microeconomics test 2

by definition public goods

are non-rival in consumption and non-excludable

assume that a 0.25/gallon tax on milk causes a loss of $250 million in consumer and proudcer surplus and creates a deadweight loss of $45 million. from this information we know that the tax revenue generated from tax is

$205 million

an increase to minimum wage leads to

-no change in unemployment levels if the new wage is less than the equilibrium wage that would occur without gov't intervention - increased unemployment levels if the new wage is greater than the equilibrium wage that would occur without government intervention

assume that a $0.10 pound tax on apples raises $100 million in revenue but causes a $125 million loss of consumers and producer surplus. from this information we know that the deadweight loss from the tax is

25 million

does a binding price ceiling cause a shortage or a surplus? provide an example to support your answer

a binding price ceiling generally causes a shortage in the market because the mandated below equilibrium price generally reduces the quantity supplied and increases the quantity demanded resulting in a situation where demand > supply. and example is rent control

does a non binding price ceiling cause a shortage or a surplus? provide an example to support your answer.

a non binding price floor doesn't cause a surplus because the market equilibrium price is higher than the price floor. However if the price floor was binding it would cause a market since the above equilibrium price increases quantity supplied and decreases quantity demanded. An example is a minimum price on cigarettes where producers want to produce a lot but prevents consumers from purchasing all of the supply.

why does a shortage that occurs under a binding price ceiling increase over time

demand and supply both become more elastic

compared to producers consumers will lose the greater amount of surplus from a tax if

demand is less elastic than supply

when a good is divided up, it is important that none of the good go to waste emphasizes

efficiency

when a good is divided up, it is important that everyone gets an equal share

equity

a black market is an illegal market that emerges when a binding and non-bindings price controls are in place

false

a price ceiling will lead to deadweight loss as a result of increased quantity of the good being traded at the higher ceiling price

false

assume a competitive market in which a chemical plant emits harmful pollutants into the air. if the firm only considers the (internal) cost of production, it will produce less than the socially optimal output level. TRUE OR FALSE

false

from the standpoint of economic efficiency, the private sector tends to overproduce public goods TRUE OR FALSE

false

in equilibrium in the strawberry market, strawberries sells for $1.50 a quart. If the government institutes a price floor of $1 per quart of strawberries, the result will be a surplus of strawberries

false

negative externalities misallocate resources as a result in market failure, waste, or lost value. However no such misallocation of resources occurs in the case of positive externalities TRUE OR FALSE

false

second hand cigarettes smoke is an example of a positive externality TRUE OR FALSE

false

suppose a $10 excise tax is paid out of pocket by consumers of a good, the after tax price paid by a consumer will be higher than it would be if -instead- the $10 tax was paid out of pocket by producers of the good

false

the incidence of a tax reflects who pays the tax out of pocket

false

a person decides not to pay dues to join the labor union operating at their place of unemployment. Despite this fact, the person receives the wage increases and benefits negotiated by the union officials on the behalf of all employees. this is an example of

free ride problem

a tax on apples would cause the price paid by consumers to ____ and then price received by producers to _____

increase; decrease

when a tax is imposed on a good, what happens to the amount of the good bought and sold

it decreases

if a tax causes the supply curve to shift, we know that the tax is paid out of pocket by

producers

why do most economists oppose price controls? why does the government attempt to control prices anyways?

the government attempts to control prices to protect disadvantaged consumers (price ceilings) or producers (floors). economists oppose them because controlling prices disrupts normal functioning markets and have a # of undesirable effects and consequences.

in some countries, a binding price ceiling is placed on prescription medicines. what should someone expect the prescription medicine market to be like in these countries

the legal max price would mean that not all consumers will have access to prescription medicines

for the coarse theoreum to apply:

the property rights of the parties must be fully specified only a few parties can be involved there must be no impediments to bargaining

will the surplus or a shortage cause the price control to become smaller or larger over time? explain

the supply and demand imbalances caused by price controls become larger over time because supply and demand are generally more inelastic in the long run than in the short run.

in the US federal minimum wage is usually non-binding

true

suppose market demand is downward sloping and market supply is upward sloping. imposed a $20 unit tax on producers of a good will result int eh same exact deadweight loss as would result if the $20 per unit tax was imposed on consumers of a good

true

what will happen to the market price when a price control is nonbinding?

when a price control is nonbinding it doesn't prevent suppliers from charging the market equilibrium price, therefore, nothing happens to the market price when a price control is nonbinding.

a product is non-excludable if

you cannot keep those who did not pay for the item from enjoying its benefits