Eco 157 Final Exam Review

binding price ceiling

occurs when the government sets a required price on a good or goods at a price below equilibrium.

binding price floor

when the government sets a required price on a good or goods at a price above equilibrium

non binding price ceiling

A price ceiling that doesn't have an effect on the market price

A negative externality affects market efficiency in a manner similar to a. a common resource. b. an excludable good. c. a public good. d. a private good.

a. a common resource.

A binding price ceiling creates a. a shortage. b. an equilibrium. c. a surplus. d. a shortage or a surplus depending on whether the price ceiling is set above or below the equilibrium price.

a. a shortage

A negative externality generates a. a social cost curve that is above the supply curve (private cost curve) for a good. b. a social cost curve that is below the supply curve (private cost curve) for a good. c. a social value curve that is above the demand curve (private value curve) for a good. d. none of the above.

a. a social cost curve that is above the supply curve (private cost curve) for a good.

When wealthy alumni provide charitable contributions to their alma mater to reduce the tuition payments of current students, it is an example of a. an attempt to internalize a positive externality. b. an attempt to internalize a negative externality. c. a corrective tax. d. a command-and-control policy

a. an attempt to internalize a positive externality.

If a market generates a side effect or externality, then free market solutions a. are inefficient. b. generate equality. c. maximize producer surplus. d. are efficient

a. are inefficient.

Consumer surplus is the area a. below the demand curve and above the price. b. above the demand curve and below the price. c. above the supply curve and below the price. d. below the demand curve and above the supply curve.

a. below the demand curve and above the price.

Gavin has been working full-time as a gardener for $300 a week. When the market price of gardeners rises to $400, Hector becomes a gardener as well. How much does producer surplus rise as a result of this price increase? a. between $100 and $200 b. between $200 and $300 c. by less than $100 d. by more than $300

a. between $100 and $200

A surplus results when a a. binding price floor is imposed on a market. b. non-binding price floor is imposed on a market. c. binding price floor is removed from a market. d. non-binding price floor is removed from a market.

a. binding price floor is imposed on a market.

An increase in the price of a good along a stationary demand curve a. decreases consumer surplus. b. improves the material welfare of the buyers. c. increases consumer surplus. d. improves market efficiency.

a. decreases consumer surplus.

If a person can be prevented from using a good, the good is said to be a. excludable. b. rival in consumption. c. a common resource. d. a public good.

a. excludable.

Minimum-wage laws dictate that a. only a minimum wage that firms may pay workers. b. both a minimum wage and a maximum wage that firms may pay workers. c. the exact wage that firms must pay workers. d. only a maximum wage that firms may pay workers.

a. only a minimum wage that firms may pay workers.

Common resources are a. overused in the absence of government. b. under provided in the absence of government. c. efficiently provided by market forces. d. a type of natural monopoly.

a. overused in the absence of government.

Suppose the equilibrium price of a tube of toothpaste is $2, and the government imposes a price floor of $3 per tube. As a result of the price floor, the a. quantity demanded of toothpaste decreases, and the quantity of toothpaste that firms want to supply increases. b. demand curve for toothpaste shifts to the left. c. supply curve for toothpaste shifts to the right. d. quantity supplied of toothpaste stays the same

a. quantity demanded of toothpaste decreases, and the quantity of toothpaste that firms want to supply increases.

Tradable pollution permits a. set the quantity of pollution. b. set the price of pollution. c. reduce the incentive for technological innovations to further reduce pollution. d. determine the demand for pollution rights.

a. set the quantity of pollution.

When markets fail to allocate resources efficiently, the ultimate source of the problem is usually a. that property rights have not been well established. b. that prices are not low enough so firms overproduce. c. government regulation. d. that prices are not high enough so people over consume. Hide Feedback

a. that property rights have not been well established.

Medical care clearly enhances people's lives. Therefore, we should consume medical care until a. the benefit buyers place on medical care is equal to the cost of producing it. b. we must cut back on the consumption of other goods. c. buyers receive no benefit from another unit of medical care. d. everyone has as much as they would like.

a. the benefit buyers place on medical care is equal to the cost of producing it.

Which of the following increases quantity supplied, decreases quantity demanded, and increases the price that consumers pay? a. the imposition of a binding price floor b. the removal of a binding price floor c. the repeal of a tax on a good d. the passage of a tax on a good

a. the imposition of a binding price floor

Which of the following increases quantity supplied, increases quantity demanded, and decreases the price that consumers pay? a. the repeal of a tax on a good b. the removal of a binding price floor c. the passage of a tax on a good d. the imposition of a binding price floor

a. the repeal of a tax on a good

The supply curve for a product is QS = 2P, and the market price is $10. What is producer surplus? (Hint: Graph the supply curve and recall the formula for the area of a triangle.) a. $20 b. $100 c. $200 d. $5

b. $100

The federal government uses the revenue from the FICA (Federal Insurance Contribution Act) tax to pay for a. unemployment compensation. b. Social Security and Medicare. c. housing subsidies for low-income people. d. the salaries of members of Congress.

b. Social Security and Medicare.

