econ practice exam
The Surgeon General announces that eating chocolate increases tooth decay. As a result, the equilibrium price of chocolate a.decreases, and producer surplus decreases. b.decreases, and producer surplus increases. c.increases, and producer surplus decreases. d.increases, and producer surplus increases.
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The U.S. military defends Jacob from foreign conflict. The fact that Jacob enjoys this protection does not detract from other Americans' enjoyment of it. For this reason, we say that national defense is a.excludable. b.rival in consumption. c.not excludable. d.not rival in consumption.
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The infant-industry argument a.has the support of most economists. b.is an argument that is advanced by advocates of free trade. c.is based on the belief that protecting industries when they are young will pay off later. d.is based on the belief that protecting industries producing goods and services for infants is necessary if a country is to have healthy children.
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A good is excludable if a.people can be prevented from using it. b.one person's use of the good diminishes another person's enjoyment of it. c.the government can regulate its availability. d.it is not a normal good.
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The Social Security tax is a tax on a.labor. b.capital. c.land. d.savings.
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The failure of markets to adequately protect the environment can be viewed either as a problem of a.club goods or as a problem that arises when the quantity of excludable goods exceeds the socially-efficient quantity. b.externalities or as a problem of private goods. c.externalities or as a problem of common resources. d.the overprovision of public goods or as a problem of the underprovision of private goods.
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A result of welfare economics is that the equilibrium price of a product is considered to be the best price because it a.minimizes the level of welfare payments. b.maximizes both the total revenue for firms and the quantity supplied of the product. c.maximizes the combined welfare of buyers and sellers. d.minimizes costs and maximizes output.
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A simultaneous increase in both the demand for tablets and the supply of tablets would imply that a.the value of tablets to consumers has increased, and the cost of producing tablets has decreased. b.the value of tablets to consumers has decreased, and the cost of producing tablets has increased. c.both the value of tablets to consumers and the cost of producing tablets has decreased. d.both the value of tablets to consumers and the cost of producing tablets has increased.
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Before considering any public project, the government should a.infer that citizens who vote for a project are willing to pay equally for it. b.only measure the cost of the project. c.only measure the total benefits of the project. d.conduct a cost-benefit analysis and compare the total cost and total benefits of the project.
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Cost is a measure of the a.producer shortage. b.seller's willingness to buy. c.seller's producer surplus. d.seller's willingness to sell.
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Efficiency in a market is achieved when a.the sum of producer surplus and consumer surplus is maximized. b.a social planner intervenes and sets the quantity of output after evaluating buyers' willingness to pay and sellers' costs. c.all firms are producing the good at the same low cost per unit. d.no buyer is willing to pay more than the equilibrium price for any unit of the good.
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A regional lobster management board recently proposed a five-year moratorium on lobster fishing in the Atlantic waters south of Cape Cod based on a study of the lobster population. Which of the following statements is not correct? a.The lobster population is an example of the tragedy of the commons. b.Reducing the quota on the number of lobsters any fisher can catch would have a protective effect on the lobster population. c.If left unregulated, the lobster population will likely increase. d.Lobsters are rival but not excludable.
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A seller's opportunity cost measures the a.value of everything she must give up to produce a good. b.consumer surplus. c.out-of-pocket expenses to produce a good but not the value of her time. d.amount she is paid for a good minus her cost of providing it.
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Dawn's bridal boutique is having a sale on evening dresses. The increase in consumer surplus comes from the benefit of the lower prices to a.only existing customers who now get lower prices on the gowns they were already planning to purchase. b.only new customers who enter the market because of the lower prices. c.both existing customers who now get lower prices on the gowns they were already planning to purchase and new customers who enter the market because of the lower prices. d.Consumer surplus does not increase; it decreases.
