Microeconomics Test 2

A tariff on a product makes a) domestic sellers better off and domestic buyers worse off. b) domestic sellers worse off and domestic buyers worse off. c) domestic sellers better off and domestic buyers better off. d) domestic sellers worse off and domestic buyers better off.

A

Chad is willing to pay $5.00 to get his first cup of morning latté; he is willing to pay $4.50 for a second cup. He buys his first cup from a vendor selling latté for $3.75 per cup. He returns to that vendor later in the morning to find that the vendor has increased her price to $3.90 per cup. Chad buys a second cup. Which of the following statements is correct? a) Chad's willingness to pay for his second cup of latté was smaller than his willingness to pay for his first cup of latté. b) Chad's consumer surplus on his second cup of latté was larger than his consumer surplus on his first cup of latté. c) Chad is irrational in that he is willing to pay a different price for his second cup of latté than what he is willing to pay for his first cup of latté. d) Chad places a higher value on his second cup of latté than on his first cup of latté.

A

Denmark is an importer of computer chips, taking the world price of $12 per chip as given. Suppose Denmark imposes a $5 tariff on chips. Which of the following outcomes is possible? a) More Danish-‐‑produced chips are sold in Denmark. b) More foreign-‐‑produced chips are sold in Denmark. c) Danish consumers of chips become better off. d) Total surplus in the Danish chip market increases.

A

Inefficiency exists in an economy when a good is a) not being consumed by buyers who value it most highly. b) not distributed fairly among buyers. c) not produced because buyers do not value it very highly. d) being produced with less than all available resources.

A

One should be especially wary of the national-‐‑security argument for restricting trade when that argument is made by a) representatives of industry. b) representatives of the defense establishment. c) members of households. d) foreign government officials.

A

The before-‐‑trade price of fish in Germany is $8.00 per pound. The world price of fish is $6.00 per pound. Germany is a price-‐‑taker in the fish market. If Germany allows trade in fish, then Germany will become an a) importer of fish and the price of fish in Germany will be $6.00. b) importer of fish and the price of fish in Germany will be $8.00. c) exporter of fish and the price of fish in Germany will be $6.00. d) exporter of fish and the price of fish in Germany will be $8.00.

A

When a country allows trade and becomes an exporter of a good, a) domestic producers gain and domestic consumers lose. b) domestic producers lose and domestic consumers gain. c) domestic producers and domestic consumers both gain. d) domestic producers and domestic consumers both lose.

A

When there is a technological advance in the pork industry, consumer surplus in that market will a) increase. b) decrease. c) not change, since technology affects producers and not consumers. d) not change, since consumers' willingness to pay is unaffected by the technological advance.

A

Which of the following is correct? a) Efficiency deals with the size of the economic pie, and equality deals with how fairly the pie is sliced. b) Equality can be judged on positive grounds whereas efficiency requires normative judgments. c) Efficiency is more difficult to evaluate than equality. d) Equality and efficiency are both maximized in a society when total surplus is maximized.

A

A result of welfare economics is that the equilibrium price of a product is considered to be the best price because it a) maximizes both the total revenue for firms and the quantity supplied of the product. b) maximizes the combined welfare of buyers and sellers. c) minimizes costs and maximizes output. d) minimizes the level of welfare payments.

B

For any country, if the world price of copper is lower than the domestic price of copper without trade, that country should a) export copper. b) import copper. c) neither export nor import copper, since that country cannot gain from trade. d) neither export nor import copper, since that country already produces copper at a low cost compared to other countries.

B

If the demand for leather decreases, producer surplus in the leather market a) increases. b) decreases. c) remains the same. d) may increase, decrease, or remain the same.

B

Suppose Brent, Callie, and Danielle each purchase a particular type of electric pencil sharpener at a price of $20. Brent's willingness to pay was $22, Callie's willingness to pay was $25, and Danielle'ʹs willingness to pay was $30. Which of the following statements is correct? a) Had the price of the pencil sharpener been $24 rather than $20, only Danielle would have been a buyer. b) Brent's consumer surplus is the smallest of the three individual consumer surpluses. c) For the three individuals together, consumer surplus amounts to $60. d) The fact that all three individuals paid $20 for the same type of pencil sharpener indicates that each one placed the same value on that pencil sharpener.

B

Suppose there is an early freeze in California that reduces the size of the lemon crop. What happens to consumer surplus in the market for lemons? a) Consumer surplus increases. b) Consumer surplus decreases. c) Consumer surplus is not affected by this change in market forces. d) We would have to know whether the demand for lemons is elastic or inelastic to make this determination.

B

The before-‐‑trade domestic price of peaches in the United States is $40 per bushel. The world price of peaches is $52 per bushel. The U.S. is a price-‐‑taker in the market for peaches. 7. Refer to Scenario 9-‐‑1. If trade in peaches is allowed, the United States a) will become an importer of peaches. b) will become an exporter of peaches. c) may become either an importer or an exporter of peaches, but this cannot be determined. d) will experience increases in both consumer surplus and producer surplus.