Suppose there are three identical vases available to be purchased. Buyer 1 is willing to pay $30 for one, buyer 2 is willing to pay $25 for one, and buyer 3 is willing to pay $20 for one. If the price is $25, how many vases will be sold and what is the value of consumer surplus in this market? a. One vase will be sold, and consumer surplus is $30. b. Two vases will be sold, and consumer surplus is $5. c. Three vases will be sold, and consumer surplus is $80. d. Three vases will be sold, and consumer surplus is $0. e. One vase will be sold, and consumer surplus is $5.

b. Two vases will be sold, and consumer surplus is $5.

A person who regularly watches public television but fails to contribute to public television's fund-raising drives is known as a. excess baggage. b. a free rider. c. an unwelcome rider. d. a costly rider.

b. a free rider.

A positive externality generates a. a social cost curve that is above the supply curve (private cost curve) for a good. b. a social value curve that is above the demand curve (private value curve) for a good. c. a social value curve that is below the demand curve (private value curve) for a good. d. none of the above.

b. a social value curve that is above the demand curve (private value curve) for a good.

Governments can improve market outcomes for a. neither public goods nor common resources. b. both public goods and common resources. c. common resources but not public goods. d. public goods but not common resources.

b. both public goods and common resources.

Which of the following is an example of a common resource? a. residential housing b. fish in the ocean c. national defense d. restaurant meals

b. fish in the ocean

When a market is in equilibrium, the buyers are those with the ________ willingness to pay and the sellers are those with the ________ costs. a. lowest, lowest b. highest, lowest c. highest, highest d. lowest, highest

b. highest, lowest

Adam Smith's "invisible hand" concept suggests that a competitive market outcome a. minimizes total surplus. b. maximizes total surplus. c. generates equality among the members of society. d. does both b and c.

b. maximizes total surplus.

A public good is a. both rival in consumption and excludable. b. neither rival in consumption nor excludable. c. rival in consumption but not excludable. d. not rival in consumption but excludable.

b. neither rival in consumption nor excludable.

If one person's consumption of a good diminishes other people's use of the good, the good is said to be a. a club good. b. rival in consumption. c. excludable. d. a common resource. Hide Feedback

b. rival in consumption.

When a good is taxed, the burden of the tax falls mainly on consumers if a. the tax is levied on consumers. b. supply is elastic and demand is inelastic. c. supply is inelastic and demand is elastic. d. the tax is levied on producers.

b. supply is elastic and demand is inelastic.

To internalize a negative externality, an appropriate public policy response would be to a. have the government take over the production of the good causing the externality. b. tax the good. c. subsidize the good. d. ban the production of all goods creating negative externalities.

b. tax the good.

The government engages in an industrial policy a. to help stimulate private solutions to the technology externality. b. to internalize the positive externality associated with technology-enhancing industries. c. by allocating tradable technology permits to high technology industry. d. to internalize the negative externality associated with industrial pollution.

b. to internalize the positive externality associated with technology-enhancing industries.

Suppose the equilibrium price for apartments is $800 per month and the government imposes rent controls of $500. Which of the following is unlikely to occur as a result of the rent controls? a. There will be a shortage of housing. b. Landlords may discriminate among apartment renters. c. The quality of apartments will improve. d. There may be long lines of buyers waiting for apartments.

c. The quality of apartments will improve.

If the production of a good yields a negative externality, the social-cost curve lies ________ the supply curve, and the socially optimal quantity is ________ than the equilibrium quantity. a. below, greater b. above, greater c. above, less d. below, less

c. above, less

An efficient allocation of resources maximizes a. producer surplus. b. consumer surplus minus producer surplus. c. consumer surplus plus producer surplus. d. consumer surplus.

c. consumer surplus plus producer surplus.

The Surgeon General announces that eating chocolate increases tooth decay. As a result, the equilibrium price of chocolate a. increases, and producer surplus decreases. b. increases, and producer surplus increases. c. decreases, and producer surplus decreases. d. decreases, and producer surplus increases

c. decreases, and producer surplus decreases.

Which categories of goods are rival in consumption? a. private goods and club goods b. public goods and common resources c. private goods and common resources d. public goods and club goods Hide Feedback

c. private goods and common resources

People cannot be prevented from using a good if the good is a a. private good or a common resource. b. private good or a public good. c. public good or a common resource. d. public good or a club good.

c. public good or a common resource.

A positive externality affects market efficiency in a manner similar to a a. private good. b. rival good. c. public good. d. common resource.

c. public good.

