Exam 2 Microecon

Refer to Figure 6-25. How much tax revenue does this tax generate for the government? a. $150 b. $180 c. $250 d. $300

a. $150

The value and cost of goods are easiest to determine when the goods are a. private goods. b. public goods. c. common resources. d. club goods.

a. private goods.

Mary and Cathy are roommates. Mary assigns a $30 value to smoking cigarettes. Cathy values smoke-free air at $15. Which of the following scenarios is a successful example of the Coase theorem? a. Cathy offers Mary $20 not to smoke. Mary accepts and does not smoke. b. Mary pays Cathy $16 so that Mary can smoke. c. Mary pays Cathy $14 so that Mary can smoke. d. Cathy offers Mary $15 not to smoke. Mary accepts and does not smoke.

b. Mary pays Cathy $16 so that Mary can smoke.

Refer to Figure 8-10. Suppose the government imposes a tax that reduces the quantity sold in the market after the tax to Q2. The size of the tax is a. P0-P2. b. P2-P8. c. P2-P5. d. P5-P8.

b. P2-P8.

Refer to Figure 8-9. The imposition of the tax causes the quantity sold to a. increase by 20 units. b. increase by 500 units. c. decrease by 20 units. d. decrease by 500 units.

c. decrease by 20 units.

Refer to Table 7-10. Who is a marginal seller when the price is $1,100? a. Dianne b. Bobby and Abby c. Carlos, Dianne, and Evaline d. Carlos, Dianne, Evaline, and Bobby

a. Dianne

Refer to Table 7-7. You have two essentially identical extra tickets to the Midwest Regional Sweet 16 game in the men's NCAA basketball tournament. The table shows the willingness to pay of the four potential buyers in the market for a ticket to the game. You hold an auction to sell the two tickets. Who makes the winning bids, and what do they offer to pay for the tickets? a. Michael and Earvin; more than $350 but less than or equal to $400 b. Michael and Earvin; more than $400 but less than or equal to $500 c. Earvin and Larry; more than $300 but less than or equal to $350 d. Larry and Charles; less than $300

a. Michael and Earvin; more than $350 but less than or equal to $400

A tax on a good causes the size of the market to shrink. a. True b. False

a. True

All else equal, an increase in demand will cause an increase in producer surplus. a. True b. False

a. True

T/F Government agencies, such as the National Science Foundation, subsidize basic research because in the absence of a subsidy too little research would be conducted. a. True b. False

a. True

Suppose the market demand curve for a good passes through the point (quantity demanded = 100, price = $25). If there are five buyers in the market, then a. the marginal buyer's willingness to pay for the 100th unit of the good is $25. b. the sum of the five buyers' willingness to pay for the 100th unit of the good is $25. c. the average of the five buyers' willingness to pay for the 100th unit of the good is $25. d. all of the five buyers are willing to pay at least $25 for the 100th unit of the good.

a. the marginal buyer's willingness to pay for the 100th unit of the good is $25.

You are offered a free ticket to see the Chicago Cubs play the Chicago White Sox at Wrigley Field. Assume the ticket has no resale value. Willie Nelson is performing on the same night, and his concert is your next-best alternative activity. Tickets to see Willie Nelson cost $40. On any given day, you would be willing to pay up to $50 to see and hear Willie Nelson perform. Assume there are no other costs of seeing either event. Based on this information, at a minimum, how much would you have to value seeing the Cubs play the White Sox to accept the ticket and go to the game? a. $0 b. $10 c. $40 d. $50

b. $10

A tax of $1 on sellers always increases the equilibrium price by $1. a. True b. False

b. False

Imposing a quota on the import of a good is preferable to a tariff because a tariff creates a deadweight loss while a quota does not. a. True b. False

b. False

Refer to Figure 6-23. Which of the following is correct? a. The entire burden of the tax falls on sellers, and none of the burden of the tax falls on buyers. b. One-third of the burden of the tax falls on buyers, and two-thirds of the burden of the tax falls on sellers. c. One-half of the burden of the tax falls on buyers, and one-half of the burden of the tax falls on sellers. d. Two-thirds of the burden of the tax falls on buyers, and one-third of the burden of the tax falls on seller

b. One-third of the burden of the tax falls on buyers, and two-thirds of the burden of the tax falls on sellers.

