Econ Midterm 2 Practice

The demand function for paper: QD = 20 -P and the supply function: QS = P. Assume the production of paper generates a negative externality with MEC = 4. Then market Q = ___and efficient Q* = ____. The Pigouvian tax required for efficient solution is t = $ ____.

10, 8, 4

A country opens up to international trade and becomes an importer, then surplus is redistributed from A.producers to consumers. B.consumersto producers. C.government to consumers. D.producers to government. E.government to producers.

A

An effective subsidy paid to soybean farmers ________ the market price of soybeans and ________ the farmers' marginal cost of production. A)lowers; increases B)lowers; decreases C)raises; increases D)raises; decreases E)raises; does not change

A

Choose the statement that is incorrect. A.Firms that have a high marginal abatement cost sell pollution permits. B.A cap is an upper limit. C.A cap is a pollution quota. D.In cap-and-trade, the government estimates the efficient quantity of pollution and sets the overall cap at that level. E.In cap and trade, the govt distributes permits among firms and allows them to trade.

A

Consider an upward-sloping supply curve and a downward-sloping demand curve for Peanut Butter. If a 10 cent/kg tax is increased to 15 cents/kg, the government's tax revenue A.increasesby less than 50 % and may even decline. B.increases by exactly 50 %. C.increases by more than 50 %. D.cannot be determined, as it depends on whether supply or demand is more elastic.

A

If Sam is producing at a point inside his PPF, then he A.can increase production of both goods with zero opportunity cost. B.is allocating his resources to their best use. C.isdoing the best he can with limited resources. D.is unaffected by costs and technology. E.has a high opportunity cost of moving from this point.

A

If a government wants to raise revenue without compromising efficiency, it should impose tax on goods with ________ demand and __________ supply. A.more inelastic, more inelastic(in this case change in Q due to tax will be smaller (relative to competitive level) and hence DWL. Note that DWL increases as the difference between after tax Q and competitive Q is higher) B.more inelastic, more elastic C.more elastic, more inelastic D.more elastic, more elastic.

A

If the cross elasticity of demand between two goods is -0.50, then a fall in the price of one good leads to a ________ shift of the ________ curve of the other good. A.rightward; demand B.rightward; supply C.leftward; demand D.leftward; supply E.rightward; demand curve and the supply

A

If the government imposes a rent ceiling that is above the equilibrium rent, then the A.law will have no effect in the rental market. B.law will generate a shortage of housing. C.law will create a surplus of housing. D.demand curve for housing shifts rightward. E.supply curve of housing shifts leftward.

A

Producing a quantity smaller than the equilibrium quantity is inefficient because marginal buyer's willingness to pay (MB) for those extra quantity is A.Higher than marginal cost (MC) of producing those extra quantities. (draw a diagram and observe that D or MB is at higher level than MC whenQ < Q0) B.lower than marginal cost (MC) of producing those extra quantities. C.negative. D.equal to marginal cost of producing those extra quantities.

A

Rent ceiling can hurt those who the government actually intends to help when A.The supply of housing is more elastic.(In this case of elastic supply, landlords respond by decreasing supply significantly) B.The supply of housing is inelastic. C.The supply curve shift to the left as a result of rent ceiling. D.The supply curve shift to the right as a result of rent ceiling.

A

Ringo loves playing rock 'n' roll music at high volume. Luciano loves opera and hates rock 'n' roll. Unfortunately, they are next-door neighbours in an apartment building with paper-thin walls. What command and controlpolicy might the landlord impose? A.A rule that music could not be played above a certain decibel level. B.A tax on rent for those tenants who own speakers. C.A rental subsidy for those tenants who do not own any musical devices. D.Distribute the permit and allowplaying music only if one possesses such permits.

A

Suppose the landlord lets the tenants do whatever they want. According to the Coase theorem, which of the following are true about Ringo and Luciano reaching an efficient outcome on their own? A.They might notbe able to reach an agreement if the transaction costs are high. B.Ringo and Luciano can never reach an agreement without a third party assisting in the negotiations. C.They can reach an agreement irrespective of transaction costs. D.They can reach efficientagreement if transaction costs is sufficiently small.

A

The buyer pays most of a tax if demand is relatively inelastic because A.the buyer cannot easily substitute to other markets. B.the buyer can easily substitute to other markets. C.the government forces the seller to bear the burden of the tax.

