ECON 2000 HW 4/5/6

Which of the following causes the price paid by buyers to be different than the price received by sellers? Select one: a.Nonbinding price control b.Binding price ceiling c.Tax on the good d.Binding price floor

a smaller quantity of the good is bought and sold.

A seller's opportunity cost measures the a.value of everything she must give up to produce a good. b.amount she is paid for a good minus her cost of providing it. c.out-of-pocket expenses to produce a good but not the value of her time. d.consumer surplus.

value of everything she must give up to produce a good.

If the price a consumer pays for a product is equal to a consumer's willingness to pay, then the consumer surplus relevant to that purchase is a.zero. b.There is not enough information given to answer this question. c.negative, and the consumer would not purchase the product. d.positive, and the consumer would purchase the product.

zero

Which of the following causes a shortage of a good? a.Binding price ceiling b.Nonbinding price control c.Binding price floor d.Tax on the good

Binding price ceiling

Suppose sellers of perfume are required to send $1.00 to the government for every bottle of perfume they sell. Further, suppose this tax causes the price paid by buyers of perfume to rise by $0.60 per bottle. Which of the following statements is correct? Select one: a.This tax does not change the quantity of perfume bought and sold. b.This tax causes the demand curve for perfume to shift downward by $1.00 at each quantity of perfume. c.Sixty percent of the burden of the tax falls on sellers. d.The effective price received by sellers is $0.40 per bottle less than it was before the tax.

The effective price received by sellers is $0.40 per bottle less than it was before the tax.

Bob purchases a book for $6, and his consumer surplus is $2. How much is Bob willing to pay for the book? Select one: a.$6 b.$8 c.$2 d.$4

b.$8

Which of the following is not an advantage of corrective taxes? Select one: a.They move the allocation of resources closer to the social optimum. b.They subsidize the production of goods with positive externalities. c.They raise revenues for the government. d.They enhance economic efficiency.

b.They subsidize the production of goods with positive externalities.

Producer surplus is a.measured using the demand curve for a good. b.the opportunity cost of production minus the cost of producing goods that go unsold. c.always a negative number for sellers in a competitive market. d.the amount a seller is paid minus the cost of production.

the amount a seller is paid minus the cost of production.

We can say that the allocation of resources is efficient if a.producer surplus is maximized. b.sellers' costs are minimized. c.total surplus is maximized. d.consumer surplus is maximized.

total surplus is maximized.

Consider the U.S. market for chocolate, a market in which the government has imposed a nonbinding price ceiling. Which of the following events could convert the price ceiling from a nonbinding to a binding price ceiling? Select one: a.A sharp drop in consumer income; chocolate is a normal good. b.A large increase in the size of the cocoa bean crop; cocoa beans are used to produce chocolate. c.South American cocoa bean producers refuse to ship to chocolate producers in the United States. d.A government study that shows that consuming chocolate increases the incidence of cancer.

South American cocoa bean producers refuse to ship to chocolate producers in the United States.

Which of the following is a disadvantage of government provision of a public good? Select one: a.The government lacks information about the value people place on the good. b.The private sector can provide all public goods at a lower cost. c.There are no disadvantages of government provision of a public good. d.The government does not provide enough of any public good.

a. The government lacks information about the value people place on the good.

Zaria and Hannah are roommates. Zaria assigns a $30 value to smoking cigarettes. Hannah values smoke-free air at $15. Which of the following scenarios is a successful example of the Coase theorem? Select one: a.Zaria pays Hannah $16 so that Zaria can smoke. b.Zaria pays Hannah $14 so that Zaria can smoke. c.Hannah offers Zaria $15 not to smoke. Zaria accepts and does not smoke. d.Hannah offers Zaria $20 not to smoke. Zaria accepts and does not smoke.

a. Zaria pays Hannah $16 so that Zaria can smoke.

If a binding price floor is imposed on the video game market, then Select one: a. a surplus of video games will develop. b. the demand for video games will decrease. c. a shortage of video games will develop. d. the supply of video games will increase.

a. a surplus of video games will develop.

The failure of markets to adequately protect the environment can be viewed either as a problem of Select one: a.externalities or as a problem of common resources. b.club goods or as a problem that arises when the quantity of excludable goods exceeds the socially-efficient quantity. c.externalities or as a problem of private goods. d.the overprovision of public goods or as a problem of the underprovision of private goods.

a. externalities or as a problem of common resources.

The overuse of a common resource relative to its economically efficient use is called Select one: a.the Tragedy of the Commons. b.the free-rider problem. c.cost-benefit analysis. d.a public good.

a. the Tragedy of the Commons.

It is commonly argued that national defense is a public good. Nevertheless, the weapons used by the U.S. military are produced by private firms. We can conclude that Select one: a.weapons are rival in consumption and excludable, but national defense is not rival in consumption and not excludable. b.resources would be used more efficiently if the government produced the weapons. c.national defense is rival in consumption and excludable, but weapons are not rival in consumption and not excludable. d.resources would be used more efficiently if private firms provided national defense.

a. weapons are rival in consumption and excludable, but national defense is not rival in consumption and not excludable.

