase the amount of pollution reduction by increasing the marginal benefit of pollution reduction to the victims of pollution. B. not change the amount of pollution reduction because the marginal benefit and marginal cost of pollution reduction will not change. C. increase the amount of pollution reduction by decreasing the marginal cost and increasing the marginal benefit of pollution reduction to the utility. D. increase the amount of pollution reduction by increasing the marginal benefit of pollution reduction to the utility. E. increase the amount of pollution reduction by increasing the marginal cost of pollution reduction to the utility.

Tax incidence is A. the actual division of the burden of a tax between buyers and government in a market. B. the potential division of the burden of a tax between buyers and government in a market. C. the potential division of the burden of a tax between buyers and sellers in a market. D. the actual division of the burden of a tax between buyers and sellers in a market.

Tax incidence is A. the efficiency loss to the economy that results from a tax causing a reduction in the quantity of a good produced. B. the amount by which people with lower incomes pay a lower percentage of their income in tax than do people with higher incomes. C. the division of the tax burden between federal and state and local governments. D. the division of the tax burden between buyers and sellers in a market. E. the fraction of each additional dollar of income that must be paid in taxes.

Tax incidence is A. the potential division of the burden of a tax between buyers and government in a market. B. the actual division of the burden of a tax between buyers and government in a market. C. the potential division of the burden of a tax between buyers and sellers in a market. D. the actual division of the burden of a tax between buyers and sellers in a market.

The World Trade Organization (WTO) A. replaced the General Agreement on Tariffs and Trade (GATT) in January 1995. B. generally aids in negotiating trade agreements that include not only goods but also services and intellectual property. C. is an international organization that oversees international trade agreements. D. all of the above.

The World Trade Organization (WTO) A. replaced the General Agreement on Tariffs and Trade (GATT) in January 1995. B. is an international organization that oversees international trade agreements. C. generally aids in negotiating trade agreements that include not only goods but also services and intellectual property. D. all of the above.

The demand for agricultural products is inelastic, and the income elasticity of demand for agricultural products is low. How do these facts help explain the disappearing family farm? The family farm has been disappearing because A. the demand for food has decreased with increases in income, and increases in the supply of food have resulted in significant increases in food prices. B. the demand for food has not increased proportionally with increases in income, and increases in the supply of food have resulted in food prices increasing by less than income. C. the demand for food has not changed with increases in income, and increases in the supply of food have resulted in significant decreases in food prices. D. the demand for food has not increased proportionally with increases in income, and increases in the supply of food have resulted in significant decreases in food prices. E. the demand for food has decreased with decreases in income, and increases in the supply of food have resulted in significant decreases in food prices.

The price elasticity of demand for a particular brand of raisin bran is, in absolute value, A. smaller than the price elasticity of demand for all types of breakfast cereals. B. the same as the price elasticity of demand for all breakfast cereals. C. 0. D. larger than the price elasticity of demand for all breakfast cereals.

What are the key determinants of the price elasticity of demand for a product? The key determinants of the price elasticity of demand for a product are: A. government regulations, control of a key resource necessary for production, network externalities, and economies of scale. B. whether a firm has market power, whether some consumers are willing to pay more for a product than other consumers, and ability to segment the market. C. competition from existing firms, threat from potential entrants, competition from substitutes, bargaining power of buyers, and bargaining power of sellers. D. availability of close substitutes, passage of time, necessities versus luxuries, definition of the market, and share of the good in the consumer's budget. E. number of firms, availability of close substitutes, and ease of firm entry and exit.

What are the sources of externalities and market failure? A. incomplete property rights B. the difficulty of enforcing property rights in certain countries C. a lack of understanding of the market system D. Both a and b

What do economists mean by "an economically efficient level of pollution"? The economically efficient level of pollution is that amount where A. pollution is eliminated. B. the total benefit of pollution reduction is maximized. C. the marginal cost of pollution reduction is zero and the marginal benefit of pollution reduction is very high. D. the marginal cost of pollution reduction equals the marginal benefit of pollution reduction. E. the marginal cost of pollution reduction and the marginal benefit of pollution reduction equal zero.

What is the impact of an increase in worker productivity when demand is relatively more elastic? A. A decline in sales revenue received by the firm. B. A large increase in the price received by the firm. C. A small increase in the price received by the firm. D. An increase in sales revenue received by the firm.

When the government imposes price floors or price ceilings, A. everyone wins, goods and services distribution is more just, and there is a loss of economic efficiency. B. everyone wins, goods and services distribution is more just, and there is an increase in economic efficiency. C. some people win, some people lose, and there is an increase in economic efficiency. D. some people win, some people lose, and there is a loss of economic efficiency.