A

The demand curve for cookies is downward sloping. When the price of cookies is $2, the quantity demanded is 100. If the price rises to $3, what happens to consumer surplus? A.It falls by less than $100. (note if quantity remains the same, CS falls by exactly $100. But given downward sloping D, quantity falls to less than 100) B.It falls by more than $100. C.It rises by less than $100. D.It rises by more than $100.

A

When a country becomes an importer of a good, which of the following does notoccur in the market for this good in the importing country? A.Deadweight loss decreases. B.Consumer surplus increases. C.Producer surplus decreases. D.Workers in the domestic industry lose. E.Total surplus increases.

A

When a nation opens itself to trade and becomes an importer of a good, A.producer surplus decreases, but consumer surplus and total surplus both increase. B.producer surplus decreases, consumer surplus increases, and so the impact on total surplus is ambiguous. C.producer surplus and total surplus increase, but consumer surplus decreases. D.producer surplus, consumer surplus, and total surplus all increase.

A

A $10per-unit tax on game consoles raises the equilibrium price paid by consumers by $5 per console. The quantity sold before the tax was 5,000 per year. The revenue from the tax is A.zero. B.positive but less than $50,000 per year. C.$50,000 per year. D.more than $50,000 per year. E.greater the more elastic is demand.

B

A decrease in tuition fees decreases the university's total revenue if the price elasticity of demand for university education is A.negative. B.Between 0 and -1. C.Between -1and -infinity. D.less than the elasticity of supply.

B

Corrective measures to negative externalities include all of the following except A.implementing abatement technology. B.patents. C.property rights. D.Pigovian taxes. E.cap-and-trade.

B

Daisy and Donald live in a community with rent ceilings. Both are looking for an apartment to rent. Daisy has a job paying $10 per hour and Donald has a job paying $8 per hour. Both value an apartment equally. What is the most likely outcome? A.Daisy willspend more time than Donald searching for an apartment. B.Donald will spend more time than Daisy searching for an apartment. (Daisy's opportunity cost is higher than that of Donald) C.Both of them will spend the same amount of time searching for an apartment. D.Daisy will find the apartment

B

If the price of a good consumers pay is not affected by a tax, then A.supply is perfectly elastic. B.demand is perfectly elastic. (Consumers pay the same before and after the tax) C.the elasticity of supply is greater than the elasticity of demand. D.demand is unit elastic.E.supply is unit elastic.

B

Jane and John decides to marry is allocated well by _____________. Parliament decides to raise taxes to the rich is an example of allocation by ________. A.Force; lottery. B.Personal characteristics; majority rule. C.Command, majority rule. D.First-come first served; force.

B

The demand for Hilton Hawaiian Village hotel rooms in Hawaii is given byP = 200 -Q. If the hotel is currently charging $90 per night, it is operating on the ______ portion of the demand curve and hence lowing the price would further _________ its sales revenue. A.Elastic; increase B.Inelastic; decrease C.Elastic; decrease D.Inelastic; increase

B

When a binding price ceiling is imposed A)Consumersurplus decreases. B)Producersurplus decreases. C)Both consumers and producers lose. D)Producers lose but consumers gain.

B

When demand is perfectly elastic, consumer surplus is A.infinite. B.zero. C.1.00. D.-1.00. E.between zero and 1.00.

B

Which of the following is an example of a positive statement?A.Canada should impose higher carbon tax. B.Increasing the minimum wage results in more unemploymentamong least skilled. C.Every Canadian should have equal access to healthcare. D.Lowering interest rateis a better policy than cutting taxes to combat recession caused by COVID19. E.Canada should have higher tax rates for wealthier Canadians.

B

Which one of the following concepts is NOTillustrated by a PPF? A.scarcity B.marginal benefit C.opportunity cost D.attainable and unattainable points E.the tradeoff between producing one good versus another

B

f the supply curve passes through the origin, then the price elasticity of supply is A.zero. B.1. C.-1. D.> 1. E.Between 0 and 1.

B

A well-maintained waterfront property that is enjoyed by other property owners is an example of A.an inefficient allocation of resources. B.a negative consumption externality. C.a positive consumption externality. D.a positive production externality.

C

Any two individuals gain from trade A.unless one has an absolute advantage in producing all goods. B.if each specializes in the production of the good inwhich he has the higher opportunity cost. C.unless they have the same opportunity costs for producing all goods. D.unlessthey have different opportunity costs for producing all goods. E.unless they have the same absolute advantage in producing all goods.