B

Which of the following equations is valid? a) Consumer surplus = Total surplus -‐‑ Cost to sellers b) Producer surplus = Total surplus -‐‑ Consumer surplus c) Total surplus = Value to buyers -‐‑ Amount paid by buyers d) Total surplus = Amount received by sellers -‐‑ Cost to sellers

B

A major difference between tariffs and import quotas is that a) tariffs create deadweight losses, but import quotas do not. b) tariffs help domestic consumers, and import quotas help domestic producers. c) tariffs raise revenue for the government, but import quotas create surplus for those who get the licenses to import. d) All of the above are correct.

C

A supply curve can be used to measure producer surplus because it reflects a) the action of seller b) quantity supplied. c) sellers'ʹ costs. d) the amount that will be purchased by consumers in the market.

C

Another way to think of the marginal seller is the seller who a) will accept the lowest price of any seller in the market. b) requires the highest price of any potential seller in the market. c) would leave the market first if the price were any lower. d) would leave the market last if the price falls.

C

David tunes pianos in his spare time for extra income. Buyers of his service are willing to pay $135 per tuning. One particular week, David is willing to tune the first piano for $115, the second piano for $125, the third piano for $140, and the fourth piano for $175. Assume David is rational in deciding how many pianos to tune. His producer surplus is a) $-15. b) $20. c) $30 d) $75

C

Opponents of free trade often want the United States to prohibit the import of goods made in overseas factories that pay wages below the U.S. minimum wage. Prohibiting such goods is likely to a) cause these factories to pay the U.S. minimum wage. b) increase the rate of technological advance in poor countries so that they can afford to pay higher wages. c) increase poverty in poor countries and benefit U.S. firms which compete with these imports. d) harm U.S. firms which compete with these imports.

C

Producer surplus is the area a) under the supply curve. b) between the supply and demand curves. c) below the price and above the supply curve. d) under the demand curve and above the price.

C

When a certain nation abandoned a policy of prohibiting international trade in automobiles in favor of a free-‐‑tree policy, the result was that the country began to import automobiles. The change in policy improved the well-‐‑being of that nation in the sense that a) both producers of automobiles and consumers of automobiles in that nation became better off as a result. b) the gains to automobile producers in that nation exceeded the losses of the automobile consumers in that nation. c) the gains to automobile consumers in that nation exceeded the losses of the automobile producers in that nation. d) even though total surplus in that nation decreased, it was still true that consumer surplus and producer surplus increased.

C

When a country abandons a no-‐‑trade policy, adopts a free-‐‑trade policy, and becomes an importer of a particular good, a) producer surplus increases and total surplus increases in the market for that good. b) producer surplus increases and total surplus decreases in the market for that good. c) producer surplus decreases and total surplus increases in the market for that good. d) producer surplus decreases and total surplus decreases in the market for that good.

C

A demand curve reflects each of the following except the a) willingness to pay of all buyers in the market. b) value each buyer in the market places on the good. c) highest price buyers are willing to pay for each quantity. d) ability of buyers to obtain the quantity they desire.

D

Assume, for England, that the domestic price of wine without international trade is higher than the world price of wine. This suggests that, in the production of wine, a) England has a comparative advantage over other countries and England will export wine. b) England has a comparative advantage over other countries and England will import wine. c) other countries have a comparative advantage over England and England will export wine. d) other countries have a comparative advantage over England and England will import wine.

D

IF the United States changed its laws to allow for the legal sale of a kidney, which of the following is likely to occur? a) The price of kidneys would rise to balance supply and demand. b) The gains from trade would make both buyers and sellers better off. c) Thousands of lives would be saved. d) All of the above are correct.

D

In a market, the marginal buyer is the buyer a) whose willingness to pay is higher than that of all other buyers and potential buyers. b) whose willingness to pay is lower than that of all other buyers and potential buyers. c) who is willing to buy exactly one unit of the good. d) who would be the first to leave the market if the price were any higher.

D

Market failure is the inability of a) buyers to interact harmoniously with sellers in the market. b) a market to establish an equilibrium price. c) buyers to place a value on the good or service. d) some unregulated markets to allocate resources efficiently.

D

The nation of Wheatland forbids international trade. In Wheatland, you can buy 1 pound of corn for 3 pounds of fish. In other countries, you can buy 1 pound of corn for 2 pounds of fish. These facts indicate that a) Wheatland has a comparative advantage, relative to other countries, in producing corn. b) other countries have a comparative advantage, relative to Wheatland, in producing fish. c) the price of fish in Wheatland exceeds the world price of fish. d) if Wheatland were to allow trade, it would import corn.

D

When a country allows international trade and becomes an exporter of a good, a) domestic producers of the good become better off. b) domestic consumers of the good become worse off. c) the gains of the winners exceed the losses of the losers. d) All of the above are correct.

D

When a country that imports a particular good imposes a tariff on that good, a) consumer surplus increases and total surplus increases in the market for that good. b) consumer surplus increases and total surplus decreases in the market for that good. c) consumer surplus decreases and total surplus increases in the market for that good. d) consumer surplus decreases and total surplus decreases in the market for that good.

D

Which of the following statements is not correct? a) A seller would be eager to sell her product at a price higher than her cost. b) A seller would refuse to sell her product at a price lower than her cost. c) A seller would be indifferent about selling her product at a price equal to her cost. d) Since sellers cannot set the price for their product, they must be willing to sell their product at any price.

D

Optimum

The bundle the consumer most prefers out of all the bundles he can afford