ECO QUIZZES

What result can we expect to see when goods are nonexcludable?

A. Consumers demand a lower quantity than they would if they had to pay for what they consumed. B. Firms supply a lower quantity than they would if they incurred the full costs of the provision of the good. C. Firms supply a higher quantity than they would if they had to pay for what they supplied. D. Consumers demand a higher quantity than they would if they had to pay for what they consumed.

Assume the market depicted in the graph is in equilibrium. Producer surplus consists of area(s):

A. D + E B. A + B + C + D + E C. A D. A + B + C

The graph shown displays a market with an externality. Which areas represent deadweight loss?

A. D + E B. C + B C. A + B D. F + G

Suppose the market in the graph shown is in equilibrium. If a price floor is set at $13, the total number of units traded:

A. Falls by 3 B. Falls by 5 C. Increases by 2 D. Increases by 5.

Local governments, rather than private citizens, are typically the providers of large fireworks displays. This is because fireworks displays: I. suffer from the free rider problem. II. are non-excludable. III. are rival in consumption.

A. I and II only B. I and III only C. I, II, and III D. II only

Assume a market has an equilibrium price of $5. If the market price is set at $9: I. Producer surplus rises for some producers because of the increased price. II. Producer surplus decreases for some producers because fewer transactions are taking place. III. Total surplus may rise or fall depending on the change in producer surplus.

A. I and III only B. I, II, and III C. I and II only D. II only

A lump-sum tax: I. is the most efficient form of taxation. II. charges the same amount to each taxpayer. II. is a regressive tax.

A. II and III only B. II only C. I, II, and III D. I and III only

If a price ceiling of $14 is set in the market shown in the graph: QS appears to be incomplete. I. Total surplus will be $90. II. Deadweight loss will be $8. III. Producer surplus will be $25.

A. II and III only B. III only C. I only D. I, II, and III

Efficient markets:

A. Maximize total surplus. B. Can occur without a central planner. C. Occur when a perfectly competitive, well-functioning market is in equilibrium. D. All of these are correct.

Which of the following is a public good that is difficult to make excludable?

A. National Defense B. A library C. Natural gas D. Timber

Which of the following is a public good that is difficult to make excludable?

A. National Defense B. All of these are nonexcludable public goods. C. Fire protection D. Sewer systems

One way to make consumers take a positive externality into account when making demand decisions is to:

A. None of these are true. B. place a tax on the item. C. tax the producers of the item. D. subsidize the purchase of the item.

Which of the following is an example of entitlement spending?

A. Social Security B. National defense C. Police protection D. Garbage collection

Assume the market depicted in the graph is in equilibrium. If the market price is set to $7, which of the following statements is true?

A. Some consumers will gain surplus, but total surplus will fall. B. Some producers will lose surplus, but total surplus will rise. C. Some consumers will lose surplus, but total surplus will rise. D. Some producers will gain surplus, but total surplus will fall.

Assume a market has an equilibrium price of $4. If the market price is set at $8, which of following statements is true?

A. Some surplus is transferred from consumers to producers, causing total surplus to increase B. All surplus is transferred from consumers to producers, and total surplus stays the same C. Some surplus is transferred from producers to consumers, but total surplus falls. D. Some surplus is transferred from consumers to producers, but total surplus falls.

Which of the following is not a public good that the government can make excludable?

A. State colleges B. National Defense C. City buses D. Toll roads

Suppose S1 represents the initial market supply in the graph shown. A price ceiling is then set at $8. If supply shifts from S1 to S2, what will occur?

A. The size of the shortage will increase B. The market will not reach equilibrium C. The price ceiling will prevent output from changing. D. The price ceiling will no longer be binding.

If a negative consumption externality were present in a market, the social benefit curve would be:

A. The social benefit curve's location cannot be determined without more information. B. above the private demand curve. C. below the private demand curve. D. identical to the private demand curve.

What determines how a government will pay for a public good?

A. The transfer of surplus B. If the good can be made excludable C. All of these affect how a government allocates payment of public goods. D. The ease of collecting payout

The graph shown best represents:

A. a missing market B. a non-binding price floor C. a non-binding price ceiling. D. the market for an inferior good.

Fish in the ocean would be considered:

A. a public good. B. a common resource. C. an artificially scarce good. D. a private good.

A market failure is most likely to occur when:

A. a sole producer of a good faces no threat of competition. B. several producers of a good search for the lowest-cost method of production. C. several producers of a good compete for customers by having price wars. D. many producers produce identical products, and only the consumers are affected by the transactions.