Education yields positive externalities. For example, Select one: a.a more educated population tends to result in lower crime rates. b.as a result of earning a college degree, a person becomes a more productive worker and benefits by earning higher wages. c.when students go to school, they reinforce the demand for teachers. d.colleges and universities have benefited, in recent years, from increases in tuition paid by students.

a.a more educated population tends to result in lower crime rates.

If the government were to limit the release of air pollution produced by a glue factory to 75 parts per million, the policy would be considered a Select one: a.command-and-control policy. b.market-based policy. c.corrective tax. d.subsidy.

a.command-and-control policy.

Negative externalities lead markets to produce Select one: a.greater than efficient output levels and positive externalities lead markets to produce smaller than efficient output levels. b.efficient output levels and positive externalities lead markets to produce greater than efficient output levels. c.greater than efficient output levels and positive externalities lead markets to produce efficient output levels. d.smaller than efficient output levels and positive externalities lead markets to produce greater than efficient output levels.

a.greater than efficient output levels and positive externalities lead markets to produce smaller than efficient output levels.

When Monique drives to work every morning, she drives on a congested highway. What Monique does not realize is that when she enters the highway each morning she increases the travel time of all other drivers on the highway. In this case, the external cost of Monique's highway trip Select one: a.increases the social cost above the private cost. b.increases the social value above the private benefit. c.decreases the social value below the private benefit. d.lowers the social cost below the private cost.

a.increases the social cost above the private cost.

Suppose that the equilibrium price in the market for widgets is $5. If a law increased the minimum legal price for widgets to $6, producer surplus Select one: a.might increase or decrease. b.would necessarily decrease because the higher price would create a surplus of widgets. c.would be unaffected. d.would necessarily increase even if the higher price resulted in a surplus of widgets.

a.might increase or decrease.

Kate is a personal trainer whose client William pays $80 per hour-long session. William values this service at $100 per hour, while the opportunity cost of Kate's time is $75 per hour. The government places a tax of $10 per hour on personal trainers. After the tax, what is likely to happen in the market for personal training? Select one: a.Kate and William will agree to a new price somewhere between $70 and $110. b.Kate and William will agree to a new price somewhere between $85 and $100. c.Kate will no longer offer personal training services to William because she must charge more than $100 in order to cover her opportunity costs and pay the tax. d.The price will remain at $80, and Kate will pay the $10 tax.

b. Kate and William will agree to a new price somewhere between $85 and $100.

Under which of the following scenarios would a park be considered a common resource? Select one: a.Visitors to the park must pay an admittance fee, but there are always plenty of empty picnic tables. b.Visitors can enter the park free of charge, but frequently all of the picnic tables are in use. c.Visitors can enter the park free of charge and there are always plenty of empty picnic tables. d.Visitors to the park must pay an admittance fee and frequently all of the picnic tables are in use.

b. Visitors can enter the park free of charge, but frequently all of the picnic tables are in use.

Suppose that a tax is placed on books. If the buyers pay the majority of the tax, then we know that the Select one: a.government has required that sellers remit the tax payments. b.demand is more inelastic than the supply. c.government has required that buyers remit the tax payments. d.supply is more inelastic than the demand.

b. demand is more inelastic than the supply.

Both public goods and common resources are Select one: a.rival in consumption. b.nonexcludable. c.nonrival in consumption. d.excludable.

b. nonexcludable.

Cost-benefit analysts often encounter the problem that those who would benefit from government provision of a public good tend to Select one: a.understate the benefit they would receive from the public good and those who would be harmed by government provision of a public good tend to understate the costs they would incur from the public good. b.overstate the benefit they would receive from the public good and those who would be harmed by government provision of a public good tend to overstate the costs they would incur from the public good. c.understate the benefit they would receive from the public good and those who would be harmed by government provision of a public good tend to overstate the costs they would incur from the public good. d.overstate the benefit they would receive from the public good and those who would be harmed by government provision of a public good tend to understate the costs they would incur from the public good.

b. overstate the benefit they would receive from the public good and those who would be harmed by government provision of a public good tend to overstate the costs they would incur from the public good.

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

b.decreases, and producer surplus decreases.

The deadweight loss from a tax per unit of good will be smallest in a market with Select one: a.inelastic supply and elastic demand. b.inelastic supply and inelastic demand. c.elastic supply and inelastic demand. d.elastic supply and elastic demand.

b.inelastic supply and inelastic demand.

Suppose the government imposes a 20-cent tax on the sellers of artificially-sweetened beverages. The tax would shift Select one: a.demand, lowering the equilibrium price and raising the equilibrium quantity in the market for artificially sweetened beverages. b.supply, raising the equilibrium price and lowering the equilibrium quantity in the market for artificially sweetened beverages. c.supply, lowering the equilibrium price and raising the equilibrium quantity in the market for artificially sweetened beverages. d.demand, raising both the equilibrium price and quantity in the market for artificially sweetened beverages.

b.supply, raising the equilibrium price and lowering the equilibrium quantity in the market for artificially sweetened beverages.

