econ test 2
Roland mows Karla's lawn for $25. Roland's opportunity cost of mowing Karla's lawn is $20, and Karla's willingness to pay Roland to mow her lawn is $28 . If Karla hires Roland to mow her lawn, Karla's consumer surplus is
$3
In a competitive market, the equilibrium price is 7. For a price floor to be binding in this market, it would have to be set at
Any price above $7
One economist has argued that rent control is "the best way to destroy a city, other than bombing." Why would an economist say this?
He fears that rent control will eliminate the incentive to maintain buildings, leading to a deterioration of the city.
T or F A tax on buyers usually causes buyers to pay more for the good and sellers to receive less for the good than they did before the tax was levied.
T
T or F If a good or service is sold in a competitive market free of government regulation, then the price of the good or service adjusts to balance supply and demand.
T
T or F A binding minimum wage creates a surplus of labor
T
T or F Who bears the majority of a tax burden depends on the relative elasticity of supply and demand.
T
Suppose that a negative externality is created by the production of good X. Which of the following statements is correct?
The social cost of producing good X includes the private cost plus the cost to bystanders of the externality
Suppose Raymond and Victoria attend a charity benefit and participate in a silent auction. Each has in mind a maximum amount that he or she will bid for an oil painting by a locally famous artist. This maximum is called
Willingness to pay
Most economists prefer corrective taxes to regulation as a way to correct the problem of pollution because
all are correct.. the market-based solution is less costly to society he market-based solution can result in a greater reduction in pollution. the market-based solution raises revenue for the government.
Consider a public road that anyone is allowed to drive on. If the road is often congested, the road would be considered a
common resource
If the government levies a $0.25 tax per MP3 music file downloaded on buyers of MP3 music files, then the price received by sellers of MP3 music files would
decrease by less than $0.25.
Tax incidence
depends on the elasticities of supply and demand.
t or f The area below the demand curve and above the supply curve measures the producer surplus in a market.
f
Markets are often inefficient when negative externalities are present because
social costs exceed private costs at the private market solution
When a tax is levied on the sellers of a good, the
supply curve shifts upward by the amount of the tax.
When a tax is levied on buyers, the
tax creates a wedge between the price buyers effectively pay and the price sellers receive.
Suppose that smoking creates a negative externality. If the government imposes a per-cigarette tax equal to the per-cigarette externality, then
the after-tax equilibrium quantity of cigarettes smoked will equal the socially optimal quantity of cigarettes smoked.
Total surplus in a market is equal to
value to buyers - costs of sellers
Kelly is willing to pay $5.20 for a gallon of gasoline. The price of gasoline at her local gas station is $3.80. If she purchases ten gallons of gasoline, then Kelly's consumer surplus is
$14
Cameron visits a sporting goods store to buy a new set of golf clubs. He is willing to pay $750 for the clubs but buys them on sale for $575. Cameron's consumer surplus from the purchase is
$175
Diana is a personal trainer whose client Charles pays $80 per hour-long session. Charles values this service at $100 per hour, while the opportunity cost of Diana's time is $75 per hour. The government places a tax of $10 per hour on personal trainers. Before the tax, what is the total surplus?
$25
Suppose a tax of $5 per unit is imposed on a good, and the tax causes the equilibrium quantity of the good to decrease from 200 units to 100 units. The tax decreases consumer surplus by $450 and decreases producer surplus by $300. The deadweight loss from the tax is
$250
The following table contains the demand schedule and supply schedule for a market for a particular good. Suppose sellers of the good successfully lobby Congress to impose a price floor $2 above the equilibrium price in this market. Following the imposition of a price floor $2 above the equilibrium price, irate buyers convince Congress to repeal the price floor and to impose a price ceiling $1 below the former price floor. The resulting market price is
$3
Bill created a new software program he is willing to sell for $200. He sells his first copy and enjoys a producer surplus of $150. What is the price paid for the software?
$350
Billie Jo values a stainless steel dishwasher for her new house at $500, but she succeeds in buying one for $425. Billie Jo's willingness to pay for the dishwasher is
$500
If the market price is $1,200, the producer surplus in the market is
$800
Price controls are usually enacted
when policymakers believe that the market price of a good or service is unfair to buyers or sellers.
When a negative externality exists in a market, the cost to producers
will be less than the cost to society
An externality exists whenever
Bobbi engages in an activity that influences the well-being of Rosa and yet Bobbi neither pays nor receives payment for that influence.