In order for a price floor to be binding, it must be set _______ the equilibrium price, and it will likely cause _______.

A. above; excess supply B. above; a shortage C. below; a shortage D. below; excess supply

A smartphone would be considered:

A. an artificially scarce good. B. a common resource. C. a public good. D. a private good.

Tradable allowances may be a better solution to common-resource problems than quotas because tradable allowances:

A. are more equitable than quotas. B. ensure that the resource is allocated to those with the highest willingness to pay, while quotas do not. C. allow the government to set a specific amount of the good to be consumed, while quotas do not. D. allocate the good without government intervention.

A price ceiling that is set at $8 in the market shown in the graph is:

A. binding and would cause excess supply. B. non-binding and would not affect the market. C. non-binding and would not prevent the market from reaching equilibrium. D. binding and would cause a shortage.

A tax on sellers:

A. causes equilibrium price and quantity to decrease. B. shifts the demand curve vertically downwards by the amount of the tax, but does not shift the supply curve. C. shifts the supply curve vertically upwards by the amount of the tax, but does not shift the demand curve. D. All of these are correct.

When a tax is imposed, the surplus that is lost to buyers and sellers but converted into tax revenue is:

A. considered a cost of taxation. B. part of deadweight loss. C. transferred to others through public programs. D. All of these are true.

According to the graph, shown, if the market goes from equilibrium to having its price set at $10:

A. consumer surplus will fall by $30 B. producer surplus will rise by $45 C. total surplus will change $15 D. total surplus will fall by $30

A tax on the wages paid to an employee is called a(n):

A. corporate income tax. B. payroll tax. C. personal income tax. D. excise tax.

Using a common resource:

A. creates a positive externality for others. B. maximizes total surplus. C. is an irrational decision. D. imposes a negative externality on others.

When the quantity of a good bought and sold is below the equilibrium quantity, the loss of total surplus that results is called:

A. deadweight loss. B. consumer surplus C. total surplus D. producer surplus

One of the difficulties the government faces when privatizing a common resource is:

A. deciding which individuals will have to decrease their consumption. B. that the more users there are, the harder it is to accomplish. C. All of these are true. D. figuring out who owns what, when many people are using the resource.

The administrative burden of taxes:

A. depends on the amount of revenue generated. B. is the same across all types of taxes. C. is smallest with a lump-sum tax. D. grows smaller as a tax gets larger.

Nonexcludability, in the case of rival goods, causes _______ demand.

A. efficiently high B. inefficiently high C. inefficiently low D. efficiently low

If a Pigovian tax is not large enough, the resulting market quantity will be _______ the efficient quantity.

A. equal to B. set where social marginal cost equals C. more than D. less than

The willingness to pay of buyers in a market:

A. explains why the demand curve is bowed-in. B. explains why the demand curve is bowed-out. C. is represented by the supply curve. D. is represented by the demand curve.

When positive consumption externalities are present in a market:

A. external benefits are equal to social benefits. B. private benefits are less than social benefits. C. social benefits are less than external benefits. D. private benefits are less than external benefits.

The Laffer curve demonstrates that raising tax rates:

A. first increases and then eventually decreases tax revenues. B. always increases tax revenues. C. always decreases tax revenues. D. first decreases and then eventually increases tax revenues.

Assume there are three hardware stores, each willing to sell one standard model hammer in a given time period. House Depot could offer a hammer for a minimum of $7. Lace Hardware could offer a hammer for a minimum of $10. Bob's Hardware could offer a hammer for a minimum of $13. If the market price of hammers increased from $8 to $12, producer surplus would increase.

A. from $8 to $12. B. by $7 in total. C. by $4 for House Depot. D. by $4 for each producer.

A road would be considered a common resource if it is:

A. highly trafficked and congested, and charges no tolls. B. used infrequently and charges tolls. C. used infrequently and charges no tolls. D. highly trafficked and congested, and charges tolls.

