ECON 221 Test 2
Look at the figure below: the socially optimal price and quantity are
$2.80 and 48 units, respectively
Consider the town of Springfield with only three residents. Sophia. Amber, and Cedric. The three residents are trying to determine how large, in acres, they should build the public park. The following table shows each resident's willingness to pay for each acre of the park. Suppose the cost to build the park is $24 per acre and that the residents have agreed to split the cost of building the park equally. If the residents vote to determine the size of park to build, basing their decision solely on their own willingness to pay (and trying to maximize their own surplus), what is the largest park size for which the majority of residents would vote "yes?"
2 acres
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 a human life is equal to $8 million, how many people must the policy affect in order for the benefits to exceed the costs?
485
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 shortage of treadmills will develop
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?
At the current output level, the marginal social benefit exceeds the marginal private benefit
Look at the figure above. Suppose a tax of $2 per unit is imposed on this market. What will be the new equilibrium quantity in this market? [equilibrium price and quantity (100,5)]
Between 60 units and 100 units
Which of the following statements is correct?
Both equity and efficiency are important goals of the tax system
If the price of the product is $110, then who would be willing to purchase the product? [Calvin, $150; Sam, $135; Andrew, $115; Sasha, $100]
Calvin, Sam, and Andrew
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
Which of the following statements is not correct?
Corrective taxes set the maximum quantity of pollution, whereas tradable pollution permits fix the price of pollution
In which of the following cases is the Coase theorem most likely to solve the externality?
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?
Erin will now clean her own house
Which of the following is usually true about government-provided goods?
People do not have to pay an explicit fee to enjoy these goods
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?
Private good
Which of the following is a disadvantage of government provision of a public good?
The government lacks information about the value people place on the good
Which of the following will cause a decrease in consumer surplus?
The imposition of a binding price floor in the market
What happens to the total surplus in a market when the government imposes a tax?
Total surplus decreases
Governments can improve market outcomes for
both public goods and common resources
When the price falls from P2 to P1, producer surplus
decreases by an amount equal to A+B
When a certain price control is imposed on this market, the resulting quantity of the good that is actually bought and sold is such that buyers are willing and able to pay a maximum of P1 dollars per unit for that quantity and sellers are willing and able to accept a minimum of P2 dollars per unit for that quantity. If P1 - P2 = $3, then the price control is
either a price ceiling of $3 or a price floor of $6
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:
external cost of $0.20
In the figure above, the vertical distance between points E and F represents a tax in the market. The imposition of the tax cause the price paid by buyers to
increase by $3
Ashlyn installed a wooden sculpture in her front yard. A positive externality arises if the sculpture
increases the value of other properties in the neighborhood
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
it would be more efficient if the electric company raised its rates for electricity at peak times
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
sellers will bear a greater burden of the tax than the buyers
Suppose there is currently a tax of $80 per ticket on airline tickets. Sellers of airline tickets are required to pay tax to the government. If the tax is reduced from $80 to $64 per ticket, then the
supply curve will shift downward by $16, and the effective price received by sellers will increase by less than $16
Suppose the government imposes a 20-cent tax on the sellers of artificially sweetened beverages. The tax would shift
supply, raising the equilibrium price and lowering the equilibrium quantity in the market for artificially sweetened beverages.
If a price ceiling is not binding, then
there will be no effect on the market price or quantity sold.
The maximum price that a buyer will pay for a good is called
willingness to pay
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 their 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?
$10
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
$20 and tax revenues increase by $20, so there is no deadweight loss
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
$250
If the supply curve is S, the demand is D, and the equilibrium price is $100, what is the producer surplus?
$2500
Two firms, A and B, each currently emit 100 tons of chemicals into the air. The government has decided to reduce the 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 from each other, we would expect that Firm A will emit
20 fewer tons of pollution into the air, and Firm B will emit 100 fewer tons of pollution into the air
Which of the following is not a typical solution to the "Tragedy of the Commons?"
Turning the common resource into a club good
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
In addition to tax payments, the two other primary costs that a tax system inevitably imposes on taxpayers are
deadweight losses and administrative burdens
If the government imposes a binding price ceiling on a market, then the price paid by buyers will
decrease, and the quantity sold in the market will decrease
If the government removes a binging price floor from a market, then the price paid by buyers will
decrease, and the quantity sold in the market will increase
For each of the three potential buyers of apples, the table displays the willingness to pay for Bob, Sasha, and Ava, who are the only three buyers of apples. [Bob-2.00, 1.50, 0.75; Sasha-1.50, 1.00, 0.60; Ava-0.75, 0.25, 0.00] If the market price of an apple increases from $0.80 to $1.05, then consumer surplus
decreases by $0.95
The U..S. tax burden is
lower than most European countries
Look at the figure below: the price ceiling shown
makes it necessary for sellers to ration the good using a mechanism other than price
When a tax is placed on the sellers of a product, buyers pay
more, and sellers receive less than they did before the tax
A television broadcast is an example of a good that is
not rival in consumption
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,
quantity demanded of deodorant decreases, and the quantity of deodorant that firms want to supply increases
One tax system is less efficient than another if it
raises the same amount of revenue at a higher cost to taxpayers
A free rider is a person who
receives the benefit of a good but avoids paying for it
Suppose the government imposes a tax of (P'-P'''). The area measured by K+L represents
tax revenue
If a sawmill creates too much noise for local residents,
the government can raise economic well-being through noise-control regulations
Look at the figure below: at Q3
the marginal consumer values this product less than the social cost of producing it
