Practice Questions Micro Exam 2

A tax on sellers

increases the price that buyers pay and decreases the price that sellers receive

You have a comparative advantage if you can complete a task:

at a lower opportunity cost than anyone else

to maximize production, people should

focus on the task in which they have a comparative advantage

When people focus on their comparative advantage and then trade for other things, they

improve their standard living or increase their leisure time

By contrast with a market that produces the socially optimal output, a market with negative externalities will:

overproduce

Buyers bear all the economic burden of a tax if the demand curve is _____, given an upward sloping supply curve.

perfectly inelastic

A correct subsidy

removes choice by requiring production to change for goods with externalities

Uber cuts the price of a ride in New York City by 20%, and the quantity of rides demanded rises by 40%. The absolute value of the price elasticity of demand for Uber rides is ____, and the price elasticity of demand for Uber rides is ____.

2; elastic

Which of the following describes a situation with a negative externality?

A commercial poultry farm opens, neighbors on all sides complain of its smell.

Which if the following statements is TRUE regarding economic efficiency?

Efficient outcomes rarely make everyone happy.

Which of the following is a positive economic statement?

If the government raises taxes, people will have less income available for purchases and savings

What is the function of the markets?

Markets reallocate resources, goods, and services to better uses

When people focus their efforts, on the task they have comparative advantage in, what will happen to the ouotput?

More of all the goods will be produced than if everyone produced everything for themselves

If raising through Policy A yields more economic surplus than raising taxes through Policy B, then

Policy A is more efficient than Policy B but may not be more equitable than Policy B

How does government regulation affect market efficiency

Some regulations correct for market failures; other regulations cause inefficient outcomes

Mara manages a yogurt factory where four main tasks are preformed to produce the yogurt. What basis should she use to assign workers to tasks if she wants to produce as much yogurt as possible?

Workers should specialize in the task for which they have comparative advantage

Market failure occurs when market forces lead to

an inefficient outcome

The person who can produce using the fewest inputs has ____ in that product

an absolute advantage

When trade is based on comparative advantage

both trading partners end up better off

You have an absolute advantage in producing a product if you

can produce the product using the fewest inputs

The world demand curve slopes downwards because, as the world price of a product falls

consumers want to buy a larger quantity

Buyers have a small incidence of the tax when

demand is more elastic than supply

If demand is _____, a higher price yields _____ total revenue.

elastic;lower

Countries benefit from trade by exporting goods in which their opportunity cost are relatively ___, and importing goods in which are relatively ___

low;high

A corrective tax designated to resolve a negative externally problem is typically set an amount equal to the ____ cost

marginal external

Marginal social cost equals _____ cost plus marginal _____ cost

private; external

Price minus marginal cost equals the

producer surplus of a unit sold

Price elasticity of supply measures how responsive

sellers are to a change in price

An export is a good or service

sold to a foreign buyer.

When economic efficiency rises, the _____, and the benefits _____ be spread across all the people.

total gains exceed the costs: may or may not