Micro Chapters 7-11 Mock Test
Chad is willing to pay $5.00 to get his first cup of morning latte. He buys a cup from a vendor selling latte for $3.75 per cup. Chad's consumer surplus is
$1.25
Celine buys a new MP3 player for $90. She receives consumer surplus of $15 on her purchase if her willingness to pay is
$105
Denise values a stainless steel dishwasher for her new house at $500, but she succeeds in buying one for $350. Denise's consumer surplus is
$150
If a consumer is willing and able to pay $20 for a particular good and if he pays $16 for the good, then for that consumer, consumer surplus amounts to
$4
Two firms, A and B, each currently dump 50 tons of chemicals into the local river. The government has decided to reduce the pollution and from now on will require a pollution permit for each ton of pollution dumped into the river. It costs Firm A $100 for each ton of pollution that it eliminates before it reaches the river, and it costs Firm B $50 for each ton of pollution that it eliminates before it reaches the river. The government gives each firm 20 pollution permits. Government officials are not sure whether to allow the firms to buy or sell the pollution permits to each other. What is the total cost of reducing pollution if firms are not allowed to buy and sell pollution permits from each other? What is the total cost of reducing pollution if the firms are allowed to buy and sell permits from each other?
$4,500; $4,000
Flu shots provide a positive externality. Suppose that the market for vaccinations is perfectly competitive. Without government intervention in the vaccination market, which of the following statements is correct?
*a per-shot subsidy could turn an inefficient situation into an efficient one *at the current output level, the marginal social benefit exceeds the marginal private benefit *the current output level is inefficiently low
If the USA imports televisions and the USA government imposes a tariff on televisions, then
*a producer surplus in the American television market increases *USA imports of foreign televisions decreases *total surplus in the American television market decreases
Costa Rica allows trade with the rest of the world. We can determine whether Costa Rica has a comparative advantage in producing pharmaceuticals if we
*know whether Costa Rica imports or exports pharmaceuticals *compare the quantity of pharmaceuticals consumes in Costa Rica with the quantity of pharmaceuticals that would be consumed in Costa Rica if trade with the rest of the world were not allowed *compare the world price of pharmaceuticals to the price of pharmaceuticals that would prevail in Costa Rica if trade with the rest of the world were not allowed
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 200 per month when there is no tax. Then a tax of $5 per widget is imposed. As a result, the government is able to raise $800 per month in tax revenue. We can conclude that the equilibrium quantity of widgets has fallen by
40 per month
About what percent of total world trade is accounted for by countries that belong to the World Trade Organization?
97%
Import quotas and tariffs produce similar results. Which of the following is not one of those results?
Consumer surplus of domestic consumers increases
Karen's cat causes Danny to sneeze. Karen values her cat's companionship at $300 per year. The cost to Danny of tissues and her allergy medication is $350 per year. Based on the Coase theorem,
Danny should pay Karen $325 to give away her cat
suppose the demand for peanuts increases. What will happen to producer surplus in the market for peanuts?
It increases
Assume, for Japan, that the domestic price of automobiles without international trade is lower than the world price of automobiles. This suggests that, in the production of automobiles.
Japan has a comparative advantage over other countries and Japan will export auotmobiles
Assume there are nine voters in a certain small town and let x= the preferred number of dollars spent per person per month on garbage collection. For voters 1, 2, 3, and 4, x=$10; for Voter 5, x=$15; for voter, x-$18; and for voter 6,7,8,9 x=20. The median voter is
Voter 5
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 common resource
Which of the following is an example of general knowledge, as opposed to specific knowledge that can be patented?
