Micro exam two
Private costs are costs that the firm is not obligated to disclose to the public.
False
Social cost is the sum of private and external costs.
False
Suppose that in the quest to increase the number of insured, the government decides to implement a mandate that employers provide health insurance to all employees. Please categorize the items based on their truth or falsehood. The cost of the health insurance mandate will be borne entirely by the employer.
False
Select the best definition of a public good.
a good that is nonexcludable and nonrival in consumption
Under tradable allowances, producers of electricity have:
reduced emissions and increased output.
When a tax is imposed on a good with significant external costs, deadweight loss is:
reduced.
The fraternity pays the local community to compensate for the noise pollution.
private solution to an externality
A sports team t-shirt
rivalrous and excludable
Determine whether the items are characteristics of taxes, subsidies, or both. Assume that markets are perfectly competitive. are shared by both buyers and sellers.
Both taxes and subsidies
Determine whether the items are characteristics of taxes, subsidies, or both. Assume that markets are perfectly competitive. create a wedge between the price that buyers pay and the price that sellers receive.
Both taxes and subsidies
Suppose that the government imposes a commodity tax on alcohol. Assuming that both alcohol demand and supply are relatively elastic, what happens to alcohol consumption and to the alcohol market price?
Alcohol consumption decreases, whereas the alcohol market price increases if the tax is placed on the sellers or decreases if the tax is placed on the buyers.
Because of the rules humans have concerning chickens, the change in price results in
An increase in the number of people raising chickens and an increase in the total number of chickens
A factory emits pollution into the atmosphere as a by-product of production.
an example of a negative externality
A neighbor plays loud music that annoys the surrounding community.
an example of a negative externality
rambunctious weekend parties. The parties annoy many of the residents in nearby apartment complexes due to the loud Suppose Jeremy, Francis, and Andrew are part of Mu Epsilon Nu, a college fraternity known for its very loud, music and blaring neon lights. This is an example of _______
an external cost
The effects of price controls:
can spread to other markets without price controls.
The government requires that auto manufacturers use new, cleaner technology in producing cars.
command-and-control regulation
Merryweather's courthouse square is well-known for its elaborate decorations, including a real Santa for the children. Unlike at the mall, parents are not required to buy a photo before their children can talk to Santa, but the line is long and Santa leaves at 8:00 p.m.
common resource.
An auto manufacturer is charged a fee per unit of pollution emitted into a river.
corrective tax
Shortages caused by rent controls:
become more severe over time.
The table contains the demand and supply schedule for apartments in a city. Suppose the city council feels that the equilibrium rent is too high and imposes a price ceiling of $750/month. The city now has a shortage or surplus of how many apartments?
4500 apartments
Pigouvian subsidy:
A Subsidy on a good with external benefits
Transaction costs
All costs necessary to renew an agreement
Suppose you're doing some history research on shoe production in ancient Rome during the reign of the famous Emperor Diocletian. Your documents tell you how many shoes were produced each year in the Roman Empire, but they don't tell you the price of shoes. You find a document stating that in the year 301, Emperor Diocletian issued an "edict on prices," but you don't know whether he imposed price ceilings or price floors-your Latin is a little rusty. However, you can clearly tell from the documents that the number of shoes actually exchanged in markets fell dramatically, and that both potential shoe sellers and potential shoe buyers were unhappy with the edict. With the information given, can you tell whether Diocletian imposed a ceiling or a floor? If so, which is it?
It could have been either a price floor or a price ceiling, because each reduces the number of transactions and people on both sides are worse off as a result.
Aurora Township is asking all of its citizens to chip in and donate money to build a new library. Tommy thinks he already pays enough money in taxes, so he chooses not to donate. He knows that even if he does not contribute he will be able to use the library once it is built.
This is an example of the free rider problem.
Which scenario is the best example of the "tragedy of the commons?"
Users of a shared shower in a dorm allow the shower to get nasty by failing to clean it often enough.
How do unregulated markets cure a "labor shortage" when there are no immigrants to boost the labor supply? Markets cure a labor shortage by
adjusting the wage up.
Maple Havens, an expensive gated community, has tasteful light displays sponsored by the neighborhood association. Only those who know the code to unlock the gates are able to drive through the streets and enjoy the lights.
club goods.
The government requires that auto manufacturers limit pollution to a specified threshold.
command-and-control regulation
Governments that are interested in minimizing the efficiency costs of taxation should only tax goods where
demand or supply, or both, are relatively inelastic.
A problem with price ceilings is that they lead to surpluses.
false
Jim is working on a group project for a class in which he wants a high grade. However, since the grades are assigned to the group as a whole and he knows that the other group members will pick up most of the extra work, Jim calls in sick and plays video games on his Dream Station 64.
free-riding
Why are businesses reluctant to let unregulated markets cure the shortage? Businesses would rather
keep wages low.
