Econ Exam 2

Diana is a personal trainer whose client Charles pays $80 per hour-long session. Charles values this service at $100 per hour, while the opportunity cost of Diana's time is $75 per hour. The government places a tax of $10 per hour on personal trainers. Before the tax, what is the total surplus?

$25

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

Billie Jo values a stainless steel dishwasher for her new house at $500, but she succeeds in buying one for $425. Billie Jo's willingness to pay for the dishwasher is

$500

Price QuantityDemanded QuantitySupplied $12.00 0 36 $10.00 3 30 $ 8.00 6 24 $ 6.00 9 18 $ 4.00 12 12 $ 2.00 15 6 $ 0.00 18 0 Both the demand curve and the supply curve are straight lines. At equilibrium, total surplus is

$72

Seller Cost Abby $1,600 Bobby $1,300 Dianne $1,100 Evaline $900 Carlos $800

$800

The lower the price, the lower the consumer surplus, all else equal

False

Which of the following is an example of a positive externality?

Mary not catching the flu from Sue because Sue got a flu vaccine

Which of the following events would increase producer surplus?

Sellers' costs stay the same and the price of the good increases

With which of the Ten Principles of Economics is the study of international trade most closely connected?

Trade can make everyone better off.

The cost of production plus producer surplus is the price a seller is paid

True

A local manufacturing plant that emitted sulfur dioxide was forced to stop production because it did not comply with local clean air standards. This decision provides an example of

a direct regulation of an externality

Suppose that alcohol consumption creates a negative externality. What can the government do to equate the equilibrium quantity of alcohol and the socially optimal quantity of alcohol?

impose a tax on alcohol that is equal to the per-unit externality

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

In a market economy, government intervention

may improve market outcomes in the presence of externalities

When the demand for a good increases and the supply of the good remains unchanged, consumer surplus

may increase,decrease,or remain unchanged

Inefficiency exists in a market when a good is

not being produced by the lowest-cost producers

Total surplus in a market is equal to

value to buyers - costs of sellers.

Buyer Willingness To Pay David $8.50 Laura $7.00 Megan $5.50 Mallory $4.00 Audrey $3.50 If the market price is $5.50, the consumer surplus in the market will be

$4.50

Suppose Brent, Callie, and Danielle each purchase a particular type of electric pencil sharpener at a price of $20. Brent's willingness to pay was $22, Callie's willingness to pay was $25, and Danielle's willingness to pay was $30. Which of the following statements is correct?

Brent's consumer surplus is the smallest of the three individual consumer surpluses

The area below the demand curve and above the supply curve measures the producer surplus in a market.

False

Suppose a country begins to allow international trade in steel. Which of the following outcomes will be observed regardless of whether the country finds itself importing steel or exporting steel?

The sum of consumer surplus and producer surplus for domestic traders of steel increases

Taxes create deadweight losses

True

Relative to a situation in which gasoline is not taxed, the imposition of a tax on gasoline causes the quantity of gasoline demanded to

decrease and the quantity of gasoline supplied to decrease

Both tariffs and import quotas

decrease the quantity of imports and raise the domestic price of the good

A tariff

raises the domestic price of the imported good above the world price

Suppose Iran imposes a tariff on lumber. For the tariff to have any effect, it must be the case that

the world price without the tariff is less than the price of lumber without trade.

Kelly is willing to pay $5.20 for a gallon of gasoline. The price of gasoline at her local gas station is $3.80. If she purchases ten gallons of gasoline, then Kelly's consumer surplus is

$14

Cameron visits a sporting goods store to buy a new set of golf clubs. He is willing to pay $750 for the clubs but buys them on sale for $575. Cameron's consumer surplus from the purchase is

$175

Price QuantityDemanded QuantitySupplied $12.00 0 36 $10.00 3 30 $ 8.00 6 24 $ 6.00 9 18 $ 4.00 12 12 $ 2.00 15 6 $ 0.00 18 0 Both the demand curve and the supply curve are straight lines. At equilibrium, producer surplus

$24

Roland mows Karla's lawn for $25. Roland's opportunity cost of mowing Karla's lawn is $20, and Karla's willingness to pay Roland to mow her lawn is $28 . If Karla hires Roland to mow her lawn, Karla's consumer surplus is

$3

Bill created a new software program he is willing to sell for $200. He sells his first copy and enjoys a producer surplus of $150. What is the price paid for the software?

