EC201 Final Exam

Corrective taxes are efficient because they... Select one: a. cause producers to internalize the external costs that are produced when we have negative externalities. b. cause consumers to internalize the external benefits that are produced when we have positive externalities. c. cause consumers to externalize the internal social benefits connected to negative externalities. d. restrict the quantity to the socially optimal level.

a

During the Middle Ages, many villages had areas reserved for families to take their cows or sheep to graze. All families were welcome to use this land without charge. This situation likely led to a(n): Select one: a. tragedy of the commons. b. finite of proportions. c. marketable public good. d. exhaustive equilibrium.

a

If the United States export shoes to Canada, what must be true according to economic theory? Pick the BEST option from the choices below. Select one: a. All answers given are correct. b. The world price of shoes must be above the domestic price without trade. c. The United States must have a lower opportunity cost for shoes than Canada. d. None of these options are correct. e. The United States has a comparative advantage in shoes. f. The United States consumers pay a higher price for shoes because of the exports of shoes going to Canada.

a

Which option below BEST FITS in the blank in the following statement? __________ has an income elasticity of demand of 0.5. Select one: a. frozen pizza b. a low-cost brand of noodle c. steak dinner at a relatively expensive restaurant d. electricity

a or d

People have little incentive to produce a public good because ______. Select one: a. production is impossible. b. social benefits are typically less than total costs. c. fixed costs are usually too high. d. of the free rider problem.

d

In the case of a binding price floor (a.k.a. "effective" price floor), the price paid in the market will be: Select one: a. greater than the free market equilibrium price. b. less than the free market equilibrium price. c. unable to be compared with the free market equilibrium price. d. equal to the free market equilibrium price.

a

Lyft cuts the price of a ride in New York City by 20%. Thereafter, the quantity of rides demanded rises by 25%. What is the price elasticity of demand for Lyft rides? Select one: a. -1.25 b. 0.8 c. -0.8 d. 1.25

a

Taking the absolute value of the cross-price elasticity of demand is incorrect because it would: Select one: a. remove the ability to tell whether the two products are substitutes or complements. b. remove the ability to tell whether the two products have inelastic demand or elastic demand. c. cause the value of the cross-price elasticity of demand to become smaller. d. cause the value of the cross-price elasticity of demand to become zero.

a

The difference between satellite TV (a club good) and public television (a public good) is that satellite TV is _____ and public television is _____. Select one: a. excludable and nonrival; nonexcludable and nonrival b. nonexcludable and rival; excludable and rival c. nonexcludable and rival; nonexcludable and nonrival d. excludable and nonrival; excludable and rival

a

The principle that your best choice depends on your other choices, the choices others make, developments in other markets, and expectations about the future is known as the _____ principle. Select one: a. interdependence b. cost-benefit c. marginal d. opportunity cost

a

Two products have a cross-price elasticity of demand of 1.5. Based on this value of cross-price elasticity, which of the following products are they most likely to be? Select one: a. two competing brands of soft drinks b. a brand of juice and a brand of computer c. a brand of hot dog and a brand of hot dog bun d. a brand of tea and a brand of sugar

a

A farmer agrees to give a company access to a private road on his property if the company reduces pollution of the farm's water source. This is an example of reducing an externality through: Select one: a. public goods. b. private bargaining. c. corrective taxes. d. cap and trade.

b

A tariff results in a higher ______. I. consumer surplus because prices increase and quantity consumer decreases. II. producer surplus because prices increase and quantity domestically produced increases.. III. government revenue because a tariff is a tax on imports. Select one: a. I and II only b. II and III only c. I and III only d. I, II, and III

b

How will the demand for Gucci shoes change today, if the government decides to heavily tax designer shoes next year? Select one: a. There will be no impact on the demand for Gucci shoes today because they are a luxury. b. The demand for Gucci shoes will shift to the right today. c. People will stop buying Gucci shoes today. d. The demand for Gucci shoes will shift to the left today.

b

The most efficient outcome in a set of options is the one with the: Select one: a. lowest total costs. b. largest economic surplus. c. lowest total benefit. d. smallest positive difference between benefits minus total cost.

