Microecon test 2

The curve that is shown on the figure is called the

Laffer curve

If Martin sells a shirt for $40, and his producer surplus from the sale is $8, his cost must have been

b $32.

A price floor will be binding only if it is set

b above the equilibrium price.

A binding price ceiling is shown in

b panel (b) only.

A tax burden falls more heavily on the side of the market that

b. is more inelastic.

If the economy is at point B on the curve, then a small decrease in the tax rate will

c. decrease the deadweight loss of the tax and increase tax revenue.

When the government imposes the tax in this market, tax revenue is

d. $3,000.

When a tax is placed on the buyers of lemonade, the

d. burden of the tax will be shared by the buyers and the sellers, but the division of the burden is not always equal.

A streetlight is a

d. public good.

Tax incidence

depends on the elasticities of supply and demand.

A negative externality

is an adverse impact on a bystander

Which of the following combinations will maximize the deadweight loss from a tax?

supply 2 and demand 2

This graph represents the tobacco industry. The socially optimal price and quantity are

$1.80 and 35 units, respectively.

Without a tax, the equilibrium price and quantity are

$10 and 600.

Producer surplus measures the

A benefits to sellers of participating in a market.

The price ceiling

D causes a shortage of 85 units.

Abe owns a dog; the dog's barking annoys Abe's neighbor, Jenny. Suppose that the benefit of owning the dog is worth $200 to Abe and that Jenny bears a cost of $400 from the barking. Assuming Abe has the legal right to keep the dog, a possible private solution to this problem is that

Jenny pays Abe $300 to give the dog to his parents who live on an isolated farm.

What happens to producer surplus when the tax is imposed in this market?

Producer surplus falls by $1,800.

From the figure it is apparent that

a Guatemala will experience a shortage of coffee if trade is not allowed.

Which of the following is an example of a positive externality?

a nice garden in front of your neighbor's house

Suppose the government wants to encourage Americans to exercise more, so it imposes a binding price ceiling on the market for in-home treadmills.

a shortage of treadmills will develop.

If A binding price floor is imposed on the video game market, then

a surplus of video games will develop.

A price floor is

a. a legal minimum on the price at which a good can be sold. b. often imposed when sellers of a good are successful in their attempts to convince the government that the market outcome is unfair without a price floor. c. a source of inefficiency in a market. d. All of the above are correct.

Goods that are rival in consumption but not excludable would be considered

a. club goods.b. common resources.c. public goods. d. private goods.

If one person's use of a good diminishes another person's enjoyment of it, the good is

a. rival in consumption.

When the tax is imposed in this market, the price sellers effectively receive is

b. $6.

In which market will the majority of the tax burden fall on buyers?

b. the market shown in panel (b)

When the price falls from P1 to P2, which area represents the increase in consumer surplus to existing buyers?

c BCGD

The decrease in total surplus that results from a market distortion, such as a tax, is called a

c deadweight loss

A consumer's willingness to pay directly measures

c how much a buyer values a good.

We can say that the allocation of resources is efficient if

c total surplus is maximized.

The tax results in a deadweight loss that amounts to

c. $1,500.

Highway engineers want to improve a dangerous stretch of highway. They expect that it will reduce the risk of someone dying in an accident from 5.3 percent to 2.1 percent over the life of the highway. If a human life is worth $10 million, then the project is worth doing as long as it does not cost more than

c. $320,000.

Bob purchases a book for $6, and his consumer surplus is $2. How much is Bob willing to pay for the book?

c. $8.

A price ceiling will be binding only if it is set

c. below the equilibrium price.

The term tax incidence refers to

c. the distribution of the tax burden between buyers and sellers.

Total surplus in a market is equal to

consumer surplus + producer surplus.

On a graph, the area below a demand curve and above the price measures

consumer surplus.

When the tax is imposed in this market, the price buyers effectively pay is

d. $16.

A legal maximum on the price at which a good can be sold is called a price

d. ceiling.

The price of a good that prevails in a world market is called the

d. world price.

Negative externalities lead markets to produce

greater than efficient output levels and positive externalities lead markets to produce smaller than efficient output levels.

If the government wanted to tax or subsidize this good to achieve the socially-optimal level of output, it would

introduce a subsidy of $4 per unit.

At the profit-maximizing level of output,

marginal revenue equals marginal cost.

When buyers in a competitive market take the selling price as given, they are said to be

market entrants. monopolists. free riders. price takers.

An externality is the impact of

one person's actions on the well-being of a bystander.

A good is excludable if

people can be prevented from using it

The proposition that if private parties can bargain without cost over the allocation of resources, they can solve the problem of externalities on their own, is called

the Coase theorem.

Producer surplus is

the amount a seller is paid minus the cost of production.

The overuse of a common resource relative to its economically efficient use is called

tragedy of commons

Without government intervention, public goods tend to be

underproduced and common resources tend to be overconsumed.