Suppose Brent, Callie, and Danielle each purchase a particular type of electric pencil sharpener at a price of $20. Brent's willingness to pay was $22, Callie's willingness to pay was $25, and Danielle's willingness to pay was $30. Which of the following statements is correct?
Brent's consumer surplus is the smallest of the three individual consumer surpluses
Many species of animals are common resources, and many must be protected by law to keep them from extinction. Why is the cow not one of these endangered species even though there is such a high demand for beef?
Cows are privately owned, whereas many endangered species are owned by no one
T OR F Regardless of whether a tax is levied on sellers or buyers, taxes encourage market activity.
F
T or F If the equilibrium price of an airline ticket is $500 and the government imposes a price floor of $400 on airline tickets, then fewer airline tickets will be sold than at the market equilibrium.
F
T or F Since a tax imposed on buyers of a product only affects demand, such a tax has no impact on sellers in that market.
F
Which of the following statements is not correct?
Government policies cannot improve upon private market outcomes
Which of the following events would increase producer surplus?
Sellers' costs stay the same and the price of the good increases
Consider the US market for chocolate, a market in which the government has imposed a price ceiling. Which of the following events could convert the price ceiling from a nonbinding to a binding price ceiling?
South American cocoa bean producers refuse to ship to chocolate producers in the US.
Welfare economics explains which of the following in the market for televisions?
The market equilibrium price for televisions maximizes the total welfare of television buyers and sellers.
Economists blame the long lines at gasoline stations in the U.S. in the 1970s on
U.S. government regulations pertaining to the price of gasoline.
A positive externality arises when a person engages in an activity that has
a beneficial effect on a bystander who does not pay the person who causes the effect
Which of the following is NOT an example of a negative externality?
a decrease in your property value from neglecting your lawn and garden
Alexander lives in an apartment building and gets a $250 benefit from playing his stereo. Mary, who lives next door to Alexander and often loses sleep due to the loud music coming from Alexander's stereo, bears a $350 cost from the noise. Mary would like to offer Alexander some money to turn down the volume on his stereo. If Mary had to hire a lawyer to draw up the contract, what is the maximum amount she could pay to the lawyer to ensure that both Alexander and Mary would benefit from the agreement?
amount less than $100
When a tax is placed on the sellers of cell phones, the size of the cell phone market
and the effective price received by sellers both decrease
A shortage results when a
binding price ceiling is imposed on a market.
If a tax is levied on the sellers of flour, then
buyers and sellers will share the burden of the tax.
The externality associated with technology spillovers
can be internalized, potentially, through patent protection
By driving onto a congested road for which no toll is charged, a driver
contributes to the overuse of a common resource contributes to a negative-externality problem. is inflicting additional time cost on all of the other drivers All of the above are correct.
Relative to a situation in which gasoline is not taxed, the imposition of a tax on gasoline causes the quantity of gasoline demanded to
decrease and the quantity of gasoline supplied to decrease.
When a tax is imposed on a good, the
equilibrium quantity of the good always decreases
The Coase theorem asserts that the private market will always solve the problem of externalities and allocate resources efficiently ....
even if the initial distribution of legal rights is skewed in favor of some private parties over others
On hot summer days, electricity-generating capacity is sometimes stretched to the limit. At these times, electric companies may ask people to voluntarily cut back on their use of electricity. On these days, electricity is
excludable and rival in consumption
t or f When correcting for an externality, command-and-control policies are always preferable to market-based policies
f
t or f A tax raises the price received by sellers and lowers the price paid by buyers
f
t or f All else equal, a decrease in demand will cause an increase in producer surplus
f
t or f Barking dogs cannot be considered an externality because externalities must be associated with some form of market exchange
f
t or f Government intervention in the economy with the goal of promoting technology-producing industries is known as patent policy
f
t or f If the size of a tax doubles, the deadweight loss doubles
f
t or f Organizers of an outdoor concert in a park surrounded by residential neighborhoods are likely to consider the noise and traffic cost to residential neighborhoods when they assess the financial viability of the concert venture
f
t or f Private markets usually provide lighthouses because ship captains have the incentive to navigate using the lighthouse and therefore will pay for the service
f
t or f Suppose a certain good conveys either an external cost or an external benefit. If the private cost of the last unit of the good that was produced is equal to the private value of that unit, then the sum of producer and consumer surplus is maximized
f
t or f The lower the price, the lower the consumer surplus, all else equal
f
t or f Tolls are not effective in altering people's incentives to drive during rush hour.
