Exam Final 1

Refer to Figure 9-15. Producer surplus with the tariff is a) C + G. b) G. c) A + B + C + G. d) A + C + G.

A

Refer to Table 12-10. If Willie has $170,000 in taxable income, his average tax rate is a) 24.3%. b) 23.8%. c) 25.9%. d) 28.0%.

A

Scenario 12-1Ken places a $20 value on a cigar, and Mark places a $17 value on it. The equilibrium price for this brand of cigar is $15. Refer to Scenario 12-1. Suppose the government levies a tax of $3 on each cigar, and the equilibrium price of a cigar increases to $18. How much tax revenue is collected? a) $3 b) $6 c) $2 d) $0

A

Pete is a non-union employee at The Electric Co. The majority of the employees at The Electric Co. are unionized. The union at The Electric Co. has negotiated very good benefits. Even though he is not a union member and he does not have to pay union dues, Pete receives all the benefits that the union has negotiated. Pete's behavior is an example of a) a barrier to entry. b) free riding. c) Taft-Hartley opposition. d) rivalry.

B

Refer to Figure 7-24. The equilibrium allocation of resources is a) efficient because total surplus is maximized at the equilibrium. b) inefficient because producer surplus is not maximized. c) efficient because consumer surplus is maximized at the equilibrium. d) inefficient because consumer surplus is larger than producer surplus at the equilibrium.

A

Refer to Figure 9-10. The area bounded by the points (Q0, P0), (Q2, P1), and (Q1, P1) represents a) Mexico's gains from trade. b) the amount by which Mexico's gain in producer surplus exceeds its loss in consumer surplus due to trade. c) Mexico's loss in total surplus due to trade. d) All of the above are correct.

A

Scenario 9-2• For a small country called Boxland, the equation of the domestic demand curve for cardboard is,where represents the domestic quantity of cardboard demanded, in tons, and represents the price of a ton of cardboard.• For Boxland, the equation of the domestic supply curve for cardboard is,where represents the domestic quantity of cardboard supplied, in tons, and again represents the price of a ton of cardboard. Refer to Scenario 9-2. Suppose the world price of cardboard is $45. Then, if Boxland goes from prohibiting international trade in cardboard to allowing international trade in cardboard, a) domestic producers of cardboard become worse off and domestic consumers of cardboard become better off. b) domestic producers of cardboard become better off and domestic consumers of cardboard become worse off. c) domestic producers of cardboard become better off and domestic consumers of cardboard become better off. d) domestic producers of cardboard become worse off and domestic consumers of cardboard become worse off.

A

The nation of Isolani forbids international trade. In Isolani, you can exchange 1 car for 5 motorcycles. In other countries, you can exchange 1 car for 4 motorcycles. These facts indicate that a) the world price of motorcycles exceeds the price of motorcycles in Isolani. b) Isolani has a comparative advantage, relative to other countries, in producing cars. c) if Isolani were to allow trade, it would import motorcycles. d) other countries have an absolute advantage, relative to Isolani, in producing cars.

A

Tom tunes pianos in his spare time for extra income. Buyers of his service are willing to pay $155 per tuning. One particular week, Tom is willing to tune the first piano for $120, the second piano for $125, the third piano for $140, and the fourth piano for $160. Assume Tom is rational in deciding how many pianos to tune. His producer surplus is a) $80. b) $95. c) $60. d) $75.

A

Which of the following is correct regarding road tolls as a way to reduce traffic? a) They can vary based on the amount of traffic that is present. b) They reduce drivers' explicit cost of driving but increase drivers' implicit cost. c) They are the solution to the free rider problem that occurs on roads. d) Some drivers can be made better off, but some drivers will inevitably made worse off.

A

Which of the following statements about the Coase theorem is true? a) Underlying the results of the Coase theorem is the idea that private parties can bargain without cost over the allocation of resources. b) The Coase theorem asserts that private solutions to externalities invariably lead to inefficient allocations of resources. c) The Coase theorem applies to negative externalities, but not to positive externalities. d) All of the above are correct.

A

Chuck would be willing to pay $20 to attend a dog show, but he buys a ticket for $15. Chuck values the dog show at a) $35. b) $20. c) $15. d) $5.

B

For a good that is taxed, the area on the relevant supply-and-demand graph that represents government's tax revenue is a a) triangle. b) rectangle. c) trapezoid. d) None of the above is correct; government's tax revenue is the area between the supply and demand curves, above the horizontal axis, and below the effective price to buyers.

B

In some cases, selling pollution permits is a better method for reducing pollution than imposing a corrective tax because a) Corrective taxes distort incentives. b) it is hard to estimate the market demand curve and thus charge the "right" corrective tax. c) Corrective taxes provide greater flexibility to firms that can reduce pollution at a low cost. d) selling pollution permits create a net increase in pollution.

B

Motor oil and gasoline are complements. If the price of motor oil increases, consumer surplus in the gasoline market a) decreases. b) may increase, decrease, or remain unchanged. c) increases. d) is unchanged.

