ECO 120 SECTION 2

If education produces positive externalities, we would expect

A government to subsidize education

People cannot be prevented from using a good if the good is

A public good or a common resource

A corrective tax

Allocates pollution to those factories that face the highest cost of reducing it

When a good is taxed

Both buyers and sellers of the good are made worse off

Which of the followings is the most likely explanation for the imposition of a price ceiling on the market for milk?

Buyers of milk, recognizing that the price ceiling is good for them, have pressured policymakers into imposing the price ceiling.

An externality arises when a person engages in an activity that influences the well-being of

Bystanders in the market for that activity and yet neither pays nor receives any compensation for that effect

A good that is rival in consumption and not excludable is called a

Common resource

To fully understand how taxes affect economic well-being, we must compare the:

Decrease in total surplus to the increase in revenues raised by the government

A tax placed on buyers of tuxedos shifts the

Demand curve for tuxedos downward, decreasing the price received by sellers of tuxedos and causing the quantity of tuxedos to decrease

If an aluminum manufacturer does not bear the entire cost of the smoke it emits, it will

Emit a higher level of smoke than is socially efficient

Suppose the equilibrium price of tuition is $8500 per year, but the government of Maine enacts a price ceiling of $5000. The price ceiling is non-binding.

False

Suppose the government has imposed a price floor on the market for soybeans. Which of the following events could transform the price floor from one that is not binding into one that is binding?

Farmers use improved, draught-resistant seeds, which lowers the cost of growing soybeans.

National Defense is provided by the government because

Free-riders make it difficult for private markets to supply the socially optimal quantity

A minimum wage that is set below a market's equilibrium wage will

Have no impact on employment

When a policy succeeds in giving buyers and sellers in a market an incentive take into account the external effects of their actions, the policy is said to

Internalize the externality

Which of the following are private goods?

Lunch at the Memorial Union. Parking.

If a road is congested, then the use of that road by an additional person would lead to a

Negative externality

A view of a spectacular sunset along a private beach is an example of a

Nonrival but excludable good

Externalities can be corrected by each of the following except

Normal market adjusments

Most lighthouses are operated by the government because

Of the free-rider problem

When a good is rival in consumption,

One person's use of the good diminishes another person's ability to use it

A tax imposed on the sellers of a good will raise the

Price paid by buyers and lower the equilibrium quantity

When a tax is levied on a good, the buyers and sellers of the good share the burden,

Regardless of how the tax is levied

Rent control policies tend to cause

Relatively smaller shortages in the short run than in the long run because supply and demand tends to be more inelastic in the short run than in the long run

Each of the following would be considered a common resource EXCEPT a

Streetlight

The price received by sellers in a market will increase if the government decreases a

Tax on the good sold in that market

To enhance the well-being of society, a social planner will encourage firms to increase production when

Technology spillovers are associated with production

When a market experiences a positive externality

The demand curve does not reflect the value to society of the good

If a price ceiling is not binding, then

The equilibrium price is below the price ceiling

When good X is produced, some people benefit. A free-rider problem arises when

The number of beneficiaries is large and it is impossible to prevent anyone from benefitting

What happens to the total surplus in a market when the government imposes a tax?

Total surplus decreases

An emergency siren (like we have at UMaine) is a pubic good associated with a positive externality

True

Economic theory predicts the price ceiling will result in a shortage of capacity for new and existing students

True

Which of the following is NOT a typical solution to the "tragedy of the Commons"?

Turning the common resource into a club good

The Coase theorem suggest that private markets may not be able to solve the problem of externalities

When the number of interested parties is large and bargaining costs are high

Some goods can be wither common resources or public goods depending on

Whether the food is rival in consumption