Microeconomics: test 2 practice exam

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

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 the Figure. A government-imposed price of $12 in this market is an example of a... a. binding price floor that creates a surplus b. binding price ceiling that creates a shortage c. nonbinding price ceiling that creates a shortage d. nonbinding price floor that creates a surplus

a. binding price floor that creates a surplus

Refer to the Figure. Suppose the government imposes a tax ofP' - P'''. The area measured by J represents... a. consumer surplus after the tax. b. consumer surplus before the tax. c. producer surplus after the tax. d. producer surplus before the tax.

a. consumer surplus after the tax

Negative externalities lead markets to produce... a. greater than efficient output levels and positive externalities lead markets to produce smaller than efficient output levels b. smaller than efficient output levels and positive externalities lead markets to produce greater than efficient output levels c. greater than efficient output levels and positive externalities lead markets to produce efficient output levels d. efficient output levels and positive externalities lead markets to produce greater than efficient output levels

a. greater than efficient output levels and positive externalities lead markets to produce smaller than efficient output levels

If a landlord will rent an apartment only to married couples, the landlord is using a ________ allocation method... a. personal characteristics b. majority rule c. market price d. contest

a. personal characteristics

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)

Refer to the Figure. How is the burden of the tax shared between buyers and sellers? Buyers bear... a. three-fourths of the burden, and sellers bear one-fourth of the burden. b. two-thirds of the burden, and sellers bear one-third of the burden. c. one-half of the burden, and sellers bear one-half of the burden. d. one-fourth of the burden, and sellers bear three-fourths of the burden.

a. three-fourths of the burden, and sellers bear one-fourth of the burden.

For widgets, the supply curve is the typical upward-sloping straight line, and the demand curve is the typical downward-sloping straight line. A tax of $15 per unit is imposed on widgets. The tax reduces the equilibrium quantity in the market by 200 units. The deadweight loss from the tax is... a. $3,000 b. $1,500 c. $107.5 d. $92.5

b. $1,500

Refer to the Table. If the market price is $1,000, the producer surplus in the market is... a. $100 b. $400 c. $300 d. $700

b. $400

Dallas buys strawberries, and he would be willing to pay more than he now pays. Suppose that Dallas has a change in his tastes such that he values strawberries more than before. If the market price is the same as before, then... a. Dallas's consumer surplus would be unaffected b. Dallas's consumer surplus would increase c. Dallas's consumer surplus would decrease d. Dallas should buy fewer strawberries than before

b. Dallas's consumer surplus would increase

The demand and supply schedules for pizza are in the table above. A price ceiling of $4 per slice results in... a. a surplus of 20 slices of pizza b. a shortage of 20 slices of pizza c. a shortage of 40 slices of pizza d. a shortage of 60 slices of pizza

b. a shortage of 20 slices of pizza

Refer to the Figure. Suppose that the price falls from P2 to P1. Area B represents the... a. decrease in producer surplus that results from a downward-sloping demand curve b. additional consumer surplus to initial consumers when the price falls c. consumer surplus to new consumers who enter the market d. decrease in producer surplus in the market when the price increases from P1to P2

b. additional consumer surplus to initial consumers when the price falls

The vertical distance between points E and F represents a tax in the market.​Refer to the Figure. The imposition of the tax causes the quantity sold to... a. increase by 1 unit b. decrease by 1 unit c. increase by 2 units d. decrease by 2 units

b. decrease by 1 unit

The deadweight loss from a tax per unit of good will be the smallest in a market with... Answers: a. inelastic supply and elastic demand b. inelastic supply and inelastic demand c. elastic supply and elastic demand d. elastic supply and inelastic demand

b. inelastic supply and inelastic demand

To say that a price ceiling is non-binding is to say that the price ceiling... a. results in a surplus b. is set above the equilibrium price c. causes quantity demanded to exceed quantity supplied d. is set below the equilibrium price

b. is set above the equilibrium price

A legal minimum on the price at which a good can be sold is called a... a. price subsidy b. price floor c. tax d. price ceiling

b. price floor

Refer to the Figure. This market Answers: a. has no need for government intervention b. would be more efficient with a tax on the product c. would be more efficient with a subsidy for the product d. would maximize total well-being at Q3