C

Crude oil is a factor of production of gasoline. If the price of crude oil rises, we would expect the A.price of gasoline to rise due to an increase in demand. B.price of gasoline to fall due to an increase in demand. C.price of gasoline to rise due to a decrease in supply. (S curve shift to the left due to higher P of crude oil that increase MC of production) D.equilibrium quantity of gasoline to fall due to an increase in supply. E.equilibrium quantity of gasoline to rise due to an increase in demand.

C

If negative externalities exist, then in a market with no property rights, A.MSC= MSB. B.MSC< MSB. C.MSC> MSB.

C

If society wishes to reduce overall pollution by a certain amount, which of the following reasons supports why it's efficient to have different amounts of reduction at different firms? A.The costs of reducing pollution are the same across firms. B.Firms with the highest profit should bear the largest burden of reducing pollution. C.The costs of reducing pollution differ across firms. D.All firms should be allowed to produce some pollution.

C

If the price elasticity of demand is E = -2, then a 1%fall in price A.doubles the quantity demanded. B.decreases the quantity demanded by half. C.increases the quantity demanded by 2%. D.decreases the quantity demanded by 2%. E.increases the quantity demanded by 0.5%.

C

Joe and Haley each purchase 3 boxes of strawberriesat the givenprice equal to $3. Joe's demand is much more elastic than Haley's. Which statement is true? A.Joe's consumer surplus exceeds Haley's. B.Haley's consumer surplus equals Joe's. C.Haley's consumer surplus exceeds Joe's. D.Joe receives no consumer surplus. E.Neither Joe nor Haley receive any consumer surplus.

C

The fundamental force that drives international trade is A.comparative advantage. B.absolute advantage. C.differencein opportunity costs of production in trading countries. D.low wage rates in developing economies. E.A and C.

C

When a good is taxed, in which scenario does the burden of the tax fall mainly on producers? A.When the tax is levied on consumers. B.When the tax is levied on producers. C.When the supply curve is more inelastic.(burden falls more on inelastic side) D.When the supply curve is more elastic.

C

When theprice of good A falls by 10%, the quantity demanded does not change. The demand for good A is A.perfectly elastic. B.inelastic. C.perfectly inelastic. D.elastic. E.unit elastic.

C

Which of the following illustrates the concept of a negative externality? A.Bad weather affects the production of wheat crop. B.Smoking harms the health of the smoker. C.Smoking harms the health of nonsmokers. D.Public health services reduce the transmission of disease.

C

Which of the following would decrease quantity demanded, decrease supply, and increase the price that consumers pay? A.The imposition of binding price floor. B.The removal of binding price floor. C.The imposition of tax on producers. (try drawing a graph) D.The imposition of price on consumers.

C

Suppose your province raises the provincial sales tax by 1 percent. You predict that the prices of taxed goods (including the tax) will A.rise by 1 percent. B.rise by more than 1 percent. C.rise by an amount between zero and 1 percent. D.not change at all.E.fall by an amount between zero and 1 percent.

C (price consumers pay rise by less than 1% because a portion of the tax falls on seller as well)

A person talking on a smartphone while driving creates a negative ________ externality.A beautiful sunset creates ________ externality. A.production; a positive consumption B.production; no C.consumption; a positive consumption D.consumption; no E.consumption; a positive production

D

An effective rent ceiling A.increases producer surplus. B.results in a producer surplus of zero. C.sometimes increases producer surplus and sometimes decreases producer surplus. D.decreases producer surplus. E.decreases the supply of housing.

D

Demand will be more inelastic the A.higher the price of the good. B.smaller the quantity demanded of the good. C.longer the passage of time after a price increase. D.fewer substitutes for the good that are available. E.larger the fraction of income spent on the good.

D

Farm land can be used to produce either cattle or corn. If the demand for cattle increases, then the A.demand for corn increases(shift right). B.supply of corn increases(shift right). C.demand for corn decreases(shift left/down). D.supply of corn decreases(shift up/left). E.price of corn falls.

D

Governments tend to tax items with inelastic demand because A.governments wish to avoid big rises in after-tax prices. B.sellers pay most of the tax in these cases. C.buyers pay most of the tax in these cases. D.these goods yield the most tax revenues.

D

If a nation has a domestic price of steel lower than the world price, then this nation A.hasa comparative advantage in producing steel and would become a steel exporter if it opened up trade. B.has a comparative advantage in producing steel and would become a steel importer if it opened up trade. C.has a lower opportunity cost in producing steel than its trading partners. D.A and C.

