Microeconomics unit 2

A seller is willing to sell a product only if the seller receives a price that is at least as great as the

seller's cost of production

Suppose the government imposes a tax of 10 percent on the first $40,000 of income and 20 percent on all income above $40,000. What are the tax liability and the marginal tax rate for a person whose income is $50,000?

$6,000 and 20 percent, respectively

Pat bought a new car for $15,500 but was willing to pay $24,000. The consumer surplus is

$8,500

An externality exists whenever

Bobbi engages in an activity that influences the well-being of Rosa and yet Bobbi neither pays nor receives payment for that influence

The price elasticities of supply and demand affect

Both the size of the deadweight loss from a tax and the tax incidence

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?

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

The decrease in total surplus that results from a market distortion, such as a tax, is called a

Deadweight loss

Two firms, A and B, each currently dump 20 tons of chemicals into the local river. The government has decided to reduce the pollution and from now on will require a pollution permit for each ton of pollution dumped into the river. The government gives each firm 10 pollution permits, which it can either use or sell to the other firm. It costs Firm A $100 for each ton of pollution that it eliminates before it reaches the river, and it costs Firm B $50 for each ton of pollution that it eliminates before it reaches the river. After the two firms buy or sell pollution permits from each other, we would expect that

Firm B will no longer pollute, and Firm A will not reduce its pollution at all

Suppose Ireland exports beer to China and imports pineapples from the United States. This situation suggests that

Ireland has a comparative advantage relative to China in producing beer, and the United States has a comparative advantage relative to Ireland in producing pineapples

You have two essentially identical extra tickets to the Midwest Regional Sweet 16 game in the men's NCAA basketball tournament. The table shows the willingness to pay of the four potential buyers in the market for a ticket to the game. You hold an auction to sell the two tickets. Who makes the winning bids, and what do they offer to pay for the tickets?

Michael and Ervin, more than $350 but less than or equal to $400

Suppose New York City passes a local "big gulp" tax that taxes carbonated beverages larger than 20 ounces if they contain sugar or high fructose corn syrup. If the revenue from the "big gulp" tax is earmarked for diabetes research, the "big gulp" tax may be justified

On the basis of the benefits principle

"A $1,000 tax paid by a poor person may be a larger sacrifice than a $10,000 tax paid by a wealthy person" is an argument in favor of

The ability-to-pay principle

At present, the United States uses a system of quotas to limit the amount of sugar imported into the country. Which of the following statements is most likely true?

The quotas are probably the result of lobbying from U.S. producers of sugar. The quotas increase producer surplus for the United States, reduce consumer surplus for the United States, and harm foreign sugar producers.

Refer to figure 7-10

Understand the figure

Refer to figure 7-14

Understand the figure

Refer to figure 7-3

Understand the figure

Refer to figure 10-11 next 2 questions

Understand the figures

Refer to figure 8-4 for next 5 questions

Understand the figures

If a government sells debt to help meet its expenditures, then the government has a

budget deficit. Other things the same, the deficit rises if government expenditures rise.

When a tax on a good is enacted

buyers and sellers share the burden of the tax regardless of whether the tax is levied on buyers or on sellers

When a market is characterized by an externality, the government

can correct the market failure in the case of both positive and negative externalities by inducing market participants to internalize the externality

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

command-and-control policy

Trade among nations is ultimately based on

comparative advantage

Taxes create deadweight loss because they

distort incentives

Taxes on specific goods such as gasoline and alcoholic beverages are called

excise taxes

Corrective Taxes give....

factory owners an economic incentive to reduce pollution

The two taxes that together provide the U.S. federal government with almost 80 percent of its revenue are

individual income taxes and payroll taxes

A positive externality

is a benefit to someone other than the producer and consumer

The social security tax is a tax on

labor

The particular price that results in quantity supplied being equal to quantity demanded is the best price because it

maximizes the combined welfare of buyers and sellers

A transfer payment is a government payment

not made in exchange for a good or service

Assume that your roommate is very messy. Suppose she gets a $25 benefit from being messy but imposes a $50 cost on you. The Coase theorem would suggest that an efficient solution would be for you to

pay your roommate at least $25 but no more than $50 to clean up after herself

State and local government receive the largest portion of their tax revenues from

property taxes and sales taxes

If a tax takes a smaller fraction of income as income rises, it is

regressive

Suppose the tax on automobile tires is increased so that the tax goes from being a "medium" tax to being a "large" tax. As a result, it is likely that

tax revenue decreases, and the deadweight loss increases.

A consumption tax is a tax on

the amount of income that people spend

The gaffer curve relates to

the tax rate to tax revenue raised by the tax