b

A tariff ______ the amount of output produced by domestic firms and ______ the amount of goods bought by domestic consumers. Select one: a. decreases; decreases b. increases; increases c. increases; decreases d. decreases; increases

c

Anita is a wonderful baker and can bake 10 cakes in a day, but then she has no time left to make cookies. If she bakes only cookies, she can make 200 cookies in a day. Based on this information, which of the following statements is TRUE? Select one: a. Anita's opportunity cost of 1 cake is the cost of the cake mix. b. Anita's opportunity cost of 1 cookie is 20 cakes. c. Anita's opportunity cost of 1 cake is 20 cookies. d. Anita's opportunity cost cannot be calculated because we don't know prices.

c

Alan Patel is a college student living alone in a campus apartment. He finished cooking dinner when his friends text him to join them at the dining hall on campus for dinner. He now has to decide whether to eat the dinner he prepared or walk to campus to meet his friends at the dining hall. Alan should consider all the following costs when making this decision EXCEPT the Select one: a. time it will take to go meet his friends and walk back. b. value he places on not eating dinner alone. c. amount of money he will spend at the dining hall. d. money spent on the groceries he used to cook dinner.

d

If a firm produces a product that has easily available variable inputs, its supply curve will be: Select one: a. relatively steep. b. perfectly inelastic. c. perfectly elastic. d. relatively flat.

d

Which of the following statements is TRUE?I. Because national defense is a public good, a government must tax the public to raise funds for an army in order to have a sufficient level of national defense.II. For every 100 people that use a public good, approximately 500 people are prevented from using it.III. People do not have an incentive to voluntarily pay for non-excludable goods like national defense. Select one: a. I, II, and III b. III only c. I and II only d. I and III only

d

Which of the following statements is TRUE?I. Subsidizing buyers is no different than subsidizing sellers.II. Unlike taxes, subsidies do not create deadweight losses.III. Subsidies are payments the government makes to either producers or consumers.IV. Taxpayers pay for subsidies. Select one: a. I, II, III, and IV b. II and III only c. I and II only d. I, III, and IV only

d

When government leaders what to support local businesses, they often put price floors in place. Economists know this market intervention hurts _____ . Select one: a. all producers (only) b. some consumers and all producers c. all consumers (only) d. some producers (only) e. some producers and all consumers

e

When a population is divided into _____ groups of equal size, each group is called _____ when data on the distribution of income in a country are presented. Select one: a. five; a quintile b. six; a sixtion c. four; a quartersize d. three; an income bracket

a

Squirrels have become a popular snack for people living in Raleigh. People with bb guns like to go into one of the many parks within the city limits and shoot them out of the trees. Solving a tragedy of the commons problem related to squirrels could be done through ________. Select one: a. making it illegal to shoot squirrels (only) b. either issuing tradable permits for shooting a squirrel or making it illegal to shoot squirrels will work, though issuing tradable permits is more efficient. c. either issuing tradable permits for shooting a squirrel or making it illegal to shoot squirrels will work, though making it illegal is more efficient. d. tradable permits for shooting a squirrel (only)

b

Suppose there is a tax of $50 on bicycles. The supply curve for bicycles slopes upward. The demand curve for bicycles slopes downward. Sellers are required by law to pay the tax. If the tax is reduced from $50 to $10 per bicycle, then the: Select one: a. demand curve will shift upward by $40. b. supply curve will shift downward by $40. c. supply curve will shift upward by $40. d. demand curve will shift downward by $40.

b

The real economic cost of producing a good is: Select one: a. the dollar cost of inputs used to make the item. b. the opportunity cost of producing the good. c. the resources that were used to make the good. d. the dollar amount it costs to sell the good.

b

Which of the following is an example of a negative externality? Select one: a. Rita gains weight while she is on vacation because she eats more than normal. b. When Fazio parks his big truck at the grocery store, people in the cars on each side of his parking space have a hard time opening their car doors. c. Raul loses weight because he wants to feel better, but the weight loss means that he needs new clothes. d. Bae's company has a decrease in profits when the demand for its product falls.

b

Demand for soda outside an airport is more elastic than inside of the airport because: Select one: a. people get thirsty on airplanes but not in airports. b. more choices makes demand more elastic. c. fewer choices means more inelastic demand. d. necessities have less elastic demand.