When the government imposes price floors or price ceilings, which of the following occurs? A. There is a loss of economic efficiency. B. Some people win. C. Some people lose. D. All of the above occur.

Which of the following statements about U.S. government revenues is correct? A. The largest source of revenue for state and local government is grants from the federal government intended to pay for federal mandates B. Federal revenues as a share of gross domestic product have ranged between 17 and 19 percent for a long time. C. In 2012, federal revenues amounted to about $2.7 trillion, or $22,161 per household. D. All of the above are correct.

Why do some people oppose the World Trade Organization (WTO)? A. Some opponents are specifically against the globalization process that began in the 1980s and became widespread in the 1990s. B. Some opponents desire to erect trade barriers to protect domestic firms from foreign competition. C. Some critics of the WTO support globalization in principle but believe that the WTO favors the interests of the high-income countries at the expense of the low-income countries. D. All of the above.

`We do not see complete specialization in the real world because A. not all goods and services are traded internationally, production of most goods involves constant opportunity costs, and tastes for products are remarkably uniform. B. not all goods and services are traded internationally, production of most goods involves decreasing opportunity costs, and tastes for products differ. C. all goods and services are traded internationally, production of most goods involves increasing opportunity costs, and tastes for products are remarkably uniform. D. not all goods and services are traded internationally, production of most goods involves increasing opportunity costs, and tastes for products differ.

[Related to Don't Let This Happen to You] Briefly explain whether you agree or disagree with the following statement: "If there is a shortage of a good, it must be scarce, but there is not a shortage of every scarce good." A. The statement is incorrect because every good (except undesirable things) is scarce. B. The statement is incorrect because there is no shortage of scarce goods. C. The statement is incorrect because there is a shortage of every scarce good. D. The statement is correct because every good (except undesirable things) is scarce. E. The statement is correct because there is a shortage of some goods that are not scarce.

To legally operate a taxi in New York City, a driver must have a medallion issued by the New York City Taxi and Limousine Commission, an agency of the city's government. In 2015, the number of medallions was 13,605. In recent years, the taxi industry in New York and other large cities has encountered competition from companies such as Uber, an app-based service that offers rides from drivers who own their own cars. Uber varies the prices it charges based on the demand for rides, with rides during busier periods, such as Saturday nights, having higher prices. Source: Annie Lowrey, "Is Uber's Surge-Pricing an Example of High-Tech Gouging?" New York Times, January 10, 2014. a. The limitation on their number of taxi medallions implies that the supply is price A. elastic because the number of taxi medallions does not change with the price. B. elastic because the number of taxi medallions changes with the price. C. inelastic because the number of taxi medallions changes with the price. D. perfectly inelastic because the number of taxi medallions does not change with the price. Compared to the supply of taxis in New York City, the supply of Uber rides is A. more elastic because the supply of Uber drivers also changes as the price changes. B. less elastic because the supply of Uber drivers also changes as the price changes. C. less elastic because people will choose Uber only if there is no taxi available. D. more elastic because people will choose Uber only if there is no taxi available.

D A

Economic efficiency A. is a market outcome in which the marginal benefit to consumers of the last unit produced is equal to its marginal cost of production. B. is a market outcome in which the sum of consumer surplus and producer surplus is at a maximum. C. is a market outcome in which every individual is better off than they would be at any other market outcome. D. both a and b. E. all of the above. Economists define economic efficiency in this way A. to help policymakers understand the negative consequences of taxes. B. to help policymakers understand the negative consequences of price floors. C. to help policymakers understand the negative consequences of price ceilings. D. to illustrate the benefits of a competitive market equilibrium. E. all of the above.

D E

How do property rights affect externalities and market failure? A. Externalities and market failure will not occur when property rights are difficult to enforce. B. Externalities and market failure will result from producers having all the property rights. C. Externalities will be positive and market failure will not occur when property rights are divided equally among market participants. D. Externalities will be positive and market failure will not occur when property rights are enforced. E. Externalities and market failure will result from incomplete property rights.

How might society solve problems associated with externalities and market failure LOADING...? If an externality is present, resulting in market failure, then A. only government intervention can increase economic efficiency. B. government intervention will further reduce the well minus being of society. C. additional competition will reduce problems associated with market failure. D. it is not possible to enhance the well minus being of society. E. private solutions may reduce or correct market failure.