A tax on cigarettes:

A. increases both total surplus and efficiency in the market. B. always reduces surplus and efficiency in the market. C. increases efficiency in the market. D. increases total surplus.

In general, raising taxes has:

A. increasing returns to revenue. B. diminishing returns to revenue. C. constant returns to revenue. D. increasing then decreasing returns to revenue.

When negative externalities are present in a market:

A. individuals are not taking into account all the costs associated with their market choices. B. All of these are true. C. production and consumption are above the socially optimal level. D. society bears part of the cost of private transactions.

In a market where the tragedy of the commons arises, the equilibrium quantity is both individually _______ and collectively _______.

A. inefficient; rational B. efficient; irrational C. irrational; efficient D. rational; inefficient

When a market is fully corrected for externalities, it:

A. is efficient and maximizes surplus. B. is equitable and makes everyone better off. C. must be maintained through government regulation. D. All of these are true.

When a tax is present in a market, the price paid by consumers:

A. is greater than that received by suppliers. B. is less than that received by suppliers. C. equals that received by suppliers, but it is higher than the market price in the absence of taxes. D. equals that received by suppliers, but it is lower than the market price in the absence of taxes.

The federal income tax _______ than a state sales tax.

A. is less complex B. is less efficient C. is easier to administer D. has a lower administrative burden

Pigovian taxes are not always effective because:

A. it is difficult to identify whether the tax should be imposed on the consumer or the producer. B. they are only used to benefit those who bear the externalities. C. they do not directly compensate those who are affected by the externality. D. None of these are reasons why Pigovian taxes are not always effective.

A price ceiling is non-binding when:

A. it reduces the output in a market B. it is set above the equilibrium price C. it is set below the equilibrium price D. it increases the output in a market

The downside of using a tax to target specific activities, rather than the externality itself, is:

A. it risks misaligning the incentives that producers and consumers face with the goal of minimizing the externality. B. it requires a number of different activities to be identified and several different policies to be written, which can be cumbersome and difficult to manage. C. All of these statements are true. D. any one activity is likely to not make a significant difference in the presence of an externality.

If companies that are causing pollution were forced to pay the social cost of production, they would want to supply:

A. less at any given price. B. more at any given price. C. the same amount at the equilibrium price only. D. the same amount at any given price.

In order to bring a market to its efficient outcome when a negative externality is present, the government might:

A. limit the price of the good or service to its efficient level. B. All of these are actions the government might take to bring about an efficient outcome. C. tax the buyers or sellers in the market at the value of the external cost. D. limit total consumption to the efficient quantity.

To calculate tax revenue, we:

A. multiply the tax per unit by the number of units being taxed. B. multiply the tax per unit by the price of the good being taxed. C. multiply total revenue by the tax per unit. D. divide total revenue by the tax per unit.

The government offers subsidies to offset _______ externalities.

A. network B. Any of these could be offset by a subsidy. C. negative D. positive

When a quota is imposed on a market with a negative externality, the market is:

A. not efficient, because the net benefits individuals receive from the amount set by the quota are different. B. efficient, because the net benefits individuals receive from the amount set by the quota are equal. C. efficient, because consumption occurs at the efficient level. D. not efficient, because the marginal cost outweighs the marginal benefit for too many consumers.

Many tax-funded programs are intended to:

A. provide basic human needs. B. increase income inequality. C. increase efficiency. D. transfer surplus from producers to consumers.

Suppose there is currently a $4 per pack tax on cigarettes that generates $40,000 in revenue per month. If the tax increases to $6 per pack, the revenue the tax generates will increase to $55,000. This tells us that, in this range of tax rates, the _______ effect outweighs the _______ effect.

A. quantity; price B. quantity; income C. price; quantity D. price; income

When considering different tax levels, the revenue-maximizing point will be reached _______ when demand is _______ elastic.

A. quickly; unit B. quickly; less C. quickly; more D. slowly; more

The primary intent of a tax on tobacco is to:

A. raise government revenues. B. increase market surplus. C. support producers of tobacco. D. reduce its consumption.

A lump-sum tax:

A. requires those with low incomes to pay a smaller percentage of their income than high-income people. B. is levied such that low-income taxpayers pay a greater proportion of their income than high-income taxpayers. C. takes the same percentage from all taxpayers, regardless of income. D. taxes everyone the same amount, regardless of income.