b. would be more efficient with a tax on the product

Refer to the Figure. 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

At Sarah's Bakery, the cost of making one cake is $1.00. If Sarah sells 20 cakes and gains a producer surplus of $40.00, then Sarah must be selling her cakes for... a. $1.00 each b. $2.00 each c. $3.00 each d. $20.00 each

c. $3.00 each

The vertical distance between points E and F represents a tax in the market.​Refer to the Figure. The amount of tax revenue received by the government is Answers: a. $1 b. $10 c. $5 d. $6

c. $5

Refer to the Table. What is the socially optimal level of output in this market? a. 6 units b. 4 units c. 5 units d. 3 units

c. 5 units

The figure above shows the market for college education. The efficient quantity of education is... a. 0 students b. 4 million students c. 6 million students d. more than 6 million students

c. 6 million students

Which of the following statements about a well-maintained yard best conveys the general nature of the externality? a. A well-maintained yard conveys a positive externality because it increases the home's market value b. A well-maintained yard conveys a negative externality because it increases the property tax liability of the owner c. A well-maintained yard conveys a positive externality because it increases the value of adjacent properties in the neighborhood d. A well-maintained yard cannot provide any type of externality

c. A well-maintained yard conveys a positive externality because it increases the value of adjacent properties in the neighborhood

Refer to the Figure. Suppose a tax of $2 per unit is imposed on this market. How much will buyers pay per unit after the tax is imposed?... a. $3 b. Between $3 and $5 c. Between $5 and $7 d. $7

c. Between $5 and $7

Education yields positive externalities. For example,... a. colleges and universities have benefited, in recent years, from increases in tuition paid by students b. as a result of earning a college degree, a person becomes a more productive worker and benefits by earning higher wages c. a more educated population tends to result in lower crime rates d. when students go to school, they reinforce the demand for teachers

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

If a binding price floor is imposed on the drone market, then... a. the demand for drones will decrease b. the supply of drones will increase c. a surplus of drones will develop d. a shortage of drones will develop

c. a surplus of drones will develop

Henry is willing to pay 45 cents, and Janine is willing to pay 55 cents, for 1 pound of bananas. When the price of bananas falls from 50 cents a pound to 40 cents a pound... a. Henry experiences an increase in consumer surplus, but Janine does not b. Janine experiences an increase in consumer surplus, but Henry does not c. both Janine and Henry experience an increase in consumer surplus d. neither Janine nor Henry experiences an increase in consumer surplus

c. both Janine and Henry experience an increase in consumer surplus

The decrease in total surplus that results from a market distortion, such as a tax, is called a... a. wedge loss b. revenue loss c. deadweight loss d. consumer surplus loss

c. deadweight loss

Suppose the equilibrium price of a physical examination ("physical") by a doctor is $200, and the government imposes a price ceiling of $150 per physical. As a result of the price ceiling, the... a. demand curve for physicals shifts to the right. b. supply curve for physicals shifts to the left. c. quantity demanded of physicals increases, and the quantity supplied of physicals decreases. d. number of physicals performed stays the same.

c. quantity demanded of physicals increases, and the quantity supplied of physicals decreases.

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. a 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

Refer to the Figure. This graph represents the tobacco industry. Without any government intervention, the equilibrium price and quantity are... a. $2.80 and 48 units, respectively b. $3.00 and 60 units, respectively c. $1.50 and 100 units, respectively d. $2.07 and 76 units, respectively

d. $2.07 and 76 units, respectively

Refer to the Figure. If the supply curve is S, the demand curve is D, and the equilibrium price is $100, what is the total surplus? a. $625 b. $1,250 c. $2,500 d. $5,000

d. $5,000

The graph shows the labor market for teenagers in Cape Coast, a city in Ghana. If the government sets a minimum wage of $6 an hour, the number of teenagers employed is... a. 7,000 b. 5,000 c. 4,000 d. 3,000

d. 3,000

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

Refer to the Figure. Suppose the government imposes a tax of P'-P'''. Total surplus before the tax is measured by the area... a. I + Y b. J + K + L + M c. + M + Y d. I + J + K + L + M + Y

d. I + J + K + L + M + Y

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

When a tax is levied on a good, the buyers and sellers of the good share the burden... a. provided the tax is levied on the sellers b. provided the tax is levied on the buyers c. provided a portion of the tax is levied on the buyers, with the remaining portion levied on the sellers d. regardless of how the tax is levied

d. regardless of how the tax is levied

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