Exam 2 MicroEcon

cenario 12-2 Suppose Regina and Rob receive great satisfaction from their consumption of pizza. Regina would be willing to purchase only one slice and would pay up to $14 for it. Rob would be willing to pay $19 for his first slice, $15 for his second slice, and $12 for his third slice. The current market price is $12 per slice. Refer to Scenario 12-2. Assume that the government places a $3 tax on each slice of pizza and that the new equilibrium price is $15. What is Regina's consumer surplus from pizza? A) $0 B) $3 C) $15 D) $14

A) $0

Refer to Table 7-12. Both the demand curve and the supply curve are straight lines. At equilibrium, producer surplus is A) $24. B) $32. C) $48. D) $64.

A) $24.

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) consumer surplus. D) out-of-pocket expenses to produce a good but not the value of her time.

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

Refer to Figure 9-5. Producer surplus in this market before trade is A) C. B) B + C. C) A + B + D. D) B + C + D.

B) B + C.

Goods that are rival in consumption but not excludable would be considered A) club goods. B) common resources. C) public goods. D) private goods.

B) common resources.

Refer to Figure 9-3. The imposition of a tariff on roses A) increases the number of roses imported by 100. B) increases the number of roses imported by 200. C) decreases the number of roses imported by 200. D) decreases the number of roses imported by 500.

C) decreases the number of roses imported by 200.

People cannot be prevented from using a good if the good is a A) private good or a public good. B) private good or a common resource. C) public good or a common resource. D) public good or a club good.

C) public good or a common resource.

Scenario 8-1 Erin would be willing to pay as much as $100 per week to have her house cleaned. Ernesto's opportunity cost of cleaning Erin's house is $70 per week. Refer to Scenario 8-1. If Erin pays Ernesto $90 to clean her house, Erin's consumer surplus is A) $80. B) $30. C) $20. D) $10.

D) $10.

If the government decides to build a new community center, the first step would be to conduct a study to determine the value of the project. The study is called a A) budget analysis. B) project analysis. C) reimbursement analysis. D) cost-benefit analysis.

D) cost-benefit analysis.

T/F A budget deficit occurs when government receipts exceed government spending.

False

T/F A good that is rival in consumption is one that someone can be prevented from using if she did not pay for it.

False

T/F Corporate income taxes are based on the amount of revenue a corporation earns.

False

T/F A good that is excludable is one that someone can be prevented from using if she did not pay for it.

True

T/F Economists argue that restrictions against ticket scalping actually drive up the cost of many tickets.

True

T/F Normally, both buyers and sellers of a good become worse off when the good is taxed.

True

T/F The history of the textile industry raises important questions for economic policy.

True

T/F Refer to Table 11-2. Suppose the cost to clean the lake is $12 per hour and that the residents have agreed to split the cost of cleaning the lake equally. The number of cleaning hours that maximizes total surplus of Widgetapolis is 7 hours.

False

T/F The Coase theorem suggests that taxes should be enacted to alleviate the effects of negative externalities.

False

T/F The concept of external benefit is associated with a negative externality, but not with a positive externality.

False

T/F The greater the elasticity of demand, the smaller the deadweight loss of a tax.

False

T/F The most important tax in the U.S. economy is the tax on corporations' profits.

False

T/F When a government imposes a tariff on a product, the domestic price will equal the world price.

False

T/F Government intervention in the economy with the goal of promoting technology-producing industries is known as patent policy.

False

T/F If a small country imposes a tariff on an imported good, domestic sellers will gain producer surplus, the government will gain tariff revenue, and domestic consumers will gain consumer surplus.

False

T/F Most economists believe that a corporate income tax affects the stockholders of a corporation but not its employees or customers.

False

T/F When the total surplus lost as a result of a tax is less than the amount of tax revenue collected by the government there is a deadweight loss.

False

Refer to Figure 7-5. If the supply curve is S, the demand curve is D, and the equilibrium price is $100, what is the producer surplus? A) $625 B) $1,250 C) $2,500 D) $5,000

C) $2,500

T/F Economists agree that trade ought to be restricted if free trade means that domestic jobs might be lost because of foreign competition.

False

Figure 10-3 Refer to Figure 10-3. What is the socially optimal quantity of output in this market? A) 4 units B) Between 4 and 12 units C) 12 units D) More than 12 units

C) 12 units

Refer to Figure 9-2. With trade, the price of tricycles in this country is A) $33, with 200 tricycles produced in this country and another 320 tricycles imported. B) $33, with 360 tricycles produced in this country and another 160 tricycles imported. C) $57, with 200 tricycles produced in this country and another 160 tricycles imported. D) $57, with 360 tricycles produced in this country and another 160 tricycles imported.