Therefore, supply is less/more elastic in the short run than (as) in the long run.
less
Under the command and control method, the government:
orders firms to produce less.
Atlantic bluefin tuna in the Mediterranean Sea
rivalrous and nonexcludable
What is a subsidy wedge?
the difference between the price that sellers receive and the price that buyers pay, resulting from a subsidy
When there are external benefits, market output is:
too low.
A shortage in the market for tie-dye shirts could result from a
price ceiling
When the production of a good results in pollution, private and social costs are different.
True
If your favorite restaurant downsizes its portion sizes, this could be the result of a
price ceiling
Lawrence stands an hour in line at the local butcher's shop to obtain a mutton cutlet. Long waiting lines could resuslt from a
price ceiling
Steve decides not to rent out his second home since he is not allowed to set the rate above $1000 per month even though he knows he could find renters willing to pay much more.
price ceiling
A surplus of workers in the labor market could result from a
price floor
Garret is an undergraduate looking for a job to pay for college. As Garret seeks employment, he is glad to know that he will be paid at least $7.25 per hour.
price floor
Suppose an ai line offers unnecessarily lavish flights. This could result from a
price floor
Bob's Hardware Store stocks a large selection of the most commonly used lights for sale.
private goods.
A steel mill pays nearby homeowners to compensate them for the noise they must endure.
private property rights
The residents of the apartment complexes pay Mu Epsilon Nu not to have loud parties.
private solution to an externality
As part of the holiday celebration, the local church bells play carols every evening.
public goods.
Rent controls are a typical example of a price ceiling. Please select all likely consequences of rent controls when the price ceiling is binding. There is more than one correct answer.
shortage of affordable housing inefficient allocation of apartments reductions in apartment quality
Montgomery owns a nuclear power plant in the town of Springfield. His power plant dumps substantial quantities of radioactive waste into the local pond, which has given rise to a mutant guppy fish population with three eyes. The town decides to have Montgomery do something about the externality. Which method would NOT result in Montgomery accounting for the social cost of running the power plant?
subsidize Montgomery for every three-eyed fish found in the pond.
Auto manufacturers are allowed to pollute as much as they wish, provided that they have purchased a sufficient number of pollution vouchers.
tradable pollution permits
According to the Coase theorem, private parties can negotiate to an efficient solution in the presence of externalities if the _____ is (are) relatively low.
transaction costs
An excise tax can distort incentives and create missed opportunities for mutually beneficial transactions.
true
Price ceilings result in a reduction in mutually beneficial exchanges.
true
When price ceilings are imposed, consumers pay lower explicit prices but often face higher costs in terms of waiting in line for goods and services.
true
Determine whether the items are characteristics of taxes, subsidies, or both. Assume that markets are perfectly competitive. increase the price that buyers pay.
Тахes
Efficient equilibrium:
• The price Quantity that maximizes social surplus
Pigouvian tax
A tax on a good with external costs
Chickens and the "chicken of the sea" (tuna captured from the ocean) are fundamentally different in terms of population. However, chicken and tuna are both food. Indeed, chickens are eaten far more than tuna, and chickens are abundant compared with their ocean-living cousins. The difference between these two species that this chapter identifies as the explanation for this seemingly strange puzzle is that:
Chickens are owned and tuna are unowned
Suppose that in the quest to increase the number of insured, the government decides to implement a mandate that employers provide health insurance to all employees. Please categorize the items based on their truth or falsehood. Workers will benefit without any costs.
False
The terms "social cost" and "external cost" are synonyms.
False
Wages are an example of an external cost.
False
When the production of a good results in pollution, private and social costs are the same.
False
Frank pays the tax, but he will be out of the country during Independence Day.
Forced riders
Jack does not celebrate Independence Day nor does he care about fireworks, but he has to pay the tax anyway.
Forced riders
Irene is 16 and does not work. She loves fireworks and cannot wait until Independence Day.
Free riders
Maria lives in Spain and she does not pay U.S. taxes. However, she plans to watch the fireworks on television.
Free riders
Suppose that in the quest to increase the number of insured, the government decides to implement a mandate that employers provide health insurance to all employees. Please categorize the items based on their truth or falsehood. Firms will likely employ fewer workers after the mandate.
True
Because of the rules humans have concerning tuna and as a result of the price change, the number of people harvesting tuna would
Increase and the total number of tuna in the ocean would decrease
As population and prosperity have increased, the demand for chicken has increased. As a result the price of chickens has
Increased as an increased demand leads to a price increase
As population and prosperity increase, the price
Increases because more tuna get produced
Suppose the city council in a large city decides to pass a law which forces landlords to charge a maximum rent of $750/month for a one-bedroom apartment. Prior to the rent control, the average rent for a one-bedroom apartment was $1,750/month. Which is likely to occur as a result of the price ceiling?