$350

Suppose Raymond and Victoria attend a charity benefit and participate in a silent auction. Each has in mind a maximum amount that he or she will bid for an oil painting by a locally famous artist. This maximum is called

willingness to pay

Five hundred units of good x are currently bought and sold. The marginal buyer is willing to pay $40 for the 500th unit, and the cost to the marginal seller is $35 for the 500th unit. We know that the equilibrium price of good x is somewhere between $35 and $40 the equilibrium quantity of good x exceeds 500 units 500 units is not an efficient quantity of good x all of the above are correct

All of the above are correct

A tax raises the price received by sellers and lowers the price paid by buyers

False

All else equal, a decrease in demand will cause an increase in producer surplus

False

If the size of a tax doubles, the deadweight loss doubles

False

When a tax is imposed on sellers, producer surplus decreases but consumer surplus increases

False

Which of the following statements is correct? Government should tax goods with either positive or negative externalities. Government should tax goods with negative externalities and subsidize goods with positive externalities Government should subsidize goods with either positive or negative externalities. Government should tax goods with positive externalities and subsidize goods with negative externalities

Government should tax goods with negative externalities and subsidize goods with positive externalities

Welfare economics explains which of the following in the market for televisions?

The market equilibrium price for televisions maximizes the total welfare of television buyers and sellers.

Consumer surplus measures the benefit to buyers of participating in a market

True

Economists use the government's tax revenue to measure the public benefit from a tax

True

If producing a soccer ball costs Jake $5, and he sells it for $40, his producer surplus is $35

True

Producer surplus is the amount a seller is paid minus the cost of production

True

Suppose there is an increase in supply that reduces market price. Consumer surplus increases because (1) consumer surplus received by existing buyers increases and (2) new buyers enter the market.

True

When markets fail, public policy can potentially remedy the problem and increase economic efficiency

True

Turkey is an importer of wheat. The world price of a bushel of wheat is $7. Turkey imposes a $3-per-bushel tariff on wheat. Turkey is a price-taker in the wheat market. As a result of the tariff,

Turkish consumers of wheat become worse off and Turkish producers of wheat become better off.

Which of the following statements is not correct? Government policies may improve the market's allocation of resources when negative externalities are present. Government policies may improve the market's allocation of resources when positive externalities are present. A positive externality is an example of a market failure. Without government intervention, the market will tend to undersupply products that produce negative externalities.

Without government intervention, the market will tend to undersupply products that produce negative externalities.

A corrective tax can be used to internalize a negative externality imposed on sellers shifts the supply curve to the left. imposed on buyers shifts the demand curve to the left. All of the above are correct

all of the above are correct

When a tax is imposed on a good, the

equilibrium quantity of the good always decreasea

Externalities tend to cause markets to be

inefficient

"Owners of firms in young industries should be willing to incur temporary losses if they believe that those firms will be profitable in the long run." This observation helps to explain why many economists are skeptical about the

infant-industry argument

Assume, for Vietnam, that the domestic price of textiles without international trade is higher than the world price of textiles. This suggests that, in the production of textiles,

other countries have a comparative advantage over Vietnam and Vietnam will import textiles.

Positive externalities

result in smaller than efficient equilibrium quantity.

When a tax is placed on a product, the price paid by buyers

rises, and the price received by sellers falls

When a tax is levied on the sellers of a good, the

supply curve shifts upward by the amount of the tax

When a tax is levied on buyers, the

tax creates a wedge between the price buyers effectively pay and the price sellers recieve

What economic argument suggests that if transactions costs are sufficiently low, the post-bargaining equilibrium is economically efficient regardless of how property rights are distributed?

the Coase theorem

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

Which of the following will cause a decrease in producer surplus?

the imposition of a binding price ceiling in the market

A simultaneous increase in both the demand for MP3 players and the supply of MP3 players would imply that

the value of MP3 players to consumers has increased, and the cost of producing MP3 players has decreased.

In the absence of externalities, the market economy leads a market to maximize

total benefit to society from that market