Bans are typically enacted to:

A. respond when the optimal quantity of consumption for a good is zero. B. All of these are true. C. reduce the inefficiency created by overuse. D. solve common resource problems.

Most goods are:

A. rival in consumption. B. public goods. C. nonrival in consumption. D. exclusive.

If the federal government brings in $3 trillion in tax revenues and spends $4 trillion, the government has a budget _______ of _______ trillion.

A. surplus; $7 B. surplus; $1 C. deficit; $1 D. deficit; $0.75

A proportional tax:

A. takes the same percentage from all taxpayers, regardless of income. B. is levied such that low-income taxpayers pay a greater proportion of their income than high-income taxpayers. C. requires those with low incomes to pay a smaller percentage of their income than high-income people. D. taxes everyone the same amount, regardless of income.

The Coase theorem is the idea that:

A. the actions of private individuals and firms are insufficient to ensure efficient markets. B. there are always mutually beneficial trades waiting to be exploited, which creates a clear role for government taxation. C. None of these are true. D. individuals can reach an efficient equilibrium through private trades, even in the presence of an externality.

The Coase theorem will hold only if:

A. the government will provide free mediation. B. transactions costs are clearly identified and assigned. C. contracts are enforceable. D. None of these are true.

When someone's willingness to pay is the same as the actual price paid for an item:

A. the individual will not purchase the item. B. the individual's surplus is zero. C. surplus cannot be maximized. D. all of these are correct.

Assume the market depicted in the graph is in equilibrium. If the market goes from equilibrium to having its price set at $18:

A. the quantity exchanged will be 4,000. B. the deadweight loss will be $2,250 C. the quantity exchanged will be 9,000 D. all consumers will gain surplus

If a production process causes a negative externality, then the social cost of production will be _______ the private cost of production.

A. the same as B. zero, unlike C. smaller than D. larger than

For any given tax, the revenue generated is:

A. the same regardless of price elasticity. B. smaller in markets with price-elastic demand and supply. C. larger in markets with price elastic demand and supply. D. always maximized in markets with price elastic demand and supply.

The combination of inefficiently high demand and dwindling quantity leads to what is called:

A. the tragedy of the commons. B. nonexcludable consumption. C. rivalry in consumption. D. the free rider problem.

The net increase to total surplus when a negative externality is corrected or eliminated is due to:

A. the transfer of surplus from consumer or producer to those affected by the externality. B. the transfer of surplus from those affected by the externality to the consumer. C. the reduced number of transactions in the market. D. None of these are true.

When the market price is set above the equilibrium price:

A. there are no exchanges that can make some better off without others becoming worse off. B. the market is not efficient. C. consumer surplus increase for some consumers but falls for others. D. total surplus increase.

When government bodies use their power to impose limits on how much of a resource is consumed:

A. they can enhance efficiency in markets for common resources. B. they often have failed to first attempt the use of social norms to correct the problem. C. they must first decide on the "right" amount for the public to consume. D. they will always cause deadweight loss.

When policy makers are deciding where to place the statutory incidence of a tax, it is helpful to remember that:

A. this decision will largely determine the economic incidence of the tax. B. the economic incidence will fall to the more elastic party. C. this decision will have no effect on the economic incidence of the tax. D. this decision will have a large impact on the efficiency of the tax.

External benefits accrue:

A. to the government without its direct intervention. B. directly to the decision maker of a market exchange. C. without compensation to someone other than the person who caused them. D. indirectly to the decision maker of a market exchange.

When a perfectly competitive, well-functioning market is not in equilibrium:

A. total surplus is not maximized. B. the market is not efficient. C. exchanges exist that make some better off without making someone else worse off. D. All of these correct.

In the real world, lump-sum taxes are:

A. very efficient. B. rarely used. C. often perceived as unfair. D. All of these are true.

Pigovian taxes are not always effective because it is difficult to identify:

A. who is being affected by the externality. B. what the amount of the tax should be. C. None of these are reasons why Pigovian taxes are not always effective. D. whether the tax should be imposed on the consumer or the producer.

The free rider problem is caused by the/a good's _______, which leads to the/an ________ of the good.

