Microeconomics chapter 6-12 test review

If the government imposes a binding price ceiling on a market, then the price paid by buyers will? a. Decrease, and the quantity sold in the market will decrease b. Increase, and the quantity sold in the market will increase c. Increase, and the quantity sold in the market will decrease d. Decrease, and the quantity sold in the market will increase

A. Decrease, and the quantity sold in the market will decrease

If a price ceiling is not binding, then? a. There will be a surplus in the market b. There will be a shortage in the market c. The market will be less efficient than it would be without the price ceiling d. There will be no effect on the market price or quantity sold

D. d. There will be no effect on the market price or quantity sold

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 a. $250. b. $500. c. $750. d. $1,000.

a. $250.

Two firms, A and B, each currently emit 100 tons of chemicals into the air. The government has decided to reduce pollution and from now on will require a pollution permit for each ton of pollution emitted into the air. The government gives each firm 40 pollution permits, which it can either use or sell to the other firm. It costs Firm A $200 for each ton of pollution that it eliminates before it is emitted into the air, and it costs Firm B $100 for each ton of pollution that it eliminates before it is emitted into the air. After the two firms buy or sell pollution permits for each other, we would expect that Firm A will emit? a. 20 fewer tons of pollution into the air, and Firm B will emit 100 fewer tons of pollution into the air. b. 100 fewer tons of pollution into the air, and Firm B will emit 20 fewer tons of pollution into the air. c. 50 fewer tons of pollution into the air, and Firm B will emit 50 fewer tons of pollution into the air. d 20 more tons of pollution into the air, and Firm B will emit 100 fewer tons of pollution into the air.

a. 20 fewer tons of pollution into the air, and Firm B will emit 100 fewer tons of pollution into the air.

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. c. 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.

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. Assume Erin is required to pay a tax of $40 when she hires someone to clean her house for a week. Which of the following is correct? a. Erin will now clean her own house b. Ernesto will continue to clean Erin's house, but his producer surplus will decline c. Total economic welfare (consumer surplus plus producer surplus plus tax revenue) will increase d. Erin will continue to hire Ernesto to clean her house, but her consumer surplus will decline

a. Erin will now clean her own house

Ashlyn installed a wooden sculpture in her front yard. A positive externality arises if the sculpture a. Increases the value of other properties in the neighborhood. b. Increases the value of Ashlyn's home. c. Is visually unappealing to Ashlyn's neighbors. d. Creates a safety hazard for neighborhood children.

a. Increases the value of other properties in the neighborhood.

The Pennsylvania Turnpike is a tolled freeway running through the state of Pennsylvania. Motorists must pay tolls at various points along the Turnpike based on the distance they traveled on the freeway. Suppose that despite the tolls, many motorists in the urban areas use the Turnpike causing traffic to slow during peak times. What type of good would the Turnpike be classified as in this case? a. Private good b. Club good c. Common resource d. Public good

a. Private good

Which of the following is a disadvantage of government provision of a public good? a. The government lacks information about the value people place on the good. b. The government does not provide enough of any public good. c. The private sector can provide all public goods at a lower cost. d. There are no disadvantages of government provision of a public good.

a. The government lacks information about the value people place on the good.

Suppose that in a particular market, the supply curve is highly inelastic and the demand curve is highly elastic. If a tax is imposed in this market, then the a. sellers will bear a greater burden of the tax than the buyers. b. buyers will bear a greater burden of the tax than the sellers. c. buyers and sellers are likely to share the burden of the tax equally. d. buyers and sellers will not share the burden equally, but it is impossible to determine who will bear the greater burden of the tax without more information.

a. sellers will bear a greater burden of the tax than the buyers.

You are offered a free ticket to see the Chicago Cubs play the Chicago White Sox at Wrigley Field. Assume the ticket has no resale value. Willie Nelson is performing on the same night, and his concert is your next-best alternative activity. Tickets to see Willie Nelson cost $40. On any given day, you would be willing to pay up to $50 to see and hear Willie Nelson perform. Assume there are no other costs of seeing either event. Based on this information, at a minimum, how much would you have to value seeing the Cubs play the White Sox to accept the ticket and go to the game? a. $0 b. $10 c. $40 d. $50

b. 10

The Occupational Safety and Health Administration (OSHA) has determined that the probability of a worker dying from exposure to a hazardous chemical used in the production of fertilizer is 0.008. The cost of imposing a regulation that would ban the chemical is $31 million. If the value of human life is equal to $8 million, how many people must the policy affect in order for the benefits to exceed the costs? a. 248 b. 485 c. 3,101 d. 3,876

b. 485

When a tax is placed on the sellers of a product, buyers pay? a. More, and sellers receive more than they did before the tax. b. More, and sellers receive less than they did before the tax. c. Less, and sellers receive more than they did before the tax. d. Less, and sellers receive less than they did before the tax.

b. More, and sellers receive less than they did before the tax.