Landlords will begin decreasing the quality of one-bedroom apartments by not making repairs or paying for upkeep.
Because of differences in firms' ability to make changes to quantity supplied, the long-run supply curve for housing is modeled as a line that is less/more steep than (as) the short-run supply curve.
Less
In the long run, the shortages of available housing resulting from rent controls are less/more pronounced than (as) they are in the short run.
More
In economics, what is the meaning of the phrase 'the tragedy of the commons?"
People will overuse or misuse a common resource that is not excludable but is rivalrous.
The table contains the demand and supply schedule for apartments in a city. Suppose the city council feels that the equilibrium rent is too high and imposes a price ceiling of $750/month. The price ceiling results in a
Shortage
Suppose that the city of Halifax decrees that all restaurants located within a 15 mile radius of the University of Halifax must charge at least $10 a meal so that college students can become more refined in their dining. What is a likely result of this price floor?
Some restaurants like Le Cordon Bleu will create rustic chicken and imported cheese paninis at $10 a sandwich to satisfy the refined demands of college students instead of its old $5 ham and cheese specials.
Determine whether the items are characteristics of taxes, subsidies, or both. Assume that markets are perfectly competitive. increase the price that sellers receive,
Subsidies
If Latvia enacts a minimum wage of 8.00$ per hour, the labor market will experience
Surplus of 4000 workers
Suppose that in the quest to increase the number of insured, the government decides to implement a mandate that employers provide health insurance to all employees. Please categorize the items based on their truth or falsehood. Firms will substitute capital for labor if possible.
True
Select the correct statement regarding commodity (or excise) taxes.
The burden of a tax is unrelated to who actually pays money to the government.
Efficient quantity
The quantity that maximizes social surplus
Select the correct statement regarding tax wedges.
The size of the tax wedge is unrelated to elasticity.
Suppose that in the quest to increase the number of insured, the government decides to implement a mandate that employers provide health insurance to all employees. Please categorize the items based on their truth or falsehood. Workers are always worse off than before the mandate because their take home wage decreases.
True
Suppose that the city of Lethbridge decrees that all restaurants located within a 15 mile radius of the University of Lethbridge can charge no more than $1 a meal so that college students can eat out economically. Which statement is NOT a likely result of this price ceiling?
There will be food surpluses at many of the restaurants as quantity supplied exceeds quantity demanded at a price of $1 per meal.
Pollution is an example of an external cost.
True
Under a price ceiling, resources are misallocated because:
price can't signal that there is shortage.
A 24-hour diner is now open only 20 hours a day. This could result from a
price ceiling
Price ceilings result in resources being allocated to activities with the highest possible value.
false
The incidence of a tax is determined by which group- buyers or sellers - must actually pay the government.
false
Though they may face higher prices, consumers usually see an increase in product quality when price ceilings are imposed.
false
When demand is elastic and supply is inelastic, the burden of a tax falls mainly on consumers.
false
When demand is inelastic and supply is elastic, the burden of a tax falls mainly on producers.
false
Bob can pay to support his local public radio station, which depends on donations to be as effective as possible. Bob listens to the radio station several hours per day but never donates since he suspects that other people will donate enough to keep the station on the air.
free-riding
One explanation for this is that in the long run, firms can makes changes to the amount of housing they provide less/more easily than (as) they can in the short run.
more
The local city government sends the police to break up the parties.
non-private solution to an externality
A toll road in normal traffic
nonrivalrous and excludable
The air we breathe
nonrivalrous and nonexcludable
A donut shop emits a delicious smell into the air as a by-product of production.
not an example of a negative externality
A person gets a flu shot and is therefore less likely to spread illness to others.
not an example of a negative externality
A person with no allergies gets a mosquito bite from a disease-free mosquito.
not an example of a negative externality
Drew always buys the lunch special for $5 at the restaurant across the street from where he works. If he decided to eat at the restaurant after 3:00 p.m., however, he would be unable to get the lunch special, and would instead have to pay $10 for the same food.
not free-riding
d. Karl never drives at night, and gets no benefit from street lamps at all. Street lamps are nonexcludable and nonrival in consumption. When the community group tries to collect money to build street lamps, Karl does not donate any money.
not free-riding
Suppose that solar-powered car technology advances to the point that solar-powered cars become affordable for the average consumer. Which type of externality is likely to result from a consumer's decision to purchase a solar-powered vehicle instead of a gas- powered vehicle, and how does it arise?
positive externality because the replacement of gas-powered vehicles with solar-powered vehicles will result in less environmental pollution.
