Micro Exam 2

Refer to Figure 2. From the figure it is apparent that

Uganda has a comparative advantage in producing coffee, relative to the rest of the world.

Efficiency refers to whether a market outcome is fair, while equality refers to whether the maximum amount of output was produced from a given number of inputs.

False

If the government imposes a $3 tax in a market, the buyers and sellers will share an equal burden of the tax.

False

If the size of a tax triples, the deadweight loss increases by a factor of six.

False

Producer surplus is the cost of production minus the amount a seller is paid.

False

The Laffer curve illustrates how taxes in markets with greater elasticities of demand compare to taxes in markets with smaller elasticities of supply.

False

Total surplus in a market is consumer surplus minus producer surplus.

False

Trade decisions are based on the principle of absolute advantage.

False

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

​There are only increases in total surplus when a country exports a good, since more units of the country's output of that good are produced.

False

Which of the following statements is not correct?

Government policies cannot improve upon private market outcomes.

Refer to Figure 8-8. Which graph correctly illustrates the relationship between the size of a tax and the size of the deadweight loss associated with the tax?

Graph (a)

​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

Education yields positive externalities. For example,

a more educated population tends to result in lower crime rates.

Refer to Figure 9-2. With trade, producer surplus is

$3,000.

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?

$0

Refer to Figure 8-2. Total surplus without the tax is

$10, and total surplus with the tax is $7.5.

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

$10.

Refer to Table 7-11. Both the demand curve and the supply curve are straight lines. If the price is $4 but only 6 units are bought and sold, consumer surplus will be

$36.

Refer to Figure 8-2. Producer surplus without the tax is

$4, and producer surplus with the tax is $1.

Refer to Figure 2. With trade, total surplus in the Ugandan coffee market amounts to

$440.00

Refer to Scenario 9-1. If Boxland prohibits international trade in cardboard, then the equilibrium price of a ton of cardboard is

$88 and the equilibrium quantity of cardboard is 204 tons.

Refer to Table 10-5. If the government charged a fee of $84 per unit of pollution, how many units of pollution would the firms eliminate altogether?

10

Refer to Figure 10-5. The socially optimal quantity of output is

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 10-3. The market equilibrium quantity of output is

3 units.

Refer to Table 10-2. What is the equilibrium quantity of output in this market?

4 units

Refer to Figure 7-9. At equilibrium, consumer surplus is represented by the area

A+B+C.

Which of the following are taxed?

Both corporate profits and dividends shareholders receive

In which of the following tax systems does total tax liability increase as income increases?

Both proportional and progressive

Refer to Figure 2. In the absence of trade, total surplus in Uganda is represented by the area

C + B + A + F + D.

Which of the following statements is not correct?

Corrective taxes require the government to set a target level of pollution.

When firms internalize a negative externality, the market supply curve shifts to the left.

True

A corrective tax places a price on the right to pollute.

False

According to the ability-to-pay principle, it is fair for people to pay taxes based on the amount of government services that they receive.

False

By law, all states must have a state income tax.

False

Domestic consumers gain and domestic producers lose when the government imposes a tariff on imports.

False

Suppose that the government taxes income in the following fashion: 20 percent of the first $50,000, 40 percent of the next $50,000, and 60 percent of all income over $100,000. Marshall earns $200,000, and Lily earns $600,000. Which of the following statements is correct?

Lily's average tax rate is higher than Marshall's average tax rate.

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?

Producer surplus increases by $1,875.

Refer to Figure 10-4, Graph (b) and Graph (c). The overuse of antibiotics leads to the development of antibiotic-resistant diseases. Therefore, a government policy that internalized the externality would move the quantity of antibiotics used from point

Q3 to point Q2.

Refer to Figure 8-5. Which of the following combinations will maximize the deadweight loss from a tax?

Supply2 and Demand2

In which of the following instances would the deadweight loss of the tax on airline tickets increase by a factor of 9?

The tax on airline tickets increases from $20 per ticket to $60 per ticket.

Refer to Figure 9-4. A result of this country allowing international trade in crude oil is as follows:

The well-being of domestic crude-oil producers is now higher in that they now sell more crude oil at a higher price per barrel.

Refer to Figure 8-3. Which of the following statements is correct?

Total surplus before the tax is imposed is $500.

A market for pollution permits can efficiently allocate the right to pollute by using the forces of supply and demand.

True

According to the principle of comparative advantage, all countries can benefit from trading with one another because trade allows each country to specialize in doing what it does best.

True

Consumer surplus is the amount a buyer is willing to pay for a good minus the amount the buyer actually has to pay for it.

True

One reason for the projected increase, over the next several decades, in government spending as a percentage of GDP is the projected increase in the size of the elderly population.

True

Social welfare can be enhanced by allowing firms to trade their rights to pollute.

True

Tax evasion is illegal, but tax avoidance is legal.

True

Tax revenue equals the size of the tax multiplied by the quantity sold in the market after the tax is levied.

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

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

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

True

When a good is taxed,

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

A tax affects

buyers, sellers, and the government.

Refer to Figure 9-4. When the country for which the figure is drawn allows international trade in crude oil,

consumer surplus for domestic crude oil consumers decreases.

Justin builds furniture for a living. Justin's out-of-pocket expenses (for wood, paint, etc.) plus the value that he places on his own time amount to his

cost of building furniture.

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

exporting steel and the price per ton in Russia increased to $1,000.

Refer to Scenario 10-1. The production of the 200th gallon of gasoline entails an

external cost of $0.20.

Medicare is the

government's health plan for the elderly.

As the economy's income has grown, the government has

grown at a faster pace.

Tomato sauce and spaghetti noodles are complementary goods. A decrease in the price of tomatoes will

increase consumer surplus in the market for tomato sauce and increase producer surplus in the market for spaghetti noodles.

Deadweight losses represent the

inefficiency that taxes create.

Citizens expect the government to provide various goods and services making taxes

inevitable.

A country is using a proportional tax when

its marginal tax rate equals its average tax rate.

A result of welfare economics is that the equilibrium price of a product is considered to be the best price because it

maximizes the combined welfare of buyers and sellers.

An externality is the uncompensated impact of

one person's actions on the well-being of a bystander.

When the nation of Duxembourg allows trade and becomes an importer of software,

residents of Duxembourg who produce software become worse off; residents of Duxembourg who buy software become better off; and the economic well-being of Duxembourg rises.

Refer to Table 7-11. At a price of $2.00, total surplus is

smaller than it would be at the equilibrium price.

Refer to Figure 3. The area C + D + E + F represents

the decrease in consumer surplus caused by the tariff.

If a tax shifts the supply curve downward,

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

Tax incidence refers to

who bears the tax burden.