Econ Exam 2

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(Ref 35-2 Figure: City with Two Polluters) Use Figure 35-2: City with Two Polluters. If the government wants to limit total pollution to 2,200 tons, it could impose an emissions tax of _____ on both firms.

$300

If the demand curve is downward-sloping and supply is perfectly elastic, then the burden of a excise tax is

borne entirely by consumers

(Ref 16-8 Figure: The Market for Tea in Sri Lanka) Use Figure 16-8: The Market for Tea in Sri Lanka. In autarky, the price is P1. When the economy is opened to trade, the price rises to PW and the change in total surplus is:

"I"

(Ref 14-12 Figure: A Market with a Tax) Use Figure 14-12: A Market with a Tax. The tax revenue collected by the government is equal to the area:

(P1 -P3)Q1

(Ref 16-10 Figure: The Market for Laptops) Use Figure 16-10: The Market for Laptops. Assume that S and D are the domestic supply and demand curves and the world price is PW. Identify the area of consumer surplus when a tariff raises the domestic price from the world price to PT.

A + B

(Ref 14-12 Figure: A Market with a Tax) Use Figure 14-12: A Market with a Tax. The transfer of consumer surplus to the government is equal to the area:

B

(Ref 16-11 Figure: A Tariff on Oranges in South Africa) Use Figure 16-11: A Tariff on Oranges in South Africa. When the government imposes a tariff on imported oranges, the price of oranges in South Africa rises from PW to PT and the volume of imports falls to:

C2-Q2.

Suppose the Jamaican government sets coffee prices at $1 per pound when the market price is $10 per pound. The government's actions will

Causes coffee shortages, even in a coffee-rich country

(Ref 16-2 Figure: The Market for Oranges in South Africa) Use Figure 16-2: The Market for Oranges in South Africa. In autarky, the price of oranges in South Africa is P1. When the economy is opened to trade, the price falls to PW. South Africa will _____ oranges, and the volume of trade will equal _____.

Import; CT - QT

Suppose the government imposes a $4 per month excise tax on cable TV. If the demand for cable TV is perfectly inelastic and the supply curve is elastic (but not perfectly elastic) then the price of cable TV will

Increase by exactly $4

Black Markets may develop as a result of price controls because

Individuals can profit by illegal exchanges

An economy moves from autarky to free international trade. In the import sector, consumer surplus _____, producer surplus _____, and the economy as a whole _____.

Rises;falls;gains

If the government decides to impose a $700 tax on U.S. citizens vacationing abroad, then the deadweight loss from this tax will be

relatively large

The efficient quantity of pollution emissions occurs where

The marginal social benefit of pollution is equal to the marginal social cost of pollution

(Ref 16-4 Figure: The Market for Beats by Dre) Use Figure 16-4: The Market for Beats by Dre. Assume that Sd represents the domestic supply curve and Dd represents the domestic demand curve. In the market for Beats by Dre, the autarky price equals:

$110

(Ref 14-4 Figure: The Market for Hotel Rooms) Use Figure Ref 14-4: The Market for Hotel Rooms. Suppose with no tax the equilibrium price is $110 and the equilibrium quantity is 250. If the local government levies a tax of $30 per night on each hotel room rented, the new equilibrium price will equal _____ and the new equilibrium quantity

$130; 150

(Ref 35-1 Figure: Three Firms that Pollute) Use Figure 35-1: Three Firms That Pollute. In the figure, at what tax rate would firm C produce positive amount of pollution?

$200

(Ref 35-2 Figure: City with Two Polluters) Use Figure 35-2: City with Two Polluters. If the government issued licenses to emit a total of 1,600 tons of pollution, the market price to emit 1 ton of pollution would equal:

$400

The number of seats in a football stadium is fixed at 70,000. The city decides to impose a tax of $10 per ticket. In response, the team management raises the ticket price from $30 to $40 and still sells all 70,000 tickets. The tax caused a change in the consumer surplus of _____, a change in the producer surplus of _____, and a deadweight loss of _____.

-$700,000; $0; $0

(Ref 14-12 Figure: A Market with a Tax) Use Figure 14-12: A Market with a Tax. The efficiency loss resulting from this tax is:

0.5(P1 -P3)(Q2 -Q1)

(Ref 35-2 Figure: City with Two Polluters) Use Figure 35-2: City with Two Polluters. If the government does not intervene in the pollution market, equilibrium will occur where firm A produces _____ tons of pollution and firm B produces _____ tons of pollution, for a total of _____ tons.

2,000; 2,000; 4,000

(Ref 16-4 Figure: The Market for Beats by Dre) Use Figure 16-4: The Market for Beats by Dre. Assume that Sd represents the domestic supply curve and Dd represents the domestic demand curve. If the world price equals $100 and there is free trade, what is the gain in consumer surplus?