A common resource is a. both rival in consumption and excludable. b. neither rival in consumption nor excludable. c. rival in consumption but not excludable. d. not rival in consumption but excludable. Hide Feedback

c. rival in consumption but not excludable.

A corrective tax on pollution a. sets the quantity of pollution. b. reduces the incentive for technological innovations to further reduce pollution. c. sets the price of pollution. d. determines the demand for pollution rights.

c. sets the price of pollution.

A buyer's willingness to pay is a. that buyer's consumer surplus. b. that buyer's producer surplus. c. that buyer's maximum amount he is willing to pay for a good. d. that buyer's minimum amount he is willing to pay for a good.

c. that buyer's maximum amount he is willing to pay for a good.

Command-and-control regulation may be better than a corrective tax if a. some polluters can reduce emissions more cheaply than others. b. a corrective tax would have differential effects on different industries. c. the negative externality is so large that the optimal quantity is zero. d. knowledge about the cost of pollution abatement is dispersed and hard to obtain.

c. the negative externality is so large that the optimal quantity is zero.

An externality is a. the benefit that accrues to the buyer in a market. b. the cost that accrues to the seller in a market. c. the uncompensated impact of one person's actions on the well-being of a bystander. d. the compensation paid to a firm's external consultants.

c. the uncompensated impact of one person's actions on the well-being of a bystander.

Public goods are a. overused in the absence of government. b. a type of natural monopoly. c. under provided in the absence of government. d. efficiently provided by market forces.

c. under provided in the absence of government.

If a buyer's willingness to pay for a new Honda is $30,000 and she is able to actually buy it for $28,000, her consumer surplus is a. $28,000. b. $58,000. c. $0. d. $2,000.

d. $2,000.

The government auctions off 500 units of pollution rights. The rights sell for $50 per unit, raising $25,000 of revenue for the government. This policy is equivalent to a corrective tax of _____ per unit of pollution. a. $500 b. $450 c. $10 d. $50

d. $50

Studies show that a 10 percent increase in the minimum wage a. increases teenage employment by about 1 to 3 percent. b. decreases teenage employment by about 10 to 15 percent. c. increases teenage employment by about 10 to 15 percent. d. decreases teenage employment by about 1 to 3 percent.

d. decreases teenage employment by about 1 to 3 percent.

To say that a price ceiling is non-binding is to say that the price ceiling a. is set below the equilibrium price. b. results in a surplus. c. causes quantity demanded to exceed quantity supplied. d. is set above the equilibrium price

d. is set above the equilibrium price

Which of the following is an example of a public good? a. whales in the ocean b. hot dogs at a picnic c. apples on a tree in a public park d. national defense

d. national defense

A club good is a. both rival in consumption and excludable. b. neither rival in consumption nor excludable. c. rival in consumption but not excludable. d. not rival in consumption but excludable.

d. not rival in consumption but excludable.

Which categories of goods are excludable? a. public goods and common resources b. public goods and club goods c. private goods and common resources d. private goods and club goods

d. private goods and club goods

The Tragedy of the Commons results when a good is a. both rival in consumption and excludable. b. excludable and not rival in consumption. c. neither rival in consumption nor excludable. d. rival in consumption and not excludable.

d. rival in consumption and not excludable.

Route 66 is a toll road that is congested only during rush hour. During other times of day, the use of the highway is not ________, so the efficient toll is ________. a. excludable, higher b. excludable, zero c. rival in consumption, higher d. rival in consumption, zero

d. rival in consumption, zero

A payroll tax is a a. tax that each firm must pay to the government before the firm can hire workers and operate its business. b. fixed number of dollars that every firm must pay to the government for each worker that the firm hires. c. tax on all wages above the minimum wage. d. tax on the wages that firms pay their workers

d. tax on the wages that firms pay their workers

The seller's cost of production is a. the seller's consumer surplus. b. the seller's producer surplus. c. the maximum amount the seller is willing to accept for a good. d. the minimum amount the seller is willing to accept for a good.

d. the minimum amount the seller is willing to accept for a good.

According to the Coase theorem, private parties can solve the problem of externalities if a. the party affected by the externality has the initial property right to be left alone. b. each affected party has equal power in the negotiations. c. there are a large number of affected parties. d. there are no transaction costs.

d. there are no transaction costs.

Total surplus is the area a. above the supply curve and below the price. b. above the demand curve and below the price. c. below the demand curve and above the price. d. below the supply curve and above the price. e. below the demand curve and above the supply curve.

e. below the demand curve and above the supply curve.

a price floor

is when quantity supplied exceeds the quantity demanded. Which leads to a Surplus

non-binding price floor

price floors set below the market price have no effect

a prices ceiling

will cause the quantity demanded to rise and the quantity supplied to fall. Which leads to a shortage