b or c

As a result of technological innovation, automated water pumps are being installed on the farms of Kenyan tomato farmers. As a result of the increased use of automated water pumps, the equilibrium price of tomatoes will: Select one: a. fall, due to a fall in demand. b. rise, due to a rise in demand. c. fall, due to a rise in supply. d. rise, due to a fall in supply.

c

Assumer the company that makes staplers uses plastic and springs in the production process. They have the ability to make staplers and hole puncher in their factory. Which of the following is NOT a factor that can change the supply of staplers? Select one: a. The cost of plastic and springs used in the production process of staplers. b. A new way of putting the stapler together that is 25% faster. c. The change in the price of hole punchers. d. The price of the stapler at Office Depot Stores.

c

At the store, Hershey's Kit Kat candy bars are now cheaper than usual. Which of the following explains why Kit Kats are cheaper? Select one: a. There is an increase in the demand for Kit Kats. b. There is a shortage of Kit Kats. c. There is a surplus of Kit Kats. d. There is an excess demand for Kit Kats.

c

Charles McCoy is a manager at a coffee shop, and he has to decide how many workers to hire. There are enough customers to sell every drink the shop can produce for $4 per drink. One worker can make 20 drinks on average in one hour. A second worker can make another 16 drinks in one hour. A third worker can make another 12 drinks in one hour. The fourth worker can make another 8 drinks per hour. A fifth worker can make another 4 drinks per hour. A sixth and seventh worker can each make an additional 1 drink per hour. Given that workers are paid $15 per hour, how many employees should Charles hire? Select one: a. One worker b. Four workers c. Five workers d. Six workers

c

Consider the decision to read your textbook on economics regularly. Which of the four core principles of economics applies to the notion that each extra page you read and each extra problem you complete will help you increase your understanding of the material? Select one: a. Opportunity cost principle b. Interdependence principle c. Marginal principle d. Cost-benefit principle

c

The Doodlebug News is a popular cable television news show. To watch the show requires a paid subscription. Therefore, which of the following is TRUE? Select one: a. This show is a public good because payers and nonpayers alike are watching a rival show. b. This show is a common good because (1) nonpayers can be excluded and (2) everyone can watch at once. c. This show is club good because (1) it is excludable and (2) the number of people watching does not diminish another person's ability to watch. d. This show is a public good because (1) no one can be excluded and (2) it is nonrivial

c

Toilet paper is a rival good because: Select one: a. there is a lot of competition in the toilet paper market. b. none of the options are correct. c. one person's use of toilet paper reduces the ability of another person to use the same sheets. d. it is a substitute good for a bidet. e. all choices are equally true. f. it is made from natural resources.

c

Which of the following is FALSEregarding public goods? Select one: a. Just because government provides a good doesn't mean it is a public good. b. The government will likely have to pay for the the good to be produced. c. A public good doesn't have to be nonrival. d. People can use a public good without paying for it.

c

Which would be the LEAST likely result of a price ceiling imposed in the market for gasoline? Select one: a. Some buyers will get less gasoline than they want. b. Buyers bribe station attendants to fill up their tanks. c. Competition in the market will be eliminated. d. Buyers line up to buy gasoline.

c

Why would the government allow companies to buy and sell permits that allow companies to emit specified amounts of pollutants? Select one: a. It means the government doesn't really have to think about the quantity of pollutants to allow. b. It eliminates the costs of any externalities. c. It ensures that emissions reductions are primarily undertaken by firms that can reduce emissions at a lower cost than others can. d. It reduces the externality even more than setting limits without the possibility of trading emissions permits.

c

_____ is a stock of accumulated assets that is more unequal across households than income, which is a flow. Select one: a. Consumption b. Permanent income c. Wealth d. Age

c

Ang can mow the lawn in two hours. Bill takes three hours to mow the same lawn. What can you conclude from this information? Select one: a. Bill has an absolute advantage over Ang in mowing the lawn. b. Ang has a comparative advantage over Bill in mowing the lawn. c. Bill has a comparative advantage over Ang in mowing the lawn. d. Ang has an absolute advantage over Bill in mowing the lawn.

d

Barlow and Rusia own a nail salon. A manicure takes Barlow 60 minutes to complete and takes Rusia 45 minutes to complete. Completing a pedicure takes Barlow 45 minutes and takes Rusia 30 minutes. Who has a comparative advantage in manicures? Select one: a. Rusia because she has a lower opportunity cost. b. Rusia because she is faster. c. Barlow because he is faster. d. Barlow because he has a lower opportunity cost.