2.25 million

(Ref 35-1 Figure: Three Firms that Pollute) Use Figure 35-1: Three Firms That Pollute. If the city imposes a tax of $400 per ton of pollution, firm B will produce _____ tons of mercury, and firm A will produce _____ tons of mercury than will firm C.

300; 500 more

(Ref 35-2 Figure: City with Two Polluters) Use Figure 35-2: City with Two Polluters. If the government imposed an emissions tax of $400, firm A would produce _____ tons of pollution and firm B would produce _____ tons of pollution.

400; 1200

When an economy moves from autarky to free international trade, for industries in the export sector, consumer surplus _____, producer surplus _____, and the economy as a whole _____.

Falls; rises; gains

Restrictions on free international trade designed to insulate domestic industries from competitive market forces that originate beyond the borders of the country are _____ policies.

B

26. (Ref 14-12 Figure: A Market with a Tax) Use Figure 14-12: A Market with a Tax. The deadweight loss arising from the imposition of this tax is equal to the areas:

C + F

(Ref 16-10 Figure: The Market for Laptops) Use Figure 16-10: The Market for Laptops. Assume that S and D are the domestic supply and demand curves and the world price is PW. Identify the area of deadweight loss when a tariff raises the domestic price from the world price to PT.

D + F

(Ref 35-8 Figure: Marginal Private Benefits and Marginal Social Benefits) Use Figure 35-8: Marginal Private Benefits and Marginal Social Benefits. If government does intervene and encourages the market to produce and price at the socially optimal level, what will be the output and price?

D) Q2 and P1

(Ref 16-10 Figure: The Market for Laptops) Use Figure 16-10: The Market for Laptops. Assume that S and D are the domestic supply and demand curves and the world price is PW. Identify the area of government tax revenue when a tariff raises the domestic price from the world price to PT.

E

(Ref 16-8 Figure: The Market for Tea in Sri Lanka) Use Figure 16-8: The Market for Tea in Sri Lanka. In autarky, the price is P1. When the economy is opened to trade, the price rises to PW. Sri Lanka will _____ tea and the volume of trade will equal _____.

Export; QT - CT

A factor that is not a possible reason for market failure is

Extremely high prices for medical care

(Ref 16-8 Figure: The Market for Tea in Sri Lanka) Use Figure 16-8: The Market for Tea in Sri Lanka. In autarky, the price is P1, consumer surplus equals _____ and producer surplus equals _____.

F + G + H; J+K

(Ref 16-4 Figure: The Market for Beats by Dre) Use Figure 16-4: The Market for Beats by Dre. If the world price equals $100 and there is free trade, producer surplus:

Falls

(Ref 16-8 Figure: The Market for Tea in Sri Lanka) Use Figure 16-8: The Market for Tea in Sri Lanka. In autarky, the price is P1. When the economy is opened to trade, the price rises to PW and consumer surplus _____ to _____.

Falls F

Market failure refers to a situation in which

Markets fail to reach an efficient outcome

(Ref 35-1 Figure: Three Firms that Pollute) Use Figure 35-1: Three Firms That Pollute. If each company is allowed to emit only 300 tons of pollution per day, which company will be most adversely affected?

Firm A

Goods and services purchased from abroad are _____, while goods and services sold abroad are _____.

Imports; exports

Suppose the government levies a $4 per month excise tax on cable TV. IF the demand for cable TV is relatively (but not perfectly) inelastic and the supply curve is relatively (but not perfectly) elastic, then the price of cable TV will

Increase by less than $4

(Ref 16-4 Figure: The Market for Beats by Dre) Use Figure 16-4: The Market for Beats by Dre. Assume that Sd represents the domestic supply curve and Dd represents the domestic demand curve. If the world price equals $100 and there is free trade, domestic consumer surplus _____ and domestic producer surplus _____ compared with autarky.

Increases; decreases

Excise taxes that raise the most revenue and cause the least deadweight loss are likely to be levied on goods for which demand is _____ and supply is _____.

Inelastic; inelastic

A binding price ceiling is usually designed to

Keep prices below the equilibrium level

An industry with production that generates external costs produces a quantity of output that is

Larger than the socially optimal quantity

Farmers in developing countries want the United States to reduce the subsidies that it gives to U.S. farmers because subsidized agricultural products from the United States:

Lead to agricultural surpluses and lower prices for farmers in developing countries

If an activity generates external costs, the decision makers generating the activity will

Not be faced with its full costs

(Ref 16-2 Figure: The Market for Oranges in South Africa) Use Figure 16-2: The Market for Oranges in South Africa. In autarky, the price of oranges in South Africa is P1. When the economy is opened to trade, the price falls to PW and the change in total surplus is area:

O + P

(Ref 14-12 Figure: A Market with a Tax) Use Figure 14-12: A Market with a Tax. The excise tax imposed on this good is equal to:

P1 -P3

The burden of a tax on a good falls at least partially on consumers if the

Price paid by consumers for the good increases

If the United States placed larger tariffs on all textiles, domestic _____ surplus would _____.

