Econ Unit 2 (for Exam 2) search exam questions

Refer to Figure above. This graph represents the tobacco industry. The socially optimal price and quantity are

$2.80 and 48 units, respectively

Refer to Figure above. Total surplus with trade exceeds total surplus without trade by

$3,840

If a 16 percent increase in price for a good results in a 7 percent decrease in quantity demanded, the price elasticity of demand is

0.44.

Refer to Figure above. A benevolent social planner would prefer

140 units to any other quantity of output.

Which of the following could be the price elasticity of demand for a good for which a decrease in price would increase total revenue?

2.6

Flu shots provide a positive externality. Suppose that the market for vaccinations is perfectly competitive. Without government intervention in the vaccination market, which of the following statements is correct?

At the current output level, the marginal social benefit exceeds the marginal private benefit.

Import quotas and tariffs produce some common results. Which of the following is not one of those common results?

Equal revenue is always raised for the domestic government.

Although regulation and corrective taxes are both capable of reducing pollution, regulation accomplishes this goal more efficiently.

False

An advantage of using the midpoint method to calculate the price elasticity of demand is that it uses the metric system.

False

If the price elasticity of supply is 0.5 and the quantity supplied decreases by 6%, then the price must have decreased by 3%.

False

In a market with positive externalities, the market equilibrium quantity maximizes the welfare of society as a whole.

False

The world price of cotton is the highest price of cotton observed anywhere in the world.

False

When markets open up to international trade, we know that consumer surplus will rise

False

Which of the following statements is valid when the market supply curve is vertical?

Market quantity supplied does not change when the price changes.

In analyzing the gains and losses from international trade, to say that Moldova is a small country is to say that

Moldova is a price taker

For which pairs of goods is the cross-price elasticity most likely to be positive?

Pens and pencils

A tax on an imported good is called a

Tariff

Which of the following is NOT a way of internalizing technology spillovers?

Taxes

Suppose that cookie producers create a positive externality equal to $2 per dozen. What is the relationship between the equilibrium quantity and the socially optimal quantity of cookies to be produced?

The equilibrium quantity is less than the socially optimal quantity.

When a country allows trade and becomes an importer of silk, which of the following is not a consequence?

The price received by domestic producers of silk increases.

Suppose that two supply curves pass through the same point. One is steep, and the other is flat. Which of the following statements is correct?

The steeper supply curve represents a supply that is inelastic relative to the supply represented by the flatter supply curve.

Deadweight loss measures the decrease in total surplus that results from a tariff or quota.

True

Necessities tend to have inelastic demands, whereas luxuries tend to have elastic demands.

True

Policymakers often consider trade restrictions in order to protect domestic producers from foreign competitors.

True

The government can internalize externalities by taxing goods that have negative externalities and subsidizing goods that have positive externalities.

True

When a driver enters a crowded highway he increases the travel times of all other drivers on the highway. This is an example of a negative externality.

True

Which of the following is an example of a positive externality?

Your neighbor plants a nice garden in front of his house.

Refer to Figure above. If the price increases in the region of the demand curve between points C to B, we can expect total revenue to a. decrease. b. stay the same. c. increase. d. first decrease, then increase until total revenue is maximized.

a

Refer to Figure above. The amount of revenue collected by the government from the tariff is a. $200 b. $400 c. $300 d. $100

a

Employing a lawyer to draft and enforce a private contract between parties wishing to solve an externality problem is an example of

a transaction cost.

Refer to Figure above. Each unit of plastics that is produced results in an external a. cost of $9. b. cost of $12. c. benefit of $9. d. benefit of $12.

b

A decrease in supply will cause the largest increase in price when

both supply and demand are inelastic.

A good will have a more inelastic demand, the

broader the definition of the market

The price elasticity of demand measures

buyers' responsiveness to a change in the price of a good.

