ECON 4211 MIDTERM 1
Ceteris paribus, which of the following is most likely to cause an increase in the quantity demanded of perfume?
A decrease in the price of perfume.
An example of a negative externality in consumption is
A large cattle farm creating air pollution.
In general, a firm's efficiency decision will result in
A pollution-causing production process if that process minimizes costs.
An external cost is borne by
A third party to the market transaction.
There is an application in your text about congestion pricing (see Section 5.3: Public Sector Remedies for Externalities). Which of the following is one of the reasons "congestion pricing" was successful in London?
Additional buses were added to the public transportation system.
Which of the following is correct?
Efficiency deals with the size of the economic pie, and equality deals with how fairly the pie is sliced
The distinction between efficiency and equality can be described as follows:
Efficiency refers to maximizing the size of the pie; equality refers to distributing the pie fairly among members of society
_____ tools refer to the set of tools designed to analyze data and answer questions related to the impacts of government policy.
Empirical
If firms were charged the full social opportunity cost of the resources they used, there would be
No external costs.
In private equilibrium, a positive production externality will lead to _____; a negative consumption externality will lead to _____.
SMC less than PMC; SMB less than PMB
All of the following are negative externalities in production except
Secondhand smoke in a restaurant.
External costs are the difference between
Social costs and private costs.
Part I of the Coase theorem states that when there are well-defined property rights and costless bargaining, then, in a market in which there is an externality, which statement is TRUE?
The socially optimal level of consumption can be achieved through negotiations between the affected parties.
The term market mechanism refers to
The use of market prices and sales to determine resource allocation.
A Rawlsian social welfare function implies which of the following?
The well-being of the worst-off member is maximized.
If a manufacturer does not have to pay for its contribution to pollution, it will produce
Too much output from a social viewpoint.
Externalities can be positive, as well as negative.
True
The central question in determining whether a good is public or private is whether
We have the technical capability to exclude nonpayers from consumption.
Which of the following is most likely a private good?
bicycles
If government revenues exceed government spending, the difference is called the:
cash flow surplus.
Which of the following best explains the view that nothing matters except that individuals have met a basic level of need for goods, such as housing or medical care, and that once they have met this basic level, income distribution is irrelevant?
commodity egalitarianism
The accumulation of past deficits over time is measured by the:
debt
The government collects $400 billion in tax revenue during the current fiscal year and spends nearly $420 billion. The government has a:
deficit
Suppose government subsidized the consumption of education by giving education vouchers to parents to spend at the school of their choice. The subsidy would shift the private:
demand curve to the right.
Government intervenes in a market economy to:
enhance economic efficiency
For a tax to lead to the optimal amount of output, it should be set:
equal to external marginal cost (i.e., marginal damage).
A utilitarian social welfare function implies that:
everyone in society has the same marginal utility.
A woodblock print by Hokusai displayed in a museum that charges an entrance fee is:
excludable but not rival.
Increasing the quantity of a pure public good can be done at zero cost.
false
Private goods are always provided by the private sector.
false
Public goods are any goods provided by units of local, state, or federal governments.
false
Vertical summation of demand curves yield results equivalent to those of horizontal summation.
false
A ________ is a person who wants to enjoy the benefits of a public good without contributing his or her marginal benefit to the cost of financing the amount made.
free rider
The underprovision of public goods by a private market is characterized by the:
free rider problem.
In a pure market economy,
government intervention might be needed
Suppose Ali values a slice of pizza at $1.50, but the pizza shop is unwilling to sell a slice of pizza for less than $1.00. These values imply that it is efficient for the shop to sell a slice of pizza to Ali for any price:
greater than or equal to $1.00 and less than or equal to $1.50.
The government has passed many school accountability measures that reward schools if their students score highly on standardized tests. Suppose schools respond by manipulating the set of test takers to increase average scores. This outcome is an example of a(n):
indirect effect.
Consumer surplus is highest when the demand curve is _____; producer surplus is greatest when the supply curve is _____.
inelastic; inelastic
The government has passed many school accountability measures that reward schools if their students score highly on standardized tests. Suppose schools respond by more efficiently teaching their students. This outcome is an example of an:
intended, direct effect.
Total surplus
is the sum of consumer and producer surplus is the value to buyers minus the cost to sellers can be used to measure a market's efficiency
With respect to solving a problem of a negative externality, the assignment problem refers to the difficulty in determining who:
is to blame for an externality.
To maximize total welfare, one must equate _____ with _____.
marginal social benefit; marginal social cost
If the competitive equilibrium does not lead to the efficiency-maximizing outcome, then government intervention:
may increase or decrease efficiency.
A Pigouvian subsidy
moves production (or consumption) to the socially optimal level of output.
Someone else playing music loudly on the radio in a dormitory the night before your economics exam is an example of which of the following?
negative consumption externality
Suppose your neighbor enjoys letting the grass in his yard grow wild and free, a practice with which you disagree. This is an example of a:
negative consumption externality.
Which of the following is excludable but non-rival in consumption?
netflix
Which of the following is a public good?
none of these answer options are correct. public tele schools public defense a library
How governments should intervene is a _____ question, and why governments intervene in the way they do is a _____ question.
normative; positive
The federal government gets most of its revenue from
personal income taxes
A Pigouvian tax corrects for
positive consumption externalities.