A) $33, with 200 tricycles produced in this country and another 320 tricycles imported.

Refer to Figure 7-5. If the supply curve is S', the demand curve is D, and the equilibrium price is $150, what is the producer surplus? A) $625 B) $1,250 C) $2,500 D) $5,000

A) $625

The income tax requires that taxpayers pay 10percent on the first $40,000 of income and 20 percent on all income over $40,000. Karen paid $6,000 in taxes. What were her marginal and average tax rates? A) 20 percent and 12 percent, respectively B) 20 percent and 15 percent, respectively C) 10 percent and 12 percent respectively D) 10 percent and 15 percent respectively

A) 20 percent and 12 percent, respectively

In which of the following cases is the Coase theorem most likely to solve the externality? A) Ed is allergic to his roommate's cat. B) Chemicals from manufacturing plants in the Midwest are causing acid rain in Canada. C) Polluted water runoff from farms is making residents of a nearby town sick. D) Industrialization around the world is causing global warming.

A) Ed is allergic to his roommate's cat.

Refer to Figure 8-3. Which of the following statements is correct? A) Total surplus before the tax is imposed is $500. B) After the tax is imposed, consumer surplus is 45 percent of its pre-tax value. C) After the tax is imposed, producer surplus is 45 percent of its pre-tax value. D) Total surplus after the tax is imposed is $500.

A) Total surplus before the tax is imposed is $500.

Refer to Figure 8-5. Graph (a) and Graph (b) each illustrate a $4 tax placed on a market. In comparison to Graph (a), Graph (b) illustrates which of the following statements? A) When demand is relatively inelastic, the deadweight loss of a tax is smaller than when demand is relatively elastic. B) When demand is relatively elastic, the deadweight loss of a tax is larger than when demand is relatively inelastic. C) When supply is relatively inelastic, the deadweight loss of a tax is smaller than when supply is relatively elastic. D) When supply is relatively elastic, the deadweight loss of a tax is larger than when supply is relatively inelastic.

A) When demand is relatively inelastic, the deadweight loss of a tax is smaller than when demand is relatively elastic.

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) negative, and the consumer would not purchase the product. C) positive, and the consumer would purchase the product. D) There is not enough information given to answer this question.

A) Zero.

When a good is taxed, A) both buyers and sellers of the good are made worse off. B) only buyers are made worse off, because they ultimately bear the burden of the tax. C) only sellers are made worse off, because they ultimately bear the burden of the tax. D) neither buyers nor sellers are made worse off, since tax revenue is used to provide goods and services that would otherwise not be provided in a market economy.

A) both buyers and sellers of the good are made worse off.

If a highway is congested, then use of that highway by an additional person would lead to a A) negative externality. B) positive externality. C) Pigovian externality. D) free-rider problem with rush-hour drivers stuck in traffic.

A) negative externality.

For private goods allocated in markets, A) prices guide the decisions of buyers and sellers and these decisions lead to an efficient allocation of resources. B) prices guide the decisions of buyers and sellers and these decisions lead to an inefficient allocation of resources. C) the government guides the decisions of buyers and sellers and these decisions lead to an efficient allocation of resources. D) the government guides the decisions of buyers and sellers and these decisions lead to an inefficient allocation of resources.

A) prices guide the decisions of buyers and sellers and these decisions lead to an efficient allocation of resources.

A tax levied on the sellers of a good shifts the A) supply curve upward (or to the left). B) supply curve downward (or to the right). C) demand curve downward (or to the left). D) demand curve upward (or to the right).

A) supply curve upward (or to the left).

If revenue from a gasoline tax is used to build and maintain public roads, the gasoline tax may be justified on the basis of A) the benefits principle. B) the ability-to-pay principle. C) vertical equity. D) horizontal equity.

A) the benefits principle.

When the government levies a tax on a corporation, all the burden of the tax ultimately falls on the corporation's owners. A) the corporation is more like a tax collector than a taxpayer. B) output must increase to compensate for reduced profits. C) less deadweight loss will occur since corporations are entities and D) not people who respond to incentives.

A) the corporation is more like a tax collector than a taxpayer.

Refer to Figure 3. The area C + D + E + F represents A) the decrease in consumer surplus caused by the tariff. B) the decrease in total surplus caused by the tariff. C) the deadweight loss of the tariff minus government revenue raised by the tariff. D) the deadweight loss of the tariff plus government revenue raised by the tariff.