Refer to Figure above. Between point A and point B, price elasticity of demand is equal to a. 0.33 b. 0.67 c. 1.5 d. 2.67

c

Refer to Figure above. Taking into account private value and external benefits, the maximum total surplus that can be achieved in this market is a. $2,880. b. $2,940. c. $8,820. d. $1,620.

c

For which of the following goods is the income elasticity of demand likely lowest?

clothing

When a country that imported a particular good abandons a free-trade policy and adopts a no-trade policy,

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

Refer to Figure above. The size of the tariff on roses is a. $4 b. $3 c. $2 d. $1

d

Refer to Table above. Using the midpoint method, if the price falls from $160 to $120, the price elasticity of demand is a. zero. b. unit elastic. c. inelastic. d. elastic.

d

Refer to Figure above. When trade in coffee is allowed, consumer surplus in Uganda

decreases by the area B + F

When a country that imports a particular good imposes an import quota on that good,

domestic sellers become better off and domestic buyers become worse off

Refer to Figure above. With trade, Uganda will

export 11 units of coffee

Suppose the cross-price elasticity of demand between peanut butter and jelly is −2.50. This implies that a 20 percent increase in the price of peanut butter will cause the quantity of jelly purchased to

fall by 50 percent

Elasticity of demand is closely related to the slope of the demand curve. The more responsive buyers are to a change in price, the

flatter the demand curve will be.

Negative externalities lead markets to produce

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

The problem with the protection-as-a-bargaining-chip argument for trade restrictions is

if it fails, the country faces a choice between two bad options.

The world price of a ton of steel is $650. Before Russia allowed trade in steel, the price of a ton of steel there was $1,000. Once Russia allowed trade in steel with other countries, Russia began

importing steel and the price per ton in Russia decreased to $650.

Refer to Figure above. If the price decreased from $36 to $12, total revenue would

increase by $4,800, and demand is elastic between points X and Z.

If the price elasticity of supply is 0.7, and price increased by 24 percent, quantity supplied would

increase by 16.80 percent.

If the demand for donuts is elastic, then a decrease in the price of donuts will

increase total revenue of donuts sellers.

When an externality is present, the market equilibrium is

inefficient, and the equilibrium does not maximize the total benefit to society as a whole.

When large changes in price lead to no changes in quantity demanded, demand is perfectly

inelastic, and the demand curve will be vertical.

The infant-industry argument

is based on the belief that protecting industries when they are young will pay off later.

Most economists prefer corrective taxes to regulation as a way to correct the problem of pollution because the market-based solution

is less costly to society.

The supply of a good will be more elastic, the

longer the time period being considered.

When a country that exported a particular good abandons a free-trade policy and adopts a no-trade policy,

producer surplus decreases and total surplus decreases in the market for that good.

When a country that imports a particular good imposes a tariff on that good,

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

According to the Coase theorem, private parties can solve the problem of externalities if

property rights are clearly defined.

The North American Free Trade Agreement

reduced trade restrictions among Canada, Mexico, and the United States.

Dioxin emission that results from the production of paper is a good example of a negative externality because

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

When positive externalities are present in a market

social benefits will be greater than private benefits.

If the cross-price elasticity of two goods is positive, then the two goods are

substitutes.

For a good that is a luxury, demand

tends to be elastic.

The "unfair-competition" argument might be cited by an American who believes that

the French government's subsidies to French farmers justify restrictions on American imports of French agricultural products.

If a sawmill creates too much noise for local residents,

the government can raise economic well-being through noise-control regulations.

Refer to Figure above. At Q3

the marginal consumer values this product less than the social cost of producing it.

Income elasticity of demand measures how

the quantity demanded changes as consumer income changes.

Demand is said to be inelastic if

the quantity demanded changes only slightly when the price of the good changes.

The price elasticity of supply measures how much

the quantity supplied responds to changes in the price of the good.

If a firm that produces honey is facing elastic demand, then the firm would decrease price to increase revenue.

true

If the United States threatens to impose a tariff on Colombian coffee if Colombia does not remove agricultural subsidies, the United States will be

worse off if Colombia doesn't remove the subsidies in response to the threat.

Refer to Table above. Using the midpoint method, the income elasticity of demand for good Y is

−2.33, and good Y is an inferior good