A legal maximum on the price at which a good can be sold is called a
price ceiling
The federal government placed an upper limit on human organ prices, which is called a
price ceiling
Suppose your neighbor's dog has been using your lawn in an unwanted way. If the dog's owner agrees to compensate you for his dog's use of your yard, this is an example of:
private (Coasian) bargaining.
The _____ is the direct benefit to consumers of consuming an additional unit of a good.
private marginal benefit
According to part II of the Coase theorem, to achieve the efficient solution to an externality:
property rights must be assigned to one party or the other.
The Medicare insurance program in the United States reimburses hospitals and doctors for providing health care services to the elderly. This is an example of:
public financing of private provision.
Public schools in the United States are operated by the government. This is an example of:
public provision.
Veterans receive health benefits directly through hospitals owned and operated by the Veterans Health Administration. This is an example of:
public provision.
Suppose the government proposes a program that will transfer income from one group to another. The goal of this government intervention in the marketplace is best characterized as:
redistribution
If one person consumes a good so that no other person can consume it, then that good is:
rival
Which of the following activities is most likely to impose a negative externality?
smoking
Public goods can be
subject to free rider problems provided publicly provided privately
A government payment to an individual or firm that lowers the cost of consumption or production, respectively, is referred to as which of the following?
subsidy
Both the federal and state governments collect fees for each gallon of gasoline sold. This is an example of which type of government intervention?
taxation
The First Fundamental Theorem of Welfare Economics states that:
the competitive equilibrium, where supply equals demand, maximizes social efficiency.
In a free market with pollution and no government intervention, the market equilibrium quantity of output of the good that generates that pollution is reached when:
the social marginal benefits equal the social marginal costs.
Under the market mechanism, a market characterized by external costs will produce ______ output and ______ pollution.
too much; too much
Economists typically measure efficiency using
total surplus
We can say that the allocation of resources is efficient if
total surplus is maximized
Demand curves for pure public goods satisfy the law of demand.
true
The goal of public finance is to:
understand the proper role of the government in the economy
Externalities can be positive because
utility can be impacted positively as well as negatively.
Consumer surplus equals the
value to buyers minus the amount paid by buyers
If the social costs of an economic activity are $120 and the private costs are $75, then the external costs of the activity are ____, and market failure _______.
$45; occurs
A power plant in Illinois produces electricity by burning coal. This results in acid rain that kills trees and wildlife in New York. This is an example of
An external cost.
Ceteris paribus, which of the following would generally cause an increase in the demand curve for new automobiles?
An increase in consumers' income.
Suppose there are a series of forest fires that affect the lumber industry while, at the same time, consumers demand more wooden furniture. The wooden furniture market would experience
An increase in price and an indeterminate change in quantity.
Which of the following is the government agency that uses empirical economics to achieve its mission of providing Congress with objective, nonpartisan analyses necessary for economic and budget decisions?
Congressional Budget Office
Which of the following correctly depicts the changes in the sources of federal, state, and local receipts in the past 50 years?
Corporate and excise taxes are now a smaller share of federal receipts.
Assume two goods are substitutes. Ceteris paribus, a decrease in the price of one good will cause the equilibrium price of the other good to
Decrease and the equilibrium quantity of the other good to decrease.
If the government places a price ceiling on cancer-treating drugs, then
Fewer cancer treating drugs will be available.
The government collects $405 billion in tax revenue during the current fiscal year and is running a surplus. Which of the following is true?
Government spending is less than $405 billion.
According to the law of demand, a demand curve
Has a negative slope.
A rightward shift in a demand curve and a leftward shift in a supply curve both result in a
Higher equilibrium price
A public good
Is subject to the free-rider dilemma.
Which of the following explains why flood control is a public good?
It is not divisible and therefore cannot be kept from people who do not pay.
The market tends to underproduce public goods because
Joint consumption allows those who do not pay for the good to still benefit from the good.
Which of the following might be an indirect, unintended effect of providing income support to those without jobs?
People without jobs no longer search for and acquire jobs.
If public goods were marketed like private goods, then
People would avoid paying for these goods.
Which of the following is not a function of prices in a market system?
Prices ensure an equal distribution of goods and services among consumers
As a result of a shortage,
Producers increase output and raise price.
Which of the following explains what would likely happen if public goods were marketed like private goods?
Public goods would be underproduced.
Governments usually build highways because it is difficult to exclude individuals who don't pay for the highways from using them. What type of market failure is involved?
Public goods.
The free-rider problem
Reflects the inability to exclude an individual from the benefits of someone else's purchase.
Which of the following is not true when social costs are greater than private costs?
Resources are allocated efficiently.
If the United States changed its laws to allow for the legal sale of a kidney, which of the following is least likely to occur?
The allocation of kidneys would be fair
Which of the following is a determinant of supply?
The prices of the factors of production.
Which of the following observations would be consistent with the imposition of a binding price ceiling on a market? After the price ceiling becomes effective,
a smaller quantity of the good is bought and sold
Impure public goods
are never rival in consumption.