At Nick's Bakery, the cost to make a cheese danish is $1.50 per danish. As a result of selling 10 danishes, Nick experiences a producer surplus in the amount of $20. Nick must be selling his danishes for Select one: a.$2.00 each. b.$0.50 each. c.$3.50 each. d.$5.00 each.

c. $3.50 each.

A drought in California destroys many red grapes causing the prices of both red grapes and red wine to rise. As a result, the consumer surplus in the market for red grapes Select one: a.increases, and the consumer surplus in the market for red wine increases. b.increases, and the consumer surplus in the market for red wine decreases. c.decreases, and the consumer surplus in the market for red wine decreases. d.decreases, and the consumer surplus in the market for red wine increases.

c. decreases, and the consumer surplus in the market for red wine decreases.

The phenomenon of free riding is most closely associated with which type of good? Select one: a.Private goods b.Inferior goods c.Public goods d.Club goods

c. Public goods

If the government removes a binding price ceiling from a market, then the price paid by buyers will Select one: a.decrease, and the quantity sold in the market will increase. b.increase, and the quantity sold in the market will decrease. c.increase, and the quantity sold in the market will increase. d.decrease, and the quantity sold in the market will decrease.

c. increase, and the quantity sold in the market will increase.

In some cases, tradable pollution permits may be better than a corrective tax because Select one: a.pollution permits generate more revenue for the government than a corrective tax. b.pollution permits allow for a market solution while a corrective tax does not. c.the government can set a maximum level of pollution using permits. d.pollution permits are never preferred over a corrective tax.

c. the government can set a maximum level of pollution using permits.

Suppose televisions are a normal good and buyers of televisions experience a decrease in income. As a result, consumer surplus in the television market Select one: a.is unchanged. b.increases. c.may increase, decrease, or remain unchanged. d.decreases.

c.may increase, decrease, or remain unchanged.

Dioxin emission that results from the production of paper is a good example of a negative externality because Select one: a.there are fines for producing too much dioxin. b.toxic emissions cause firms to produce less than the socially optimal amount of paper. c.self-interested paper producers will not consider the full cost of the dioxin pollution they create. d.self-interested paper firms are generally unaware of environmental regulations.

c.self-interested paper producers will not consider the full cost of the dioxin pollution they create.

Dallas buys strawberries, and he would be willing to pay more than he now pays. Suppose that Dallas has a change in his tastes such that he values strawberries more than before. If the market price is the same as before, then Select one: a.Dallas's consumer surplus would be unaffected. b.Dallas's consumer surplus would decrease. c.Dallas would be wise to buy fewer strawberries than before. d.Dallas's consumer surplus would increase.

d. Dallas's consumer surplus would increase.

The Tragedy of the Commons will be evident when a growing number of sheep grazing on the town commons leads to a destruction of the grazing resource. To correct for this problem, the town could Select one: a.internalize the externality by subsidizing the production of sheep's wool. b.allow individual shepherds to choose their own flock sizes. c.wait until the market corrects the problem. d.auction off a limited number of sheep-grazing permits.

d. auction off a limited number of sheep-grazing permits.

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

d. both public goods and common resources.

Markets fail to allocate resources efficiently when Select one: a.demanders and suppliers cannot agree on a price. b.goods are rival in consumption and excludable. c.too many buyers and sellers exist in the same market. d.property rights are not well established.

d. property rights are not well established.

Suppose there is currently a tax of $50 per ticket on airline tickets. Sellers of airline tickets are required to pay the tax to the government. If the tax is reduced from $50 per ticket to $30 per ticket, then the Select one: a.supply curve will shift downward by $20, and the effective price received by sellers will increase by $20. b.demand curve will shift upward by $20, and the price paid by buyers will decrease by $20. c.demand curve will shift upward by $20, and the price paid by buyers will decrease by less than $20. d.supply curve will shift downward by $20, and the effective price received by sellers will increase by less than $20.

d. supply curve will shift downward by $20, and the effective price received by sellers will increase by less than $20.

The distinction between efficiency and equality can be described as follows: Select one: a.Efficiency refers to maximizing the size of the pie; equality refers to producing a pie of a given size at the least possible cost. b.Efficiency refers to minimizing the price paid by buyers; equality refers to maximizing the gains from trade among buyers and sellers. c.Efficiency refers to maximizing the number of trades among buyers and sellers; equality refers to maximizing the gains from trade among buyers and sellers. d.Efficiency refers to maximizing the size of the pie; equality refers to distributing the pie fairly among members of society.

d.Efficiency refers to maximizing the size of the pie; equality refers to distributing the pie fairly among members of society.

According to the Coase theorem, private parties can solve the problem of externalities if Select one: a.the initial distribution of legal rights favors the person being adversely affected by the externality. b.the number of parties involved is sufficiently large. c.property rights aren't clearly defined. d.the cost of bargaining is small.

d.the cost of bargaining is small.