D

If the no trade price of good Xis lower in country A than in country B, A.country B has an absolute advantage in the production of good X. B.country B has a comparative advantage in the production of good X. C.countryA has an absolute advantage in the production of good X. D.country A has a comparative advantage in the production of good X.

D

In 2012, the BC government increased minimum wage to $10.25. The likely effect of this legislation is: A.Shift of the labor supply curve to the left. B.Shift of the labor supply curve to the right. C.Shortage of low-wage workers in the market. D.Surplus of low wage workers in the market. E.Shift of labor demand curve to the right.

D

One way to solve negative externality problems is A.to organize a limited boycott of the products. B.subsidize the externalities. C.eliminate transactions costs when property rights are not legally established. D.issue pollution permits to polluting firms and establish a system of cap-and-trade. E.establish and enforce patents and copyrights.

D

It is a hot day, and Bert is thirsty. Here is the value he places on a bottle of water: 1stbottle = $11, 2ndbottle = $9; 3rdbottle = $7; 4thbottle = $5. If the price of a bottle of water is $6, Bert's consumer surplus is: A.10. B.27. C.8. D.9.

D (When p = 6, consumer will buy only 3 units. You may calculate total benefits from all 3 units=11+9+7 = 27 and expenses =6*3 = 18. CS = benefits/value -expenses)

A system of cap-and-trade is used to reduce acid rain caused by emissions from electric power utilities. Which of the following statements is true? A.Market forces determine both the demand and supply for pollution permits. B.Polluters determine both the demand and supply for pollution permits. C.Market forces determine the demand and polluters determine supply. D.Polluters determine the demand and market forces determine supply. E.Market forces determine the demand and the government determines supply.

E

Acap-and-trade schemewith the cap equal to efficient level of pollution _______. A.Leads to the price of a permit = MEC and achieves an efficient outcome. B.leadsthe price of a permit = MPC and achieves an efficient outcome. C.Leads tothe price of a permit = MSC and achieves an efficient outcome D.minimizes the cost of controlling pollution to the desired (efficient) level. E.A and D.

E

If a country imposes a tariff on an imported good, the tariff ________ the price in the importing country and ________ the quantity of imports. A.raises; increases B.raises; does not change C.lowers; does not change D.lowers; increases. E.raises; decreases

E

If an import tariff is imposed on a good, then domestic producer surplus _____and total surplus ____________ in theimporting country. A.increases; does not change B.increases; increases C.decreases; increases D.decreases; decreases E.increases; decreases

E

Tariffs and import quotas both result in A.lower levels of domestic production. B.Higher level of domestic production. C.lower levels of imports. D.higherlevels of domestic consumption. E.B and C.

E

U.S. Senator Daniel Patrick Moynihan once introduced a bill that would levy a 10,000% tax on certain hollow-tipped bullets. How would you expect this to affect the amount of tax revenue raised? A.This tax will increase tax revenue by 10,000%. B.This tax will generate a lot of tax revenue because of its high rate. C.This tax likely won't raise much revenue because the high tax rate will probably cause the equilibrium quantity to be near zero. D.The tax will cause a very high DWL in hollo-tipped bullet market. E.C and D.

E

16. If total revenue from the sale of a good remains constant irrespective of the quantity of the good sold, then A.this is an inferior good. B.this is a normal good. C.the price elasticity of demand is zero. D.demand for this good is perfectly elastic. E.the price elasticity of demand E = -1.

E.

Based on the elasticities in the table, on which of these goods would your customers leastlike to be taxed?

Item w highest elasticity of supply

Consider four markets for luxury yachts, Markets A, B, C, and D. The demand for yachts in Market A is perfectly inelastic, E(A) =0 . In Market B, elasticity E(B)= -3. In Market C, E(C)= -0.25 and in market D, E(D)= -1. The elasticity of supply in all four markets is identical. If the government wants to raise the maximum revenue possible from a specific excise tax, upon which market should the government impose the tax?

Market A

Consider the effect of a minimum wage imposed in an unregulated labour market. Which of the following statements is correct? i.A minimum wage set above the equilibrium wage increases the quantity of labour supplied. ii.A minimum wage set above the equilibrium wage increases the supply of labour. iii.A minimum wage set above the equilibrium wage decreases the demand for labour.

i

Post-secondary education in Canada is subsidized. This fact suggests that i.less than the efficient amount of education would be provided by an unregulated market. ii.MPB= MSBofeducation. iii.post-secondary education confers no externalities.

i

When MSC= MSB,then(I).there is no pollution.(II).resources are used efficiently.

ii