A) the decrease in consumer surplus caused by the tariff.

If a tax shifts the supply curve downward, A) we cannot infer anything because the shift described is not consistent with a tax. B) we can infer that the tax was levied on sellers of the good. C) we can infer that the tax was levied on both buyers and sellers of the good. D) we can infer that the tax was levied on buyers of the good.

A) we cannot infer anything because the shift described is not consistent with a tax.

T/F All else equal, a decrease in demand will cause an increase in producer surplus.

False

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

False

Scenario 12-3A taxpayer faces the following tax rates on her income: 25 percent of the first $45,000 of her income;30 percent of all her income above $45,000. ​ Refer to Scenario 12-3. The taxpayer faces a marginal tax rate of A) 30 percent when her income rises from $35,000 to $35,001. B) 25 percent when her income rises from $35,000 to $35,001. C) 25 percent when her income rises from $55,000 to $55,001. D) 0 percent when her income rises from $35,000 to $35,001.

B) 25 percent when her income rises from $35,000 to $35,001.

The town of Smallhaven is on a small island connected to Large City by a single bridge. Most of the residents of Smallhaven work in Large City. As a result, the bridge becomes very congested for two hours each day at the typical morning and evening commute times. Which of the following policies considered by the mayor of Smallhaven would likely be most efficient in alleviating the congestion? A) A fixed toll for the bridge payable by every vehicle crossing the bridge at all days and times. B) A variable toll for the bridge payable only by vehicles crossing the bridge during the congested commute times. C) Any vehicle crossing the bridge at any time must have a sticker paid for with a one-time fee of $25. D) A press conference in which the mayor requests that people try to cross the bridge earlier or later than the typical commute times.

B) A variable toll for the bridge payable only by vehicles crossing the bridge during the congested commute times.

Refer to Figure 3. The deadweight loss created by the tariff is represented by the area A) B. B) D + F. C) D + E + F. D) B + D + E + F.

B) D + F.

Scenario 10-1The demand curve for gasoline slopes downward and the supply curve for gasoline slopes upward. The production of the 200th gallon of gasoline entails the following: a private cost of $3.03; a social cost of $3.23; a value to consumers of $3.39. Refer to Scenario 10-1. Let Q represent the number of gallons of gasoline and let P represent the price of a gallon of gasoline. Which of the following statements is correct? A) One point on the social-cost curve is (Q = 200, P = $0.20). B) One point on the supply curve is (Q = 200, P = $3.03). C) One point on the demand curve is (Q = 200, P = $3.23). D) The socially optimal quantity of gasoline is less than 200 gallons.

B) One point on the supply curve is (Q = 200, P = $3.03).

Refer to Figure 7-5. If the demand curve is D and the supply curve shifts from S' to S, what is the change in producer surplus? A) Producer surplus increases by $625. B) Producer surplus increases by $1,875. C) Producer surplus decreases by $625. D) Producer surplus decreases by $1,875.

B) Producer surplus increases by $1,875.

When a country allows trade and becomes an importer of silk, which of the following is not a consequence? A) The gains of the winners exceed the losses of the losers. B) The price received by domestic producers of silk increases. C) The price paid by domestic consumers of silk decreases. D) The price received by domestic producers of silk decreases.

B) The price received by domestic producers of silk increases.

Market failure associated with the free-rider problem is a result of A) a problem associated with pollution. B) benefits that accrue to those who don't pay. C) benefits that accrue to providers of the product. D) market power.

B) benefits that accrue to those who don't pay.

Refer to Figure 10-6. 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) cost of $12.

A consumption tax is a tax on A) goods but not on services. B) the amount of income that people spend. C) the amount of income that people earn. D) the amount of income that people save.

B) the amount of income that people spend.

Private companies are most likely to invest in medical research if A) they will produce general knowledge. B) they will produce a specific product for which they may receive a patent. C) there is no government intervention in the market for medical products. D) others will benefit from their discoveries.

B) they will produce a specific product for which they may receive a patent.

T/F Common resources and public goods have in common that they are not excludable and they are not rival in consumption.

False

Which of the following is not an advantage of a multilateral approach to free trade over a unilateral approach? A) A multilateral approach can reduce trade restrictions abroad as well as at home. B) A multilateral approach has the potential to result in freer trade. C) A multilateral approach requires the agreement of two or more nations. D) A multilateral approach may have political advantages.

C) A multilateral approach requires the agreement of two or more nations.

