Econ 201 - CH. 4 - 14
By allowing an income-tax deduction for charitable contributions, the government
encourages a private solution to a particular positive-externality problem.
A cable television broadcast of a movie is
excludable and not rival in consumption.
An important factor in the decline of the U.S. textile industry over the past 100 or so years is
foreign competitors that can produce quality textile goods at low cost.
If the labor supply curve is nearly vertical, a tax on labor
has little impact on the amount of work that workers are willing to do.
A minimum wage that is set below a market's equilibrium wage will
have no impact on employment.
A consumer's willingness to pay directly measures
how much a buyer values a good.
The higher a country's tax rates, the more likely that country will be
on the negatively sloped part of the Laffer curve.
For which pairs of goods is the cross-price elasticity most likely to be negative?
peanut butter and jelly
For which pairs of goods is the cross-price elasticity most likely to be positive?
pens and pencils
A demand schedule is a table that shows the relationship between
price and quantity demanded
A tax imposed on the buyers of a good will raise the
price paid by buyers and lower the equilibrium quantity.
A cheeseburger is a
private good, because it is excludable and rival in consumption.
Property rights are well established for
private goods.
Markets do not ensure that the air we breathe is clean because
property rights are not well established for clean air.
A perfectly inelastic demand implies that buyers
purchase the same amount as before when the price rises or falls
If the tax on a good is doubled, the deadweight loss of the tax
quadruples.
If Kevin's children run a lemonade stand for a day and sell 200 glasses of lemonade at $0.50 each, their total revenues are
$100
Donald produces nails at a cost of $350 per ton. If he sells the nails for $500 per ton, his producer surplus is
$150.
If the United States changed its laws to allow for the legal sale of a kidney, which of the following is likely to occur?
All of the above are correct: The price of kidneys would rise to balance supply and demand, The gains from trade would make both buyers and sellers better off, Thousands of lives would be saved.
A corrective tax
All of the above are correct: imposed on buyers shifts the demand curve to the left, imposed on sellers shifts the supply curve to the left, and can be used to internalize a negative externality.
For any country that allows free trade,
the domestic price is equal to the world price.
Suppose there is an early freeze in California that reduces the size of the lemon crop. What happens to consumer surplus in the market for lemons?
Consumer surplus decreases.
Abe owns a dog, the dog's barking annoys Abe's neighbor, Jenny. Suppose that the benefit of owning the dog is worth $200 to Abe and that Jenny bears a cost of $400 from the barking. Assuming Abe has the legal right to keep the dog, a possible private solution to this problem is that;
Jenny pays Abe $300 to give the dog to his parents who live on an isolated farm.
Which of the following is a disadvantage of government provision of a public good?
The government lacks information about what people are willing to pay for the good.
A city street is
a common resource when it is congested, but it is a public good when it is not congested.
A quota is
a limit on the quantity of imports.
Adam Smith used a famous example of what type of firm to illustrate economies of scale?
a pin factory.
.A demand curve reflects each of the following except the
ability of buyers to obtain the quantity they desire.
If a surplus exists in a market, then we know that the actual price is
above the equilibrium price, and quantity supplied is greater than quantity demanded.
A perfectly elastic demand implies that
any rise in price above that represented by the demand curve will result in a quantity demanded of zero.
Fixed costs can be defined as costs that
are incurred even if nothing is produced.
A competitive market is one in which there
are so many buyers and so many sellers that each has a negligible impact on the price of the product.
If marginal cost is rising
average variable cost must be falling.
Elephants are endangered, but cows are not because
elephants are a common resource, while cows are private goods.
A price ceiling is binding when it is set
below the equilibrium price, causing a shortage.
A shortage results when a
binding price ceiling is imposed on a market.
A surplus results when a
binding price floor is imposed on a market.
For which of the following goods is the income elasticity of demand likely highest?
boats.
In a market economy, supply and demand determine
both the quantity of each good produced and the price at which it is sold.
A good will have a more inelastic demand, the
broader the definition of the market.
When a buyer's willingness to pay for a good is equal to the price of the good, the
buyer is indifferent between buying the good and not buying it.
It does not matter whether a tax is levied on the buyers or the sellers of a good because
buyers and sellers will share the burden of the tax.
A cost imposed on someone who is neither the consumer nor the producer is called a
negative externality.
A likely example of complementary goods for most people would be
canoes and paddles
A likely example of complementary goods for most people would be
canoes and paddles.
A legal maximum on the price at which a good can be sold is called a price
ceiling.
Two types of private solutions to the problem of externalities are
charities and the Golden Rule.
Suppose that a firm's long-run average total costs of producing an individual income tax return is $75 when it produces 1,000 returns and $75 when it produces 1,200 returns. For this range of output, the firm is experiencing
constant returns to scale.
A tax imposed on the buyers of a good will lower the
effective price received by sellers and lower the equilibrium quantity.
