Econ Midterm #2

(graph) Line S1 is the current supply of this product, while line S is the optimal supply from the society's perspective. This figure suggests that there is (are):

external costs in the production of this product

Would you expect a tax on cigarettes to be more effective at discouraging consumption over the long run or the short run?

long run because demand becomes more elastic over time

The rule for making optimal decision is that an activity should be increased until:

marginal benefit equals marginal cost

In a competitive market the demand curve shows the____ received by buyers and the supply curve shows ___ faced by sellers

marginal benefits, marginal costs

(graph) suppose the current market equilibrium output of Q1 is not the economically efficient output because of an externality. The economically efficient output Q2. In that case, the diagram shows

the effect of a negative externality is the production of a good

External cost arise when:

social costs are greater than private costs

Consumers may benefit more than sellers from a subsidy to sellers if

the demand curve is relatively less elastic than the supply curve

Consumers are willing to purchase a product up to the point where

the marginal benefit of consuming the product is equal to its price

If, in a competitive market, marginal benefit is greater than marginal cost

the quantity sold is less than the equilibrium quantity

Which of the following represents the true economic cost pf production when firms produce goods that can cause negative externalities

the social cost of production

In an market where negative externalities are associated with consumption or production, the equilibrium will not be efficient because

too many resources will be allocated towards producing the good

(graph) A subsidy to buyers has been placed on the market in the graph shown. what is the amount of the subsidy per unit of this good?

$16

(graph) the figure shows the supply and demand curves for oranges in Corvallis. When this market is in equilibrium, total economic surplus is____ per day.

$160

(graph) the graph shows a subsidy portrayed on buyers. The amount of money spent on this subsidy by the government is:

$2,400

(graph) if a price ceiling were imposed at $4, total economic surplus would be_____, which is____ less than the market is unregulated market

$24,$8

If an individual consumer is willing to pay $11 for one unit of a good but is able to purchase it for $7, then his or her consumer surplus from the purchase of that unit would be

$4

(graph) An effective price floor at $8 imposes a deadweight loss of:

$45

(GRAPH) Chicken pox vaccinations for toddlers benefit society by protecting young children and by preventing and epidemic of the disease. Thus, the social benefits of the chicken pix vaccinations exceed the private benefit for any quantity of vaccinations as illustrated. What is the size of the per-vaccination subsidy that the government must provide to internally the external benefits?

(PE-PG)

If Eli's reservation price on a snowboard is $250, how many snowboards would he buy if the market price of snowboards is $500?

0

If elasticity of demand is 1 and elasticity of supply is 0, what percentage of a 10 percent tax will be borne by consumers?

0 %

(graph) Given a tax of "t" on sellers, revenue collected is:

A and B. Sellers pay B, Consumers pay A

(graph) What area represents producer surplus at a price of P2?

A+B+C

(graph) If a price ceiling were imposed at point G, the consumer surplus would be represented by the area

GAEF

(graph) Assume the market is initially in equilibrium;ibrium at point "j" in the graph bu the imposition of per unit tax on this product moves the supply+tax curve to $1. The welfare loss triangle from this tax is represented by area:

HJI

What is a market failure?

It refers to the inability of the market to allocate resources efficiently up to the point where marginal social benefit equals marginal social cost

(graph) the deadweight loss due to the externality is represented by the area

MSN

The market supply curve indicates the:

Minimun acceptable prices that sellers are willing ti accept for the product

In the United States, many beekeepers travel from state to state, renting out their bee colonies to farmers for pollination services. This is an example of

a Coasian solution to a positive externality

A price ceiling that is set below the equilibrium price will result in:

a shortage of the good

If the government wants to encourage the consumption of a particular good, they should enact:

a subsidy on either buyers or sellers, since they will both have the same effect on the market

A market equilibrium is only efficient if:

all relevant costs and benefits are reflected in the market supply and demand curves

A price floor will create the largest surplus (quantity supplied greater than quantity demanded) when:

both supply and demand are elastic

When negative externalities exist in market, if the producers are forced to pay a Pigouvian tax then:

buyers and sellers will lose surplus

(graph) An effective price floor as Pf causes producer surplus to:

change from areas C+D+F to areas B+C+D

If elasticity of demand is -0/7, elasticity of supply is 0.7, and a 5 percent sales tax is levied on the good

consumers pay 50% of the tax

Taxes:

create a wedge between the price and consumers pay and the price sellers are willing to receive

(graph) $4 tax is levied on sellers(represented by S0 without the tax). From the graph and tax structure you know that the:

elasticities of supply and demand are the same

A per unit tax in a competitive market will result in a deadweight loss unless the tax causes no change in:

equilibrium quantity sold

The government is deciding where to put a $1 tax-either in a market with elastic supply and demand curves or a market with inelastic supply and demand curves. If their aim is to raise the most revenue without he smallest deadweight loss, where should the tax be placed?

in the market with the inelastic supply and demand curves

By requiring a car producers to install emission control devices on cars, the government forces these producers to internalize some of the external costs of auto pollution. This will lead to the equilibrium price of cars:

increasing and the quantity decreasing

The area above the market supply curve and below the market price

is equal to the total amount of producer surplus in a market

Deadweight loss:

is the difference between the total surplus occurring in a market and the maximum total surplus achievable

If there is pollution in producing a product, the the market equilibrium price

is too low and equilibrium quantity is too high

(graph) At the private market equilibrium quantity, the marginal cost of the last unit produced is ____ the social marginal benefit of the last unit produced

less than

(graph) there is a negative externality associated with he production of the good depicted. The socially efficient level of output is

less than Q0

An external benefit implies that private markets will provide______ than the socially optimal quantity, and an external cost implies that private markets will provide ____ than the socially optimal quantity

less; more

When a negative externality exists, the private market produces

more than the economically efficient output level

A tax on cigarettes:

will increase both total surplus and efficiency in the market