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For a small country called Boxland, the equation of the domestic demand curve for cardboard is QD = 200 − 2P, where QD represents the domestic quantity of cardboard demanded, in tons, and P represents the price of a ton of cardboard. For Boxland, the equation of the domestic supply curve for cardboard is QS = -60 + 3P, where QS represents the domestic quantity of cardboard supplied, in tons, and P again represents the price of a ton of cardboard. Refer to Scenario 9-1. Suppose the world price of cardboard is $45. Then, if Boxland goes from prohibiting international trade in cardboard to allowing international trade in cardboard, a.domestic producers of cardboard become better off and domestic consumers of cardboard become better off. b.domestic producers of cardboard become worse off and domestic consumers of cardboard become worse off. c.domestic producers of cardboard become better off and domestic consumers of cardboard become worse off. d.domestic producers of cardboard become worse off and domestic consumers of cardboard become better off.
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Imagine a 2,000-acre park with picnic benches, trees, and a pond. Suppose it is publicly owned, and people are invited to enjoy its beauty. When the weather is nice, it is difficult to find parking, and the trash cans overflow with food wrappers on summer afternoons. Otherwise, it is a great place. The park is a common resource because a.anyone can use it without affecting anyone else. b.if too many people use it, one person's use diminishes other peoples' use. c.people can be prevented from using it. d.access is limited due to driving distances.
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In which of the following cases is the Coase theorem most likely to solve the externality? a.Polluted water runoff from farms is making residents of a nearby town sick. b.Industrialization around the world is causing global warming. c.Ed is allergic to his roommate's cat. d.Chemicals from manufacturing plants in the Midwest are causing acid rain in Canada.
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It is commonly argued that national defense is a public good. Nevertheless, the weapons used by the U.S. military are produced by private firms. We can conclude that a.weapons are rival in consumption and excludable, but national defense is not rival in consumption and not excludable. b.resources would be used more efficiently if private firms provided national defense. c.resources would be used more efficiently if the government produced the weapons. d.national defense is rival in consumption and excludable, but weapons are not rival in consumption and not excludable.
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Justin builds fences for a living. Justin's out-of-pocket expenses (for wood, paint, etc.) plus the value that he places on his own time amount to his a.profit. b.producer deficit. c.cost of building fences. d.producer surplus.
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Knowledge that is patented is a a.public good, whereas knowledge that is not patented is a common resource. b.club good, whereas knowledge that is not patented is a public good. c.private good, whereas knowledge that is not patented is a club good. d.common resource, whereas knowledge that is not patented is a private good
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Miguel, Maria, and Marcos all would like a place to sit while waiting at their children's bus stop. The neighborhood association is considering installing several park benches at the bus stop. Miguel values the benches at $20, Maria at $30, and Marcos at $40. The park benches and labor for installation cost $100. If Miguel, Maria, and Marcos are the only residents who value the benches, what should the neighborhood association do? a.Do not install the park benches because the costs outweigh the benefits. b.Install the park benches because the benefits outweigh the costs. c.Install the park benches because people like places to sit. d.Do not install the park benches to prevent the Tragedy of the Commons problem of overuse.
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Most economists prefer corrective taxes to regulation as a way to correct the problem of pollution because the market-based solution a.is less efficient. b.lowers revenue for the government. c.is less costly to society. d.can result in a greater increase in pollution.
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Moving production from a high-cost producer to a low-cost producer will a.lower total surplus. b.lower producer surplus. c.raise producer surplus but lower consumer surplus. d.raise total surplus.
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Private goods are both a.nonexcludable and nonrival consumption. b.excludable and rival in consumption. c.excludable and nonrival in consumption. d.nonexcludable and rival in consumption.
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Scenario 8-1 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. Refer to Scenario 8-1. 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? a.Total economic welfare (consumer surplus plus producer surplus plus tax revenue) will increase. b.Erin will now clean her own house. c.Erin will continue to hire Ernesto to clean her house, but her consumer surplus will decline. d.Ernesto will continue to clean Erin's house, but his producer surplus will decline.