A. "nonrivalness" in consumption; oversupply B. nonexcludability; undersupply C. "rivalness" in consumption; overconsumption D. "rivalness" in consumption; undersupply

What is the producer surplus earned by a seller whose willingness to sell is $10 below the market price of a good?

A. $0 B. $10 C. (P*-$10) D. None of these are correct.

Assume there are three hardware stores, each willing to sell one standard model hammer in a given time period. House Depot could offer a hammer for a minimum of $7. Lace Hardware could offer a hammer for a minimum of $10. Bob's Hardware could offer a hammer for a minimum of $13. If the market price of hammers is $12, what would total producer surplus be?

A. $17 B. $9 C. $30 D. $7

What consumer surplus is received by someone whose willingness to pay is $35 below the market price of a good?

A. $35 B. $0 C. ($35 x P*) D. None of these are correct

Suppose Sam's opportunity cost of producing a sweater is $37. Which of the following prices would he have to observe in the market in order to sell a sweater?

A. $37 B. $37.01 C. Sam would sell a sweater at any of these prices. D. $50

A market has four individuals, each considering buying a grill. Assume that grills come in only one size and model. Martina considers herself a grill-master, and finds a grill a necessity, so she is willing to pay $400 for a grill. Javier is a meat-lover, honing his grilling skills, and is willing to pay $350 for a grill. Kamal wants to impress his friends with his vegetable grilling skills and is willing to pay $320 for a grill. Lina loves grilled shrimp and thinks it might be cheaper in the long run if she grills her own shrimp instead of eating out at a restaurant, so she is willing to pay $200 for a grill. If the market price of grills is $320, what is Martina's consumer surplus?

A. $80 B. $350 C. $320 D. $400

The graph shown portrays a subsidy to buyers. Before the subsidy was put in place, sellers sold _______ units and received _______ for each one.

A. 150; $40 B. 100; $30 C. 100; $26 D. 150; $24

The graph shown demonstrates a tax on sellers. After the tax is in place, buyers purchase _______ units, and the post-tax price paid for each one is _______.

A. 15; $16 B. 31; $9 C. 15; $6 D. 31; $19

If a price ceiling is set at $8 in the market shown in the graph, which area(s) would represent consumer surplus?

A. A + B + C B. A + B + C + D + F + G C. A + C D. A + B

If a price floor is set at $23 in the market shown in the graph, which area(s) would represent consumer surplus?

A. A + B + C + D B. A C. A + B + C D. A + B

If a price floor is set at $23 in the market shown in the graph:

A. A shortage of 27 will occur. B. a shortage of 10 will occur. C. no shortage will occur. D. a shortage of 37 will occur.

Suppose a tax has been imposed in the market shown in the graph. Which kind of tax is most likely demonstrated by this graph?

A. A tax on big corporations B. A tax on buyers C. A price ceiling D. A tax on sellers

In order for a price ceiling to be binding, it must be set _______ the equilibrium price, and it will likely cause _______.

A. Above; excess supply B. below; excess supply C. below; a shortage D. above; a shortage

Which action could cause the price ceiling shown in the graph to become non-binding?

A. An increase in demand (shift to the right) B. A decrease in demand (shift to the left) C. A decrease in supply (shift to the left) D. None of these would cause the price ceiling to become non-binding

If a price floor is set at $23 in the market shown in the graph, which area(s) would represent the surplus that is transferred from consumers to producers?

A. B + C B. B + C + D C. C D. B

Assume there are three hardware stores, each willing to sell one standard model hammer in a given time period. House Depot could offer a hammer for a minimum of $7. Lace Hardware could offer a hammer for a minimum of $10. Bob's Hardware could offer a hammer for a minimum of $13. If the market price of hammers decreased from $15 to $10:

A. Bob's Hardware would lose $5 of producer surplus B. Bob's Hardware would no longer sell hammers C. Total producer surplus would fall by $15 D. Producer surplus would fall by $5 for each producer

Which of the following is a public good?

A. Cleanliness B. Health C. Radio signals D. All of these are public goods.

The graph shown demonstrates a tax on sellers. Which of the following can be said about the effect of this tax?

A. Consumer prefer this tax over a tax levied on buyers. B. The deadweight loss would be larger if this tax had been imposed on buyers. C. The tax decreases consumer surplus D. The tax increases producer surplus