B

Refer to Figure 8-22. Suppose the government changed the per-unit tax on this good from $3.00 to $1.50. Compared to the original tax rate, this lower tax rate would a) decrease tax revenue and increase the deadweight loss from the tax. b) decrease tax revenue and decrease the deadweight loss from the tax. c) increase tax revenue and decrease the deadweight loss from the tax. d) increase tax revenue and increase the deadweight loss from the tax.

B

Refer to Figure 9-2. If this country chooses to trade, the price of calculators in this country will be a) $15 and 130 calculators will be sold domestically. b) $20 and 80 calculators will be sold domestically. c) $20 and 130 calculators will be sold domestically. d) $15 and 80 calculators will be sold domestically.

B

Scenario 9-2• For a small country called Boxland, the equation of the domestic demand curve forcardboard is,where represents the domestic quantity of cardboard demanded, in tons, and represents the price of a ton of cardboard.• For Boxland, the equation of the domestic supply curve for cardboard is,where represents the domestic quantity of cardboard supplied, in tons, and againrepresents the price of a ton of cardboard. Refer to Scenario 9-2. Suppose the world price of cardboard is $60 and international trade is allowed. Then Boxland's consumers demand a) 96 tons of cardboard and Boxland's producers supply 96 tons of cardboard. b) 80 tons of cardboard and Boxland's producers supply 120 tons of cardboard. c) 96 tons of cardboard and Boxland's producers supply 115 tons of cardboard. d) 110 tons of cardboard and Boxland's producers supply 120 tons of cardboard.

B

Assume the production of a good causes a negative externality. In the market equilibrium, the marginal consumer values the good at a) less than the private cost of producing it. b) more than the social cost of producing it. c) less than the social cost of producing it. d) more than the private cost of producing it.

C

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 a) the equilibrium price of good x is somewhere between $35 and $40. b) the equilibrium quantity of good x exceeds 500 units. c) 500 units is not an efficient quantity of good x. d) All of the above are correct.

D

Refer to Figure 9-13. Consumer surplus after trade is a) $7,200. b) $3,600. c) $5,400. d) $8,100.

D

Relative to a situation in which gasoline is not taxed, the imposition of a tax on gasoline causes the quantity of gasoline demanded to a) increase and the quantity of gasoline supplied to decrease. b) decrease and the quantity of gasoline supplied to increase. c) increase and the quantity of gasoline supplied to increase. d) decrease and the quantity of gasoline supplied to decrease.

D

Suppose that the market for large, 64-ounce soft drinks in the town of Pudgyville is characterized by a typical, downward-sloping, linear demand curve and a typical, upward-sloping, linear supply curve. The market is initially in equilibrium with 1,000 soft drinks sold per day. The newly-elected Mayor of Pudgyville wants to tax 64-ounce soft drinks. She is considering either a $0.10 tax or a $0.30 tax. Her chief economic advisor estimates that the number of soft drinks sold after a $0.10 tax will be 900 and after a $0.30 tax will be 500. Which tax is better? a) The $0.10 tax is better because it raises more revenue and creates a lower deadweight loss than the $0.30 tax. b) The $0.30 tax is better because it raises more revenue and creates a lower deadweight loss than the $0.10 tax. c) It is not clear which tax is better because although the $0.10 tax raises more tax revenues, it creates a larger deadweight loss than the $0.30 tax. d) It is not clear which tax is better because although the $0.30 tax raises more tax revenues, it creates a larger deadweight loss than the $0.10 tax.

D

Simply asking people how much they value a highway is not a reliable way of measuring the benefits and costs because a) those who stand to gain have an incentive to tell the truth. b) not everyone asked will be using the highway. c) answers to the survey questions will always be downwardly biased. d) those who stand to lose have an incentive to exaggerate their true costs.

D

The size of a tax and the deadweight loss that results from the tax are a) equal to each other. b) negatively related. c) independent of each other. d) positively related.

D

Table 12-8The following table presents the total tax liability for an unmarried taxpayer under four different tax schedules for the income levels shown. Refer to Table 12-8. For an individual with $200,000 in taxable income, which tax schedule has the lowest average marginal tax rate? a) Tax Schedule A b) Tax Schedule B c) Tax Schedule C d) Tax Schedule D

C

The government's benefit from a tax can be measured by a) consumer surplus. b) producer surplus. c) tax revenue. d) All of the above are correct.

C

When a tax is imposed on a good for which the demand is relatively elastic and the supply is relatively inelastic, a) the effective price paid by buyers will decrease as a result of the tax. b) buyers of the good will bear most of the burden of the tax. c) sellers of the good will bear most of the burden of the tax. d) buyers and sellers will each bear 50 percent of the burden of the tax.

C

Governments can grant private property rights over resources that were previously viewed as public, such as fish or elephants. Why would governments want to do so? a) to decrease taxes b) to increase consumption c) to fight poverty d) to prevent overuse

D

Tax evasion is a) illegal. b) the same as tax avoidance. c) facilitated by legal deductions to taxable income. d) recommended by the American Accounting Association.