d

If a tax is imposed on a market with elastic demand and inelastic supply: Select one: a. the burden of the tax will be shared equally between buyers and sellers. b. buyers will bear most of the burden of the tax. c. neither the buyer nor the seller will bear the burden of the tax. d. sellers will bear most of the burden of the tax.

d

If demand is _____, an increase in the market price brings_____ total revenue for the firm. Select one: a. inelastic; no change in b. elastic; higher c. inelastic; lower d. elastic; lower

d

Ivan has inherited his grandmother's 1963 Chevrolet Corvette, which he values at $60,000. Samantha is interested in buying such a car and is willing to pay up to $55,000. Ivan hears Samantha is looking for this particular car and offers to sell it to her for $70,000. A voluntary economic exchange _____ between Ivan and Samantha because _____ . Select one: a. occurs; only Samantha would benefit from the trade b. does not occur; neither Ivan nor Samantha would benefit from the trade c. occurs; both Ivan and Samantha benefit from the trade d. does not occur; only Ivan would benefit from the trade

d

The demand curve for one particular brand of cough syrup will _____ the demand curve for cough syrup as a general category because _______. Select one: a. have the same elasticity as, all cough syrup is the same b. have perfectly elastic demand when compared to, cough syrup is a necessity c. be more inelastic than, the brand of cough syrup has more substitutes d. be more elastic than; the brand of cough syrup has more substitutes

d

The government is trying to decide how to clean up pollution in the area. Which statement explains the difference between command and control policies with regulations that are the same for everyone and a quota system with tradable allowances? Select one: a. Tradable allowances sometimes result in higher overall levels of pollutants because firms can simply purchase the rights to pollute more, whereas the quantity of pollution is fixed under command and control. b. Tradable allowances allow for less flexibility than command and control policies.. c. Command and control policies are a government solution to externalities, whereas tradable allowances are a type of private market solution. d. Command and control policies require all firms to reduce pollutants by a specific quantity, whereas tradable allowances allow some firms to pollute more than others by trading for pollution rights.

d

The price of cakes rises by 15%. In response, the quantity supplied of cakes rises by 30%. Select one: a. The income elasticity for cake is 0.5. b. The income elasticity for cake is 2. c. The price elasticity of supply for cakes is 0.5. d. The price elasticity of supply for cakes is 2.

d

The price of cheddar cheese increases from $2.50 per pound and is now $3.50 per pound. In response to this price change, the quantity demanded for cheddar cheese falls by 50%. What is the price elasticity of demand for cheddar cheese? Select one: a. -.67 b. -155% c. -0.8 d. -1.50

d

The socially optimal outcome occurs where the _____ benefit equals the _____ cost. Select one: a. total social; total social b. total external; total external c. marginal external; marginal external d. marginal social; marginal social

d

What conditions must be met for private bargaining to be effective in resolving an externality? Select one: a. Property rights must be clear, and production must begin at a socially optimal level. b. There must be trade in public goods. c. Taxes must be low, and regulations must be minimal. d. Transaction costs must be low, and property rights must be clear.

d

When you get hired for a well-paying job, you will most likely view older used cars as Select one: a. substitute goods. b. normal goods. c. complementary goods. d. inferior goods.

d

Which of the following illustrates a positive externality? Select one: a. Martin's company experiences an increase in profits due to his cost-cutting initiatives. b. Artem loses sleep when an airport is built near his home, and planes fly overhead. c. Ella can buy a shirt at half price because someone else returned it. d. The value of Maria's house rises when the city builds a park nearby, enhancing her view.

d

You are considering planting a garden of beautiful flowers in your front yard. It would cost you $45 in time and materials to plant it. You would get $40 worth of benefits from the garden and your neighbor, who walks by your front yard every day, would get $10 worth of benefits from it. Which statement is TRUE? Select one: a. Your private benefits exceed your private costs, so you would plant the garden. b. The external benefits are not significant enough to affect the efficiency of this equilibrium. c. The efficient equilibrium is to not plant the garden, but you would do so anyway since the social benefits exceed your private costs. d. The efficient equilibrium is to plant the garden, but you would not do so since your private costs exceed your private benefits.

d