In England during the Middle Ages, each village had an area of pasture, known as a commons, on which any family in the village was allowed to graze its cows or sheep without charge. Was the common land used optimally? A. The commons was underused due to free riding. B. The commons was overused because the commons was a nonrival good. C. Grazing created no externality, resulting in the commons being used optimally. D. The commons was underused because the commons was a nonexcludable good. E. Grazing created a negative externality, resulting in the commons being overused.

Suppose Wendy's hamburgers have many close substitutes available. If so, then an increase in the price of Wendy's hamburgers will likely A. increase the quantity of Wendy's hamburgers demanded by a relatively small amount. B. decrease the quantity of Wendy's hamburgers demanded by a relatively small amount. C. not change the quantity of Wendy's hamburgers demanded. D. increase the quantity of Wendy's hamburgers demanded by a relatively large amount. E. decrease the quantity of Wendy's hamburgersdemanded by a relatively large amount.

Suppose a common resourcelong dashwood in a public forestlong dashis being overused because residents consider the benefits of gaining firewood or wood for building but do not account for the cost of deforestation when chopping down trees. What could be done to prevent wood in the forest from being overused? To prevent overuse of the common resource, A. the government could make a binding commitment to keep the forest lands public. B. the community could establish social customs prohibiting the use of permits required to chop down trees. C. the government could subsidize chopping down trees. D. the community could create transaction costs to private bargaining. E. the government could impose restrictions on access to wood in the forest.

Which of the following is an example of a good or service having the effects of a positive externality? A. Medical research. B. Education. C. Pollution. D. A Big Mac. E. Both a and b.

Which of the following is an example of a transaction cost associated with negotiating the reduction of a negative externality? An example of a transaction cost is A. the cost associated with not reducing a negative externality. B. the cost of a negative externality on others. C. the marginal cost of reducing a negative externality. D. the total cost of reducing a negative externality. E. the time required to negotiate an agreement to reduce a negative externality. How might transaction costs affect private solutions to externality problems? Transaction costs A. may provide additional incentive for private solutions to reduce negative externalities. B. may make private solutions to reduce negative externalities no longer feasible. C. do not affect private solutions to reduce negative externalities. D. may make private solutions to reduce negative externalities unnecessary. E. may make private solutions to reduce negative externalities easier.

E B

[Related to the Chapter Opener] The competitive equilibrium rent in the city of Lowell is currently $1,000 per month. The government decides to enact rent control and to establish a price ceiling for apartments of $750 per month. Briefly explain whether rent control is likely to make each of the following people better or worse off. Someone currently renting an apartment in Lowell A. will be better off if they keep their apartment because rent is lower due to the price ceiling. B. will be worse off if they lose their apartment. C. will be better off regardless of whether they keep their apartment because rent is lower due to the price ceiling. D. will be worse off regardless of whether they keep their apartment because there is a shortage of apartments. E. both a and b. Someone who will be moving to Lowell next year and who intends to rent an apartment A. will be better off if they are able to find an apartment to rent because rent is lower due to the price ceiling. B. will be worse off if they are unable to find an apartment to rent. C. will be worse off regardless of whether they find an apartment to rent because there is a shortage of apartments. D. will be better off regardless of whether they find an apartment to rent because rent is lower due to the price ceiling. E. both a and b. A landlord who intends to abide by the rent control law A. will be worse off because he will be receiving less rent. B. will be worse off because there will be a shortage of apartments. C. will be better off because he will be receiving more rent. D. will be better off because there will be a shortage of apartments. E. both a and b. A landlord who intends to ignore the law and illegally charge the highest rent possible for his apartments A. will be better off if he does not get caught because that amount will be above the equilibrium. B. will be worse off if he gets caught. C. will be worse off regardless of whether he gets caught because that amount will still be below the equilibrium. D. will be better off because the highest rent possible and the price ceiling are both above the equilibrium. E. both a and b.

E E A E

▼ Imports Tariffs Exports Quotas are goods and services produced domestically but sold to other countries. ▼ Tariffs Quotas Exports Imports are goods and services bought domestically but produced in other countries. ▼ Imports Exports Tariffs Quotas are taxes imposed by a government on imports of a good into a country.

Ex Im Tariffs

Who gains and who loses when a country imposes a tariff or a quota on imports of a good? Suppose the United States imposes a tariff or quota on sugar imports. For each of the following, enter the letter G if it will gain from the tariff or quota or enter the letter L if it will lose from the tariff or quota. Domestic sugar producers and their workers _ Consumers _ Industries that use sugar and their workers _ The U.S. economy _

G L L L

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