A

Assume, for Colombia, that the domestic price of coffee without international trade is higher than the world price of coffee. This suggests that a) Colombian coffee buyers will become worse off if international trade is allowed. b) other countries have a comparative advantage over Colombia in producing coffee. c) Colombia has an absolute advantage over other countries in producing coffee. d) Colombia will export coffee if international trade is allowed.

B

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 C only b) markets B and D only c) market A only d) markets A and C only

B

Which of the following pairs of goods includes a good that is excludable and rival in consumption as well as a good that is excludable and not rival in consumption? a) clean air, mathematical theorem b) pair of pants, clean air c) pizza, cable TV d) basic research, fireworks display

C

We can say that the allocation of resources is efficient if a) sellers' costs are minimized. b) producer surplus is maximized. c) consumer surplus is maximized. d) total surplus is maximized.

D

Refer to Table 7-3. Who experiences the largest loss of consumer surplus when the price of the good increases from $20 to $22? a) Quilana b) Wilbur c) Ming-la d) All three buyers experience the same loss of consumer surplus.V

D

If the world price of coffee is lower than Colombia's domestic price of coffee without trade, then Colombia a) should import coffee. b) should produce no coffee domestically. c) has a comparative advantage in coffee. d) should produce just enough coffee to satisfy domestic demand.

A

Opponents of free trade often want the United States to prohibit the import of goods made in overseas factories that pay wages below the U.S. minimum wage. Prohibiting such goods is likely to a) increase poverty in poor countries and benefit U.S. firms which compete with these imports. b) harm U.S. firms which compete with these imports. c) increase the rate of technological advance in poor countries so that they can afford to pay higher wages. d) cause these factories to pay the U.S. minimum wage.

A

Which of the following is an example of a positive externality? a) The mayor of a small town plants flowers in the city park. b) Local high school teachers have pizza delivered every Friday for lunch. c) An avid fisherman buys new fishing gear for his next fishing trip. d) A college student buys a new car when she graduates.

A

In a December 2007 New York Times column Paul Krugman argued in favor of a) protectionism based on the national-security argument. b) keeping world markets relatively open. c) protectionism based on the unfair-competition argument. d) protectionism based on the infant-industry argument.

B

Refer to Figure 7-15. Area A represents a) the increase in total surplus when sellers are willing and able to increase supply from Q1 to Q2. b) the increase in consumer surplus that results from an upward-sloping supply curve. c) the increase in producer surplus to those producers already in the market when the price increases from P1 to P2. d) producer surplus to new producers entering the market as the result of an increase in price from P1 to P2.

Answer :C

Market failure is the inability of a) a market to establish an equilibrium price. b) buyers to interact harmoniously with sellers in the market. c) some unregulated markets to allocate resources efficiently. d) buyers to place a value on the good or service.

C

Refer to Figure 10-10. An increase in output from 120 units to 160 units would a) increase total economic well-being. b) increase the external cost per unit of output. c) move the market from a socially efficient outcome to a socially inefficient outcome. d) be an action of which a benevolent social planner would approve.

C

The Surgeon General announces that eating apples promotes healthy teeth. As a result, the equilibrium price of apples a) increases, and producer surplus decreases. b) decreases, and producer surplus decreases. c) increases, and producer surplus increases. d) decreases, and producer surplus increases.

C

When an industry is characterized by technology spillover, what should the government do to ensure that the market equilibrium equals the socially optimal equilibrium? a) Not allow production of any product that causes a technology spillover. b) Require producers to "clean up" any spillover that results from their production process. c) Provide a subsidy equal to the value of the technology spillover. d) Impose a tax greater than the value of the technology spillover.

C

Positive externalities a) can be internalized with a corrective tax. b) result in an efficient equilibrium quantity. c) result in a larger than efficient equilibrium quantity. d) result in smaller than efficient equilibrium quantity.

D

Refer to Figure 7-22. The efficient price is a) $50, and the efficient quantity is 60. b) $70, and the efficient quantity is 60. c) $80, and the efficient quantity is 50. d) $70, and the efficient quantity is 100.

D

Which of the following is true of markets characterized by positive externalities? a) Social value is less than private value, and market quantity exceeds the socially optimal quantity. b) Social value seldom exceeds private value; therefore, social quantity is less than private quantity. c) Social value exceeds private value, and market quantity exceeds the socially optimal quantity. d) Social value exceeds private value, and market quantity is less than the socially optimal quantity.

D

Who among the following is a free rider? a) Grover sends his 5 children to a private school rather than to the public school in his neighborhood. b) Oscar goes to Elmo's house to watch a football game on the local television channel. c) Bert takes the commuter rail to work, but he purchases the discounted monthly passes rather than buying tickets each day. d) Ernie listens to National Public Radio, but does not contribute to any fundraising efforts.

D