Which of the following is not a typical solution to the "Tragedy of the Commons?" a. Taxing the use of the common resource b. Turning the common resource into a club good c. Turning the common resource into a private good d. Regulating the use of the common resource

b. Turning the common resource into a club good

In addition to tax payments, the two other primary costs that a tax system inevitably imposes on taxpayers are? a. deadweight losses and frustration with the political system. b. deadweight losses and administrative burdens. c. administrative burdens and tax-preparation costs. d. administrative burdens and the risk of punishment for failure to comply with tax laws.

b. deadweight losses and administrative burdens.

The 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. The production of the 200th gallon of gasoline entails an: a. external cost of $0.16. b. external cost of $0.20. c. external benefit of $0.16. d. external benefit of $0.20.

b. external cost of $0.20.

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. An economist would suggest that? a. every electric customer has an incentive to prevent the system from overloading, so this voluntary approach is the most efficient. b. it would be more efficient if the electric company raised its rates for electricity at peak times. c. it would be more efficient to have a lottery to decide who had to cut back their use of electricity at peak times. d. it would be more efficient to force everyone to cut their usage of electricity by the same amount

b. it would be more efficient if the electric company raised its rates for electricity at peak times.

A television broadcast is an example of a good that is a. private. b. not rival in consumption. c. social. d. excludable.

b. not rival in consumption.

A free rider is a person who a. will only purchase a product on sale. b. receives the benefit of a good but avoids paying for it. c. can produce a good at no cost. d. rides public transit regularly.

b. receives the benefit of a good but avoids paying for it.

Leonard, Sheldon, Raj, and Penny each like to attend comic-book conventions. The price of a ticket to a convention is $50. Leonard values a ticket at $70, Sheldon at $65, Raj at $60, and Penny at $55. Suppose that if the government taxes tickets at $5 each, the price will rise to $55. A consequence of the tax is that consumer surplus shrinks by? a. $50 and tax revenues increase by $20, so there is a deadweight loss of $30. b. $30 and tax revenues increase by $20, so there is a deadweight loss of $10. c. $20 and tax revenues increase by $20, so there is no deadweight loss. d. $50 and tax revenues increase by $20, so there is no deadweight loss.

c. $20 and tax revenues increase by $20, so there is no deadweight loss.

Suppose that the government wants to encourage Americans to exercise more, so it imposes a binding price ceiling on the market for in-home treadmills. As a result? a. The demand for treadmills will increase b. The supply of treadmills will decrease c. A shortage of treadmills will develop d. A surplus of treadmills will develop

c. A shortage of treadmills will develop

Which of the following statements is correct? a. Equity is more important than efficiency as a goal of the tax system. b. Efficiency is more important than equity as a goal of the tax system. c. Both equity and efficiency are important goals of the tax system. d. Neither equity nor efficiency is an important goal of the tax system.

c. Both equity and efficiency are important goals of the tax system.

Which of the following statements is not correct? a. Tradable pollution permits have an advantage over corrective taxes if the government is uncertain as to the optimal size of the tax necessary to reduce pollution to a specific level. b. Both corrective taxes and tradable pollution permits provide market-based incentives for firms to reduce pollution. c. Corrective taxes set the maximum quantity of pollution, whereas tradable pollution permits fix the price of pollution. d. Both corrective taxes and tradable pollution permits reduce the cost of environmental protection and thus should increase the public's demand for a clean environment.

c. Corrective taxes set the maximum quantity of pollution, whereas tradable pollution permits fix the price of pollution.

If the government removes a binding price floor from a market, then the price paid by buyers will? a. Increase, and the quantity sold in the market will increase b. Increase, and the quantity sold in the market will decrease c. Decrease, and the quantity sold in the market will increase d. Decrease, and the quantity sold in the market will decrease

c. Decrease, and the quantity sold in the market will increase

Which of the following is usually true about government-provided goods? a. These goods have a zero opportunity cost. b. These goods are not scarce. c. People do not have to pay an explicit fee to enjoy these goods. d. The invisible hand is at work to ensure these goods are provided in the market

c. People do not have to pay an explicit fee to enjoy these goods.