f
t or f When a tax is imposed on sellers, producer surplus decreases but consumer surplus increases
f
When goods do not have a price, which of the following primarily ensures that the good is produced?
government
Suppose that alcohol consumption creates a negative externality. What can the government do to equate the equilibrium quantity of alcohol and the socially optimal quantity of alcohol?
impose a tax on alcohol that is equal to the per-unit externality
Under rent control, tenants can expect
lower rent and lower quality housing
The particular price that results in quantity supplied being equal to quantity demanded is the best price because it
maximizes the combined welfare of buyers and sellers
When the demand for a good increases and the supply of the good remains unchanged, consumer surplus
may increase, decrease, or remain unchanged
Inefficiency exists in a market when a good is
not being produced by the lowest-cost producers.
If a tax is levied on the buyers of a product, then the supply curve will
not shift
When policymakers set prices by legal decree, they
obscure the signals that normally guide the allocation of society's resources.
A good is excludable if
people can be prevented from using it
Markets fail to allocate resources efficiently when
property rights are not well established.
When a tax is placed on a product, the price paid by buyers
rises, and the price received by sellers falls
A $0.10 tax levied on the sellers of chocolate bars will cause the
supply curve for chocolate bars to shift up by $0.10.
t or f If producing a soccer ball costs Jake $5, and he sells it for $40, his producer surplus is $35
t
t or f Private parties may choose not to solve an externality problem if the transaction costs are large enough
t
t or f According to the Coase theorem, whatever the initial distribution of rights, the interested parties can bargain to an efficient outcome.
t
t or f Consumer surplus measures the benefit to buyers of participating in a market
t
t or f Corrective taxes are more efficient than regulations for keeping the environment clean
t
t or f Depending on congestion, national parks can be either a common resource or a public good
t
t or f Economists use the government's tax revenue to measure the public benefit from a tax
t
t or f Government agencies, such as the National Science Foundation, subsidize basic research because in the absence of a subsidy too little research would be conducted
t
t or f Price floors are typically imposed to benefit sellers
t
t or f Producer surplus is the amount a seller is paid minus the cost of production
t
t or f Suppose a certain good provides an external benefit. If the private cost of the last unit of the good that was produced is equal to the social value of that unit, then the sum of producer and consumer surplus is maximized
t
t or f Suppose there is an increase in supply that reduces market price. Consumer surplus increases because (1) consumer surplus received by existing buyers increases and (2) new buyers enter the market.
t
t or f Taxes create deadweight losses
t
t or f The cost of production plus producer surplus is the price a seller is paid
t
t or f The free-rider problem arises when the number of beneficiaries is large and exclusion of any of them is impossible
t
t or f When markets fail, public policy can potentially remedy the problem and increase economic efficiency
t
t or f You and your friends eat potato chips in your bedroom. For you and your friends, the potato chips are rival in consumption.
t
A rain barrel is a container that captures and stores rainwater for landscape and garden use during dry periods. Rain barrels provide an external benefit to the community through water conservation. If the government offers a per unit subsidy on rain barrels equal to the per-unit externality, then
the after-subsidy equilibrium quantity of rain barrels will equal the socially optimal quantity of rain barrels
Five hundred units of good x are currently bought and sold. The marginal buyer is willing to pay $40 for the 500th unit, and the cost to the marginal seller is $35 for the 500th unit. We know that
the equilibrium price of good x is somewhere between $35 and $40 the equilibrium quantity of good x exceeds 500 units 500 units is not an efficient quantity of good x ALL ARE CORRECT
Which of the following will cause a decrease in producer surplus?
the imposition of a binding price ceiling in the market
Suppose the market-equilibrium quantity of good x is 5,000 units and the socially-optimal quantity of good x is 4,000 units. Then
the production of good x imposes external costs on society
An externality is
the uncompensated impact of one person's actions on the well-being of a bystander
A simultaneous increase in both the demand for MP3 players and the supply of MP3 players would imply that
the value of MP3 players to consumers has increased, and the cost of producing MP3 players has decreased.
Suppose that electricity producers create a negative externality equal to $5 per unit. Further suppose that the government imposes a $5 per-unit tax on the producers. What is the relationship between the after-tax equilibrium quantity and the socially optimal quantity of electricity to be produced?
they are equal