Producer; increase

To encourage consumption of a good that generates positive externalities, the BEST option for policymakers would be to

Provide a subsidy per unit fo the good consumed to achieve the socially optimal level

(Ref 35-8 Figure: Marginal Private Benefits and Marginal Social Benefits) Use Figure 35-8: Marginal Private Benefits and Marginal Social Benefits. One way for the government to achieve this socially optimal level is by:

Providing a per-unit subsidy of P0 - P2.

(Ref 35-8 Figure: Marginal Private Benefits and Marginal Social Benefits) Use Figure 35-8: Marginal Private Benefits and Marginal Social Benefits. Without government intervention, this market will produce _____ units at a price of _____.

Q1; P2

Rent controls set a price ceiling below the equilibrium price and therefore:

Quantity demanded exceeds the quantity supplied

When the government removes a binding price floor

Quantity demanded will increase and quantity supplied will decrease

Suppose an emissions tax is imposed on all dairy farms in Wisconsin. This tax would

Reduce the supply of milk in Wisconsin

(Ref 16-11 Figure: A Tariff on Oranges in South Africa) Use Figure 16-11: A Tariff on Oranges in South Africa. When the government imposes a tariff on imported oranges, the price of oranges in South Africa rises from PW to PT and there's a net _____ to total surplus of _____.

Reduction; I + K

Assume the same upward supply curve for each of the following goods. Considering demand only, a tax on _____ would result in the largest deadweight loss.

Restaurant meals

If a nation exports a good when the economy is opened to trade, relative to the autarky price, the domestic price of the good will _____ and domestic consumption will _____.

Rise; fall

Ref 16-11 Figure: A Tariff on Oranges in South Africa) Use Figure 16-11: A Tariff on Oranges in South Africa. When the government imposes a tariff on imported oranges, the price of oranges in South Africa rises from PW to PT and domestic producer surplus _____ to _____.

Rises; G + H

(Ref 16-8 Figure: The Market for Tea in Sri Lanka) Use Figure 16-8: The Market for Tea in Sri Lanka. In autarky, the price is P1. When the economy is opened to trade, the price rises to PW, and producer surplus _____ to _____.

Rises; G+H+I+J+K

A price ceiling below the equilibrium price is likely to result in a persistent ________, a transfer of surplus form ________, and ______ deadweight loss

Shortage; producers to some consumers; some

Determining who bears the burden of the tax is a question about

Tax incidence

Taxes are a more effective method of controlling pollution than environmental standards because: A. standards allow greater flexibility. B. standards require less information. C. standards never require the efficient level of output. D. taxes encourage reducing pollution at minimum cost.

Taxes encourage reducing pollution at minimum cost

Recently, the government considered adding an excise tax on CD's that can be used to record music and CD players that can record discs. If this tax were enacted, the most likely effect would be:

That consumers would pay a higher price and producers would sell fewer of these CD's and CD players than before the week

The idea that even in the presence of externalities an economy can reach an efficient solution as long as transaction costs of making a deal are low and property rights are well-defined is known as

The Case theorem

The market for apples is in equilibrium at a price of $0.50 per pound. If the government imposes a price floor in the market at a price of $0.40 per pound:

The price floor will not affect the market price or output

Flu vaccines often provide both private benefits to individuals and positive external benefits to other members of society. As a result, without government intervention one would find:

Too few doses of flu vaccines being produced since external benefits would not be considered

A market economy will produce ___ without any government regulation

Too much pollution

An externality is said to be internalized

When individuals take external costs and benefits into account in their decision making

(Ref 16-4 Figure: The Market for Beats by Dre) Use Figure 16-4: The Market for Beats by Dre. Assume that Sd represents the domestic supply curve and Dd represents the domestic demand curve. If the world price equals $100 and there is free trade, this country:

Will import 150,000 Beats by Dre

Suppose the absolute value of the price elasticity of demand for yachts equals 4.04, while the price elasticity of supply for yachts equals .22. If Congress reinstates a luxury tax on yachts, who will pay more of the tax?

Yacht builders will pay more

Which activity generates a negative externality

Your next-door neighbor mows the lawn at 6 A.M.


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