A tax imposed on the sellers of a good will lower the
effective price received by sellers and lower the equilibrium quantity.
Equilibrium price must decrease when demand
decreases and supply does not change, when demand does not change and supply increases, and when demand decreases and supply increases simultaneously.
Suppose that a firm's long-run average total costs of producing small commuter jet airplanes increases as it produces between 2,000 and 4,000 airplanes. For this range of output, the firm is experiencing
diseconomies of scale.
A tariff on a product makes
domestic sellers better off and domestic buyers worse off.
A $2 tax per gallon of paint placed on the buyers of paint will shift the demand curve
downward by exactly $2.
With a corrective tax, the supply curve for pollution is
downward-sloping.
A difference between explicit and implicit costs is that
implicit costs do not require a direct monetary outlay by the firm, whereas explicit costs do.
It is common knowledge that many U.S. national parks have become overused. One possible solution to this problem is to
increase entrance fees.
Opponents of free trade often want the United States to prohibit the import of goods made in overseas factories that pay wages below the U.S. minimum wage. Prohibiting such goods is likely to
increase poverty in poor countries and benefit U.S. firms which compete with these imports.
If a market is allowed to adjust freely to its equilibrium price and quantity, then an increase in demand will
increase producer surplus.
Other things equal, the deadweight loss of a tax
increases as the size of the tax increases, and the increase in the deadweight loss is more rapid than the increase in the size of the tax.
Externalities tend to cause markets to be
inefficient.
An increase in price causes an increase in total revenue when demand is
inelastic
sellers respond to very small changes in price by adjusting their quantity supplied by extremely large amounts, the price elasticity of supply approaches
infinity, and the supply curve is horizontal.
When the government imposes taxes on buyers or sellers of a good, society
loses some of the benefits of market efficiency.
Dog owners do not bear the full cost of the noise their barking dogs create and often take too few precautions to prevent their dogs from barking. Local governments address this problem by
making it illegal to "disturb the peace."
Inefficiency exists in an economy when a good is
not being consumed by buyers who value it most highly.
For a firm, the production function represents the relationship between
quantity of inputs and quantity of output.
Ronald Reagan believed that reducing income tax rates would
raise economic well-being and perhaps even tax revenue.
If one person's use of a good diminishes another person's enjoyment of it, the good is
rival in consumption.
As we move downward and to the right along a linear, downward-sloping demand curve
slope remains constant but elasticity changes.
An example of a perfectly competitive market would be the market for
soybeans.
The forces that make market economies work are
supply and demand.
A improvement in production technology will shift the
supply curve to the right.
A tax levied on the sellers of a good shifts the
supply curve upward (or to the left).
A tax on sellers will shift the
supply curve upward by the amount of the tax.
A minimum wage that is set above a market's equilibrium wage will result in an excess
supply of labor, that is, unemployment.
A tariff is a
tax on an imported good.
The Laffer curve illustrates that
tax revenue first rises, then falls as a tax increases.
A dentist shares an office building with a radio station. The electrical current from the dentist's drill causes static in the radio broadcast, causing the radio station to lose $10,000 in profits. The radio station could put up a shield at a cost of $30,000
the dentist could buy a new drill that causes less interference for $6,000. Either would restore the radio station's lost profits. What is the economically efficient outcome?; The dentist gets a new drill; it does not matter who pays for it.
After a country goes from disallowing trade in coffee with other countries to allowing trade in coffee with other countries...
the domestic price of coffee will equal the world price of coffee.
Buyers are able to buy all they want to buy and sellers are able to sell all they want to sell at
the equilibrium price but not above or below the equilibrium price
Buyers are able to buy all they want to buy and sellers are able to sell all they want to sell at
the equilibrium price but not above or below the equilibrium price.
Suppose that smoking creates a negative externality. If the government does not interfere in the cigarette market, then
the equilibrium quantity of cigarettes smoked will be greater than the socially optimal quantity of cigarettes smoked.
If the current allocation of resources in the market for wallpaper is efficient, then it must be the case that
the market for wallpaper is in equilibrium.
If the current allocation of resources in the market for hammers is inefficient, then it must be the case that
the sum of consumer surplus and producer surplus could be increased by moving to a different allocation of resources.
Spain allows trade with the rest of the world. We know that Spain has a comparative advantage in producing olive oil if we know that
the world price of olive oil is higher than the price of olive oil that would prevail in Spain if trade with other countries were not allowed.
Suppose Brazil has an absolute advantage over other countries in producing almonds, but other countries have a comparative advantage over Brazil in producing almonds. If trade in almonds is allowed, Brazil
will import almonds.
Economic profit
will never exceed accounting profit.
If the United States threatens to impose a tariff on Honduran blueberries if Honduras does not remove agricultural subsidies, the United States will be
worse off if Honduras doesn't give in to the threat.
If sellers do not adjust their quantity supplied at all in response to a change in price, the price elasticity of supply is
zero, and the supply curve is vertical.