Suppose the equilibrium price of a stick of deodorant is $4, and the government imposes a price floor of $5 per stick. As a result of this price floor, the? a. Demand curve for deodorant shifts to the left b. Supply curve for deodorant shifts to the right c. Quantity demanded of deodorant decreases, and the quantity of deodorant that firms want to supply increases d. Quantity supplied of deodorant stays the same

c. Quantity demanded of deodorant decreases, and the quantity of deodorant that firms want to supply increases

Suppose there is currently a tax of $80 per ticket on airline tickets. Sellers of airline tickets are required to pay the tax to the government. If the tax is reduced from $80 per ticket to $64 per ticket, then the? a. Demand curve will shift upward by $16, and the price paid by buyers will decrease by less than $16. b. Demand curve will shift upward by $16, and the price paid by buyers will decrease by $16. c. Supply curve will shift downward by $16, and the effective price received by sellers will increase by less than $16. d. Supply curve will shift downward by $16, and the effective price received by sellers will increase by $16.

c. Supply curve will shift downward by $16, and the effective price received by sellers will increase by less than $16.

What happens to the total surplus in a market when the government imposes a tax? a. Total surplus increases by the amount of the tax. b. Total surplus increases but by less than the amount of the tax. c. Total surplus decreases. d. Total surplus is unaffected by the tax.

c. Total surplus decreases.

Governments can improve market outcomes for a. public goods but not common resources. b. common resources but not public goods. c. both public goods and common resources. d. neither public goods nor common resources.

c. both public goods and common resources.

If the government were to limit the release of air pollution produced by a glue factory to 75 parts per million, the policy would be considered a a. corrective tax. b. subsidy. c. command-and-control policy. d. market-based policy.

c. command-and-control policy.

The U.S. tax burden is? a. about the same as most European countries. b. higher than most European countries. c. lower than most European countries. d. higher than all European countries.

c. lower than most European countries.

One tax system is less efficient than another if it? a. places a lower tax burden on lower-income families than on higher-income families. b. places a higher tax burden on lower-income families than on higher-income families. c. raises the same amount of revenue at a higher cost to taxpayers. d. raises less revenue at a lower cost to taxpayers.

c. raises the same amount of revenue at a higher cost to taxpayers.

Suppose the government imposes a 20-cent tax on the sellers of artificially sweetened beverages. The tax would shift? a. Demand, raising both the equilibrium price and quantity in the market for artificially sweetened beverages. b. Demand, lowering the equilibrium price and raising the equilibrium quantity in the market for artificially sweetened beverages. c. supply, raising the equilibrium price and lowering the equilibrium quantity in the market for artificially sweetened beverages. d. Supply, lowering the equilibrium price and raising the equilibrium quantity in the market for artificially sweetened beverages.

c. supply, raising the equilibrium price and lowering the equilibrium quantity in the market for artificially sweetened beverages.

If a sawmill creates too much noise for local residents? a. noise restrictions will force residents to move out of the area. b. sense of social responsibility will cause owners of the mill to reduce noise levels. c. the government can raise economic well-being through noise-control regulations. d. the government should avoid intervening because the market will always allocate resources efficiently.

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

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? a. At the current output level, the marginal social cost exceeds the marginal private cost. b. The current output level is inefficiently high. c. A per-shot tax could turn an inefficient situation into an efficient one. d. At the current output level, the marginal social benefit exceeds the marginal private benefit.

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

In the absence of taxes, Carlos would prefer to purchase a large fishing boat with a 75 hp motor. The government has recently decided to place a tax on boats with 75 hp motors or higher. If Carlos decides to purchase a smaller boat with a 50 hp motor as a result of the tax, which of the following statements is correct? a. Other people who choose to purchase large boats will incur the cost of the deadweight loss of the tax. b. There are no deadweight losses as long as some people still choose to purchase large boats. c. The deadweight loss will decrease as a result of an increases in Carlos's consumer surplus. d. Carlos is worse off, and his loss of welfare is part of the deadweight loss of the tax.

d. Carlos is worse off, and his loss of welfare is part of the deadweight loss of the tax.

Which of the following will cause a decrease in consumer surplus? a. An increase in the number of sellers of the good b. A technological improvement in the production of the good c. A decrease in the production cost of the good d. The imposition of a binding price floor in the market

d. The imposition of a binding price floor in the market

The maximum price that a buyer will pay for a good is called? a. Consumer surplus b. Producer surplus c. Efficiency d. Willingness to pay

d. Willingness to pay