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Scenario 8-1 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. Refer to Scenario 8-1 . If Ernesto cleans Erin's house for $90, Ernesto's producer surplus is a.$30. b.$10. c.$20. d.$80.
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Steak and chicken are substitutes. A sharp reduction in the supply of steak would a.increase consumer surplus in the market for steak and decrease producer surplus in the market for chicken. b.decrease consumer surplus in the market for steak and increase producer surplus in the market for chicken. c.decrease consumer surplus in the market for steak and decrease producer surplus in the market for chicken. d.increase consumer surplus in the market for steak and increase producer surplus in the market for chicken.
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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 a.would necessarily increase even if the higher price resulted in a surplus of widgets. b.would necessarily decrease because the higher price would create a surplus of widgets. c.might increase or decrease. d.would be unaffected.
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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? a.Common resource b.Club good c.Public good d.Private good
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The size of a tax and the deadweight loss that results from the tax are a.positively related. b.equal to each other. c.independent of each other. d.negatively related.
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What is the fundamental basis for trade among nations? a.Misguided economic policies b.Shortages or surpluses in nations that do not trade c.Absolute advantage d.Comparative advantage
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When a country allows trade and becomes an exporter of a good, which of the following is not a consequence? a.The losses of domestic consumers of the good exceed the gains of domestic producers of the good. b.The gains of domestic producers of the good exceed the losses of domestic consumers of the good. c.The price paid by domestic consumers of the good increases. d.The price received by domestic producers of the good increases.
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When a country is on the downward-sloping side of the Laffer curves, a cut in the tax rate will a.decrease tax revenue and increase the deadweight loss. b.increase tax revenue and increase the deadweight loss. c.increase tax revenue and decrease the deadweight loss. d.decrease tax revenue and decrease the deadweight loss.
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When a country that imported a particular good abandons a free-trade policy and adopts a no-trade policy, a.consumer surplus decreases and total surplus increases in the market for that good. b.consumer surplus increases and total surplus increases in the market for that good. c.consumer surplus decreases and total surplus decreases in the market for that good. d.consumer surplus increases and total surplus decreases in the market for that good.
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When a country that imports a particular good imposes a tariff on that good, a.consumer surplus decreases and total surplus decreases in the market for that good. b.consumer surplus increases and total surplus decreases in the market for that good. c.consumer surplus increases and total surplus increases in the market for that good. d.consumer surplus decreases and total surplus increases in the market for that good.
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When a tax is levied on buyers, the a.tax creates a wedge between the price buyers pay and the price sellers receive. b.tax has no effect on the well-being of sellers. c.supply curves shifts upward by the amount of the tax. d.buyers bear the entire burden of the tax
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Which of the following events would increase producer surplus? a.Sellers' costs stay the same and the price of the good decreases. b.Sellers' costs stay the same and the price of the good increases. c.Sellers' costs increase and the price of the good decreases. d.Sellers' costs increase and the price of the good stays the same.
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Which of the following goods is the best example of a public good? a.Garbage-collection services that are provided by a municipal government. b.Music that is broadcast over the airwaves by a privately-owned FM radio station. c.Cable TV services that are provided by a privately-owned firm that is regulated by the government of the city in which it operates. d.Electricity that is provided to farmhouses by a rural electric cooperative.
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Which of the following is not a commonly-advanced argument for trade restrictions? a.The infant-industry argument b.The national-security argument c.The efficiency argument d.The jobs argument
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Which of the following statements is not correct? a.Corrective taxes provide incentives to develop cleaner technologies. b.Corrective taxes require the government to set a target level of pollution. c.Corrective taxes can be used to place a price on the right to pollute. d.Corrective taxes allocate pollution to those producers who face the highest cost of reducing pollution.
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Which tools allow economists to determine if the allocation of resources determined by free markets is desirable? a.Profits and costs to firms b.Consumer and producer surplus c.Incomes of and prices paid by buyers d.The equilibrium price and quantity
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