a mathematical theorem
A corrective tax is also known as
a pigovian tax
The impact of one person's actions on the well being of a bystander is called
an externality
The theory of oligopoly provides another reason that free trade can benefit all countries because
as the number of firms within a given market increases, the price of the good decreases
Alicia is a vegetarian, so she does not eat beef. That is, beef provides no additional utility to Alicia. She loves potatoes, however. If we illustrate Alicia's indifference curves by drawing beef on the horizontal axis and potatoes on the vertical axis, her indifference curves will
be horizontal straight lines
If the government allowed a free market for transplant organs such as kidneys to exist, critics argue that such a market would
benefit rich people but not poor people
a tax affects
buyers, sellers, and the government
pay per view broadcasts are
club good
What is the fundamental basis for trade among nations?
comparative advantage
in the price of oak lumber increases, what happens to consumer surplus in the market for oak cabinets
consumer surplus decreases
All else equal, what happens to consumer surplus is the price of a good decreases
consumer surplus increases
Total surplus with a tax is equal to
consumer surplus plus producer surplus plus tax reveune
The economic inefficiency of a monopolist can be measured by the
deadweight loss
When the price of a good is measured in dollars, then the size of the deadweight loss that results from taxing that good is measured in
dollars
When a country allows trade and becomes an importer of a good
domestic producers become worse off, and domestic consumers become better off
When a tax is imposed on the buyers of a good, the demand curve shifts
downward by the amount of the tax
Which of the following is a problem that keeps people from privately solving externality problems
each party involved holds out for a better deal
When the government reduces my income tax by $0.30 for every $1.00 that I contribute to a charity, the government is effectively
encouraging a private solution to a positive-externality problem
Economists think that the best way to determine the value of a human life is to
evaluate the risks people are willing to take and what they would have to be paid to take them
Economists think that the best way to determine the value of a human life it to
evaluate the risks people are willing to take and what they would have to be paid to take them
a pizza is
excludable and rival in consumpiton
National defense is provided by the government because
free-riders make it difficult for private markets to supply the socially optimal quantity
If the world price of apples is higher than Argentina's domestic price of apples without trade, then Argentina
has a comparative advantage in apples
For a competitive market,
if a seller charges more than the going price, buyers will go elsewhere to make their purchases
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
if too many people use it, one person's use diminishes other peoples' use
crude oil is primarily supplied to the world market by a few Middle Eastern countries. Such a market is an example of
imperfectly competitive market and oligopoly market
Deadweight loss measures the loss
in a market to buyers and sellers that is not offset by an increase in government revenue
Which of the following will cause a decrease in producer surplus?
income increases and buyers consider the good to be inferior
When there is a technological advance in the pork industry, consumer surplus in that market will
increase
PlayStations and PlayStation games are complementary goods. A technological advance in the production of PlayStations will
increase consumer surplus in the market for PlayStations and increase producer surplus in the market for PlayStation games
A decrease in the price of a good will
increase quantity demanded
If the government removes a binding price ceiling from a market, then the price received by seller will
increase, and the quantity sold in the market will increase
A tariff on a product
increases the domestic quantity supplied
Suppose that installing an overhead pedestrian walkway would cost a college town $150,000. The walkway is expected to reduce the risk of fatality by 3 percent, and the cost of a human life is estimated at $10 million. The town should
install the walkway because the estimated benefit is twice the cost
If the use of a common resource is not regulated
it will be overused
the free rider problem exists with
knowledge
The social security tax is a tax on
labor
"The government should punish crimes and enforce voluntary agreements but not redistribute income." This statement is most closely associated with which political philosophy?
libertarianism
If a profit maximizing monopolist faces a downward-sloping market demand curve, its
marginal revenue is less than the price of the product
Which of the following is a tax on labor?
medicare tax
The field of economics is traditionally divided into two broad subfields
microeconomics and macroeconomics
Examples of goods that are excludable include
mobile phones and fire protection
A view of a spectacular sunset along a private beach is an example of a
nonrival but excludable good
a television broadcast is an example of a good that is
not rival in compsumption
University researchers create a positive externality because what they discover in their research labs can easily be learned by others who haven't contributed to the research costs. What could the federal government do to equate the equilibrium quantity of university research and the socially optimal quantity of university research produced?