Refer to Figure 7-6. When the price is P2, producer surplus is A) A, B) A+C, C) A+B+C, D) D+G

C) A+B+C

Refer to Table 8-1. Suppose the government is considering levying a tax in one or more of the markets described in the table. Which of the markets will allow the government to minimize the deadweight loss(es) from the tax? A) Market A only B) Markets A and C only C) Markets B and D only D) Market C only

C) Markets B and D only

In 2017, federal government collected $3.6 trillion in taxes. Which of the following correctly rank the sources of federal government tax revenue from large to small? A) Personal income taxes, corporate income taxes, social insurance taxes. B) Social insurance taxes, personal income taxes, corporate income taxes. C) Personal income taxes, social insurance taxes, corporate income taxes. D) Corporate income taxes. social insurance taxes, personal income taxes.

C) Personal income taxes, social insurance taxes, corporate income taxes.

In the 1980s, President Ronald Reagan argued that high tax rates distorted economic incentives to work and save. In the 1990s, President Bill Clinton argued that the rich were not paying their fair share of taxes. Which of the following statements best summarizes the economic theories behind the differing philosophies? A) President Reagan was concerned about vertical equity, whereas President Clinton was concerned about horizontal equity. B) President Reagan was concerned about average tax rates, whereas President Clinton was concerned about horizontal equity. C) President Reagan was concerned about marginal tax rates, whereas President Clinton was concerned about vertical equity. D) President Reagan and President Clinton were both concerned about horizontal equity.

C) President Reagan was concerned about marginal tax rates, whereas President Clinton was concerned about vertical equity.

Figure 10-2 Refer to Figure 10-2. Without government intervention, the equilibrium quantity would be A) Q1. B) Q2. C) Q3. D) Q4.

C) Q3.

Figure 10-4 Refer to Figure 10-4, Graph (b) and Graph (c). The installation of a scrubber in a smokestack reduces the emission of harmful chemicals from the smokestack. Therefore, a government policy that internalized the externality would move the quantity of smokestack scrubbers installed from point A) Q2 to point Q3. B) Q3 to point Q2. C) Q4 to point Q5. D) Q5 to point Q4.

C) Q4 to point Q5.

Refer to Table 12-3. For an individual with $200,000 in taxable income, which tax schedule has the lowest average tax rate? A) Tax Schedule A B) Tax Schedule B C) Tax Schedule C D) Tax Schedule D

C) Tax Schedule C

Refer to Table 12-2. For an individual who earned $80,000 in both years, which of the following statements is true regarding the individual's marginal tax rate? A) The marginal tax rate is higher in 2020 than in 2019. B) The marginal tax rate is the same in 2020 as it was in 2019. C) The marginal tax rate is lower in 2020 than in 2019. D) With a proportional tax, as in 2020, it is not possible to determine the individual's marginal tax rate so it is not possible to compare the marginal tax rates in the two years.

C) The marginal tax rate is lower in 2020 than in 2019.

Dawn's bridal boutique is having a sale on evening dresses. The increase in consumer surplus comes from the benefit of the lower prices to A) only existing customers who now get lower prices on the gowns they were already planning to purchase. B) only new customers who enter the market because of the lower prices. C) both existing customers who now get lower prices on the gowns they were already planning to purchase and new customers who enter the market because of the lower prices. D) Consumer surplus does not increase; it decreases.

C) both existing customers who now get lower prices on the gowns they were already planning to purchase and new customers who enter the market because of the lower prices.

For a small country called Boxland, the equation of the domestic demand curve for cardboard is QD = 380 − 2P, where QD represents the domestic quantity of cardboard demanded, in tons, and P represents the price of a ton of cardboard. For Boxland, the equation of the domestic supply curve for cardboard is QS = -60 + 3P, where QS represents the domestic quantity of cardboard supplied, in tons, and P again represents the price of a ton of cardboard. Refer to Scenario 9-1. Suppose the world price of cardboard is $139. Then, if Boxland goes from prohibiting international trade in cardboard to allowing international trade in cardboard, A) domestic producers of cardboard become better off and domestic consumers of cardboard become better off. B) domestic producers of cardboard become worse off and domestic consumers of cardboard become better off. C) domestic producers of cardboard become better off and domestic consumers of cardboard become worse off. D) domestic producers of cardboard become worse off and domestic consumers of cardboard become worse off.

C) domestic producers of cardboard become better off and domestic consumers of cardboard become worse off.