You receive a paycheck from your employer, and your pay stub indicates that $400 was deducted to pay the FICA (Social Security/Medicare) tax. Which of the following statements is correct? a. This type of tax is an example of a payback tax. b. Your employer is required by law to pay $400 to match the $400 deducted from your check. c. The $400 that you paid is the true burden of the tax that falls on you, the employee. d. All of the above are correct.

b. Your employer is required by law to pay $400 to match the $400 deducted from your check.

Price ceilings and price floors that are binding a. are desirable because they make markets more efficient and more fair. b. cause surpluses and shortages to persist because price cannot adjust to the market equilibrium price. c. can have the effect of restoring a market to equilibrium. d. are imposed because they can make the poor in the economy better off without causing adverse effects.

b. cause surpluses and shortages to persist because price cannot adjust to the market equilibrium price.

The world price of a pound of almonds is $4.50. Before Uruguay allowed trade in almonds, the price of a pound of almonds there was $3.00. Once Uruguay began allowing trade in almonds with other countries, Uruguay began a. exporting almonds and the price per pound in Uruguay remained at $3.00. b. exporting almonds and the price per pound in Uruguay increased to $4.50. c. importing almonds and the price per pound in Uruguay remained at $3.00. d. importing almonds and the price per pound in Uruguay increased to $4.50.

b. exporting almonds and the price per pound in Uruguay increased to $4.50

Figure 9-22 The following diagram shows the domestic demand and domestic supply in a market. In addition, assume that the world price in this market is $40 per unit. With free trade, consumer surplus is a. $48,000 and producer surplus is $48,000. b. $18,000 and producer surplus is $12,000. c. $108,000 and producer surplus is $12,000. d. $18,000 and producer surplus is $48,000.

c. $108,000 and producer surplus is $12,000

Refer to Table 10-3. The social value of the 4th unit of output that is produced is a. $10. b. $16. c. $26. d. $30.

c. $26.

Refer to Figure 9-24. Suppose the government imposes a tariff of $10 per unit. With trade and a tariff, total surplus is a. $750. b. $900. c. $950. d. $1,550.

c. $950.

In the market for widgets, the supply curve is the typical upward-sloping straight line, and the demand curve is the typical downward-sloping straight line. The equilibrium quantity in the market for widgets is 250 per month when there is no tax. Then a tax of $6 per widget is imposed. As a result, the government is able to raise $750 per month in tax revenue. We can conclude that the after-tax quantity of widgets is a. 75 per month. b. 100 per month. c. 125 per month. d. 150 per month.

c. 125 per month

Which of the following illustrates the concept of a negative externality? a. A college professor plays a vigorous game of racquet ball with the racquet he recently purchased. b. A flood wipes out a farmer's corn crop. c. A college student plays loud music on his new stereo system at 2:00 a.m. d. A janitor eats a hamburger during his lunch break.

c. A college student plays loud music on his new stereo system at 2:00 a.m.

What is the difference between command-and-control policies and market-based policies toward externalities? a. Command-and-control policies provide incentives for private decisionmakers to solve the problems on their own, whereas market-based policies regulate behavior directly. b. Command-and-control policies rely on taxes, whereas market-based policies rely on quotas. c. Command-and-control policies regulate behavior directly, whereas market-based policies provide incentives for private decisionmakers to change their behavior. d. Command-and-control policies are efficient, whereas market-based policies are inefficient.

c. Command-and-control policies regulate behavior directly, whereas market-based policies provide incentives for private decisionmakers to change their behavior.