offer grants to university researchers
the provision of a public good generates a
positive externality and the use of a common resource generates a negative externality
When a monopolist is able to sell its product at different prices, it is engaging in
price discrimination
Adam Smith suggested that an invisible had guides market economies. In this analogy, what is the baton that the invisible hand uses to conduct the economic orchestra?
prices
The Coase theorem asserts that, it in the presence of externalities
private economic actors sometimes can reach a bargain that produces an efficient outcome
The Coase theorem asserts that, in the presence of externalities,
private economics actors can reach a bargain that produces an efficient outcome
Goods that are rival in consumption and excludable would be considered
private goods
Most goods in the economy are
private goods
Because there are positive externalities from higher education
private markets will under-supply college classes
Zelzar has decided to end its policy of not trading with the rest of the world. When it ends its trade restrictions, it discovers that it is importing incense, exporting steel, and neither importing nor exporting rugs. Which groups in Zelzar are better off as a result of the new free trade policy?
producers of steel and consumers of incense
A tariff
raises the domestic price of the imported good above the world price
If Levi Strauss & Co. were to require every retailer that carried its clothing to charge customers $42 for each pair of jeans, Levi Strauss $ Co. would be practicing
resale price maintenance
According to proponents of the signaling theory of education
schooling has no real productivity benefit
A supply curve can be used to measure producer surplus because it reflects
sellers' cost
Consider a good to which a per-unit tax applies. The size of the deadweight that results from the tax is smaller, the
smaller is the price elasticity of supply
Suppose the government places a per-unit tax on a good. The smaller the price elasticities of demand and supply for the good, the
smaller the deadweight loss from the tax
The Tragedy of the Commons occurs because
social and private incentives differ
The tragedy of the commons occurs because
social and private incentives differ
Market failure is the inability of
some unregulated markets to allocate resources efficiently
Which policy is the government most inclined to use when faced with a positive externality?
subsidies
the tragedy of the commons for sheep grazing on common land can be eliminated by the government doing each of the following except
subsidzing sheep flocks
When fixed costs are ignored because they are irrelevant to a business's production decision, they are called
sunk costs
The view held by Arthur Laffer and Ronald Reagan that cuts in tax rates would encourage people to increase the quantity of labor they supplied became know as
supply-side economics
The overuse of a common resource relative to its economically efficient use is called
the Tragedy of the Commons
According to the Coase theorem, private parties can solve the problem of externalities if
the cost of bargaining is small
Within a country, the domestic price of a product will equal the world price if
the country allows free trade
A surplus exists in a market if
the current price is above the equilibrium price
For any country that allows free trade
the domestic price is equal to the world price
One reason we need government, even in a market economy, is that
the invisible hand is not perfect
Suppose a tax of $1 per unit is imposed on a good. The more elastic the demand for the good, other things equal,
the larger is the decrease in quantity demanded as a result of the tax, the larger is the deadweight loss of the tax, and the smaller is the tax burden on buyers relative to the tax burden on sellers
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
a free rider problem arises when
there are many beneficiaries and exclusions of any one of them is impossible
If a price floor is not binding, then
there will be no effect on the market price of quantity sold
Economists typically measure efficiency using
total surplus
An overcrowded beach is an example of
tragedy of the commons
Which of the following is not a typical solution to the Tragedy of the Commons?
turning the common resource into a club good
An example of normative analysis is studying
whether equilibrium outcomes are socially desirable
Suppose Brazil has an absolute advantage over other countries in producing almonds, but other countries have a comparative advantage over Brazil in producing almonds. If trade in almonds is allowed, Brazil
will import almonds
Suppose Jamaica has an absolute advantage over other countries in producing sugar, but other countries have a comparative advantage over Jamaica in producing sugar. If trade in sugar is allowed, Jamaica
will import sugar
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