When a country is on the downward-sloping side of the Laffer curves, a cut in the tax rate will A) decrease tax revenue and decrease the deadweight loss. B) decrease tax revenue and increase the deadweight loss. C) increase tax revenue and decrease the deadweight loss. D) increase tax revenue and increase the deadweight loss.

C) increase tax revenue and decrease the deadweight loss.

Private decisions about consumption of common resources and production of public goods usually lead to an A) efficient allocation of resources and external effects. B) efficient allocation of resources and no external effects. C) inefficient allocation of resources and external effects. D) inefficient allocation of resources and no external effects.

C) inefficient allocation of resources and external effects.

Refer to Table 10-3. Taking into account private and external benefits, the total surplus to society at the socially efficient quantity is A) $18. B) $38. C) $43. D) $50.

D) $50.

Refer to Figure 10-5. The socially optimal quantity of output is A) 80 units, since the value to the buyer of the 80th unit is equal to the cost incurred by the seller of the 80th unit. B) 80 units, since the value to society of the 80th unit is equal to the cost incurred by the seller of the 80th unit. C) 140 units, since the value to the buyer of the 140th unit is equal to the cost incurred by the seller of the 140th unit. D) 140 units, since the value to society of the 140th unit is equal to the cost incurred by the seller of the 140th unit.

D) 140 units, since the value to society of the 140th unit is equal to the cost incurred by the seller of the 140th unit.

Refer to Table 10-4. The market equilibrium quantity of output is A) 3 units. B) 4 units. C) 5 units. D) 6 units.

D) 6 units.

Table 7-4For each of the three potential buyers of apples, the table displays the willingness to pay for Bob, Sasha, and Ava, who are the only three buyers of apples. Assume that only three apples can be supplied per day. Refer to Table 7-4. Who experiences the largest gain in consumer surplus when the price of an apple decreases from $1.05 to $0.75? A) Bob B) Sasha C) Ava D) Bob and Sasha experience the same gain in consumer surplus, and Ava's gain is zero

D) Bob and Sasha experience the same gain in consumer surplus, and Ava's gain is zero

What is the fundamental basis for trade among nations? A) Shortages or surpluses in nations that do not trade B) Misguided economic policies C) Absolute advantage D) Comparative advantage

D) Comparative advantage

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. Refer to Scenario 8-2. Assume Roland is required to pay a tax of $3 each time he mows a lawn. Which of the following results is most likely? A) Karla now will decide to mow her own lawn, and Roland will decide it is no longer in his interest to mow Karla's lawn. B) Karla is willing to pay Roland to mow her lawn, but Roland will decline her offer. C) Roland is willing to mow Karla's lawn, but Karla will decide to mow her own lawn. D) Roland and Karla still can engage in a mutually-agreeable trade.

D) Roland and Karla still can engage in a mutually-agreeable trade.

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

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

A tax affects A) buyers only. B) sellers only. C) buyers and sellers only. D) buyers, sellers, and the government.

D) buyers, sellers, and the government.

A drought in Spain 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 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 increases. D) decreases, and the consumer surplus in the market for red wine decreases.

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

The General Agreement on Tariffs and Trade (GATT) was initiated in response to A) an increase in exports of low-priced goods from developing countries to developed countries. B) the replacement of manufacturing jobs with service jobs in developed countries. C) economic dislocations caused by the North American Free Trade Agreement (NAFTA) in the 1990s. D) high tariffs imposed during the Great Depression of the 1930s.

D) high tariffs imposed during the Great Depression of the 1930s.

T/F If the United States legally allowed for a market in transplant organs, it is estimated that one kidney would sell for at least $100,000.

True

T/F If we know that Canada exports maple syrup, we can conclude that maple syrup consumers in Canada are worse off than they would be in the absence of trade.

True

T/F Taxes affect market participants by increasing the price paid by the buyer and decreasing the price received by the seller.

True

T/F The deadweight loss of a tax rises even more rapidly than the size of the tax.

True

T/F The free-rider problem makes it unlikely that poverty will be entirely eliminated through private charity.

True

T/F The majority of economists believe that the social benefit of mandating measles vaccines for all Americans (except those with compelling medical reasons) would exceed the social cost.

True

T/F Vertical equity refers to a tax system in which individuals with higher incomes pay more in taxes than individuals with lower incomes.

True

T/F When demand increases so that market price increases, producer surplus increases because (1) producer surplus received by existing sellers increases, and (2) new sellers enter the market.

True

T/F When markets fail, public policy can potentially remedy the problem and increase economic efficiency.

True