Econ Exam #2

At Nick's Bakery, the cost to make a cheese danish is $1.50 per danish. As a result of selling 10 danishes, Nick experiences a producer surplus in the amount of $20. Nick must be selling his danishes for

$3.50 each

Bob purchases a book for $6, and his consumer surplus is $2. How much is Bob willing to pay for the book?

$8

Which of the following causes a shortage of a good?

Binding price ceiling

Dallas buys strawberries, and he would be willing to pay more than he now pays. Suppose that Dallas has a change in his tastes such that he values strawberries more than before. If the market price is the same as before, then

Dallas's consumer surplus would increase.

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.

Kate is a personal trainer whose client William pays $80 per hour-long session. William values this service at $100 per hour, while the opportunity cost of Kate's time is $75 per hour. The government places a tax of $10 per hour on personal trainers. After the tax, what is likely to happen in the market for personal training?

Kate and William will agree to a new price somewhere between $85 and $100.

Consider the U.S. market for chocolate, a market in which the government has imposed a nonbinding price ceiling. Which of the following events could convert the price ceiling from a nonbinding to a binding price ceiling?

South American cocoa bean producers refuse to ship to chocolate producers in the United States.

Which of the following causes the price paid by buyers to be different than the price received by sellers?

Tax on the good

Suppose sellers of perfume are required to send $1.00 to the government for every bottle of perfume they sell. Further, suppose this tax causes the price paid by buyers of perfume to rise by $0.60 per bottle. Which of the following statements is correct?

The effective price received by sellers is $0.40 per bottle less than it was before the tax.

Which of the following is not an advantage of corrective taxes?

They subsidize the production of goods with positive externalities.

Zaria and Hannah are roommates. Zaria assigns a $30 value to smoking cigarettes. Hannah values smoke-free air at $15. Which of the following scenarios is a successful example of the Coase theorem?

Zaria pays Hannah $16 so that Zaria can smoke.

Education yields positive externalities. For example,

a more educated population tends to result in lower crime rates.

Which of the following observations would be consistent with the imposition of a binding price ceiling on a market? After the price ceiling is established,

a smaller quantity of the good is bought and sold.

If a binding price floor is imposed on the video game market, then a

a surplus of video games will develop.

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.

The Surgeon General announces that eating chocolate increases tooth decay. As a result, the equilibrium price of chocolate

decreases, and producer surplus decreases.

A drought in California destroys many red grapes causing the prices of both red grapes and red wine to rise. As a result, the consumer surplus in the market for red grapes

decreases, and the consumer surplus in the market for red wine decreases.

Suppose that a tax is placed on books. If the buyers pay the majority of the tax, then we know that the

demand is more inelastic than the supply.

Negative externalities lead markets to produce

greater than efficient output levels and positive externalities lead markets to produce smaller than efficient output levels.

If the government removes a binding price ceiling from a market, then the price paid by buyers will

increase, and the quantity sold in the market will increase.

When Monique drives to work every morning, she drives on a congested highway. What Monique does not realize is that when she enters the highway each morning she increases the travel time of all other drivers on the highway. In this case, the external cost of Monique's highway trip

increases the social cost above the private cost.

Josiah installed a metal sculpture in his front yard. A positive externality arises if the sculpture

increases the value of other properties in the neighborhood.

The deadweight loss from a tax per unit of good will be smallest in a market with

inelastic supply and inelastic demand.

Suppose televisions are a normal good and buyers of televisions experience a decrease in income. As a result, consumer surplus in the television market

may increase, decrease, or remain unchanged.

Suppose that the equilibrium price in the market for widgets is $5. If a law increased the minimum legal price for widgets to $6, producer surplus

might increase or decrease.

Dioxin emission that results from the production of paper is a good example of a negative externality because

self-interested paper producers will not consider the full cost of the dioxin pollution they create.

A tax levied on the sellers of a good shifts the

supply curve upward by the size of the tax.

Suppose there is currently a tax of $50 per ticket on airline tickets. Sellers of airline tickets are required to pay the tax to the government. If the tax is reduced from $50 per ticket to $30 per ticket, then the

supply curve will shift downward by $20, and the effective price received by sellers will increase by less than $20.

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.

Producer surplus is

the amount a seller is paid minus the cost of production.

According to the Coase theorem, private parties can solve the problem of externalities if

the cost of bargaining is small.

In some cases, tradable pollution permits may be better than a corrective tax because

the government can set a maximum level of pollution using permits.

We can say that the allocation of resources is efficient if

total surplus is maximized.

A seller's opportunity cost measures the

value of everything she must give up to produce a good.

If the price a consumer pays for a product is equal to a consumer's willingness to pay, then the consumer surplus relevant to that purchase is

zero.