Refer to Figure 6-17. A government-imposed price of $24 in this market is an example of a a. binding price ceiling that creates a shortage. b. non-binding price ceiling that creates a shortage. c. binding price floor that creates a surplus. d. non-binding price floor that creates a surplus

c. binding price floor that creates a surplus.

When a country allows trade and becomes an exporter of bicycles, a. domestic producers of bicycles are worse off, domestic consumers of bicycles are better off, and the economic well-being of the country rises. b. domestic producers of bicycles are worse off, domestic consumers of bicycles are better off, and the economic well-being of the country falls. c. domestic producers of bicycles are better off, domestic consumers of bicycles are worse off, and the economic well-being of the country rises. d. domestic producers of bicycles are better off, domestic consumers of bicycles are worse off, and the economic well-being of the country falls.

c. domestic producers of bicycles are better off, domestic consumers of bicycles are worse off, and the economic well-being of the country rises.

Which of the following is not a way for the government to solve the problem of excessive use of common resources? a. regulation b. taxes c. turning the common resource into a public good d. turning the common resource into a private good

c. turning the common resource into a public good

The following table shows the marginal costs for each of four firms (A, B, C, and D) to eliminate units of pollution from their production processes. For example, for Firm A to eliminate one unit of pollution, it would cost $54, and for Firm A to eliminate a second unit of pollution it would cost an additional $67. If the government wanted to reduce pollution from 16 units to 6 units, which of the following fees per unit of pollution would achieve that goal? a. $67 b. $68 c. $81 d. $83

d. $83

Refer to Figure 7-4. When the price falls from P1 to P2, which area represents the increase in consumer surplus to new buyers entering the market? a. BDF b. AFG c. BCGD d. ABC

d. ABC

A variable toll on a road in Washington reached a high during the evening rush hour of $5.75. This toll bought the drivers who paid it a 27 minute time savings. Which of the following is correct? a. For some consumers, the toll was less than the opportunity cost of the time they would have spent in traffic. b. For some consumers, the toll was more than the opportunity cost of the time they would have spent in traffic. c. No consumers would find this toll worth the time saved in traffic. d. Both a and b are correct.

d. Both a and b are correct.

The sign on a church in your neighborhood reads "All are welcome at Sunday Service." Because the church has limited seating and is usually full, the Sunday Service is a. a private good. b. a public good. c. a club good. d. a common resource.

d. a common resource.

Refer to Figure 6-8. When a certain price control is imposed on this market, the resulting quantity of the good that is actually bought and sold is such that buyers are willing and able to pay a maximum of P1 dollars per unit for that quantity and sellers are willing and able to accept a minimum of P2 dollars per unit for that quantity. If P1 - P2 = $3, then the price control is a. a price ceiling of $2.00. b. a price ceiling of $5.00. c. a price floor of $5.00. d. either a price ceiling of $2.00 or a price floor of $5.00.

d. either a price ceiling of $2.00 or a price floor of $5.00.

In Singapore, littering fines are strictly enforced. This is an example of a policy that a. relies on moral codes to reduce the pollution externality. b. relies on the Coase Theorem. c. discriminates against foreigners. d. relies on incentives to reduce the pollution externality.

d. relies on incentives to reduce the pollution externality

If the tax on a good is increased from $1 per unit to $4 per unit, the deadweight loss from the tax increases by a factor of a. 5. b. 9. c. 16. d. 24.

c. 16.

When the price is P1, consumer surplus is a. A. b. A+B. c. A+B+C. d. A+B+D.

c. A+B+C.

The Great Lakes are a. private goods. b. club goods. c. common resources. d. public goods.

c. common resources.

The Tragedy of the Commons for sheep grazing on common land can be eliminated by the government doing each of the following except a. assigning land property rights. b. auctioning off sheep-grazing permits. c. taxing sheep flocks. d. subsidizing sheep flocks.

d. subsidizing sheep flocks.