econ 101 isu final review

Which of the following is not correct?

Externalities cannot be positive.

A technology spillover is a type of negative externality.

False

Economists dismiss the idea that lower tax rates can lead to higher tax revenue, because there is a consensus that the relevant elasticities of demand and supply are very low.

False

When an industry is characterized by technology spillover, what should the government do to ensure that the market equilibrium equals the socially optimal equilibrium?

Provide a subsidy equal to the value of the technology spillover.

Which of the following is not a necessary condition for the Coase theorem?

The government intervenes to internalize the externality.

Which of the following statements is correct regarding a tax on a good and the resulting deadweight loss?

The greater are the price elasticities of supply and demand, the greater is the deadweight loss.

The more elastic are supply and demand in a market, the greater are the distortions caused by a tax on that market, and the more likely it is that a tax cut in that market will raise tax revenue.

True

It does not matter whether a tax is levied on the buyers or the sellers of a good because

buyers and sellers will share the burden of the tax.

When a tax is imposed on a good for which the supply is relatively elastic and the demand is relatively inelastic,

buyers of the good will bear most of the burden of the tax.

When a country abandons a no-trade policy, adopts a free-trade policy, and becomes an exporter of a particular good,

consumer surplus decreases and total surplus increases in the market for that good.

Suppose the world price of a television is $300. Before Paraguay allowed trade in televisions, the price of a television there was $350. Once Paraguay began allowing trade in televisions with other countries, Paraguay began

importing televisions and the price of a television in Paraguay decreased to $300.

Assume, for Mexico, that the domestic price of beets without international trade is higher than the world price of beets. This suggests that, in the production of beets,

other countries have a comparative advantage over Mexico and Mexico will import beets.

Zelzar has decided to end its policy of not trading with the rest of the world. When it ends its trade restrictions, it discovers that it is importing incense, exporting steel, and neither importing nor exporting rugs. Which groups in Zelzar are better off as a result of the new free-trade policy?

producers of steel and consumers of incense

A benevolent social planner would prefer that the output of good x be increased from its current level if, at the current level of output of good x,

social cost = private cost = private value < social value.

A common argument in favor of restricting international trade in good x is based on the premise that

trade restrictions can be useful when one country bargains with its trading partners.

The price of a good that prevails in a world market is called the

world price