ECN 212 Exam 2

Donald produces nails at a cost of $350 per ton. If he sells the nails for $500 per ton, his producer surplus is a. $150. b. $350. c. $500. d. $850.

a. $150

If a 20% increase in price for a good results in a 15% decrease in quantity demanded, the price elasticity ofdemand is a. 0.75. b. 1.25. c. 1.33. d. 1.60.

a. 0.75

Fire protection is a a. club good, because it is excludable but not rival in consumption. b. club good, because it is rival in consumption but not excludable. c. a public good, because it is excludable but not rival in consumption. d. a public good, because it is rival in consumption but not excludable.

a. club good, because it is excludable but not rival in consumption

The Tragedy of the Commons occurs because a. common resources are rival in consumption. b. government does not efficiently allocate society's scarce resources. c. people consider the value of resources in the future more than in the present. d. markets do not account for the presence of property rights.

a. common resources are rival in consumption

​Josiah installed a metal sculpture in his front yard. A positive externality arises if the sculpture a. ​increases the value of other properties in the neighborhood. b. ​increases the value of Josiah's home. c. ​is visually unappealing to Josiah's neighbors. d. ​creates a safety hazard for neighborhood children.

a. increases the value of other properties in the neighborhood

The Surgeon General announces that eating apples promotes healthy teeth. As a result, the equilibrium price of apples a. increases, and producer surplus increases. b. increases, and producer surplus decreases. c. decreases, and producer surplus increases. d. decreases, and producer surplus decreases.

a. increases, and producer surplus increases

When a good is rival in consumption, a. one person's use of the good diminishes another person's ability to use it. b. people can be prevented from using the good. c. an unlimited number of people can use the good at the same time. d. everyone will be excluded from obtaining the good.

a. one person's use of the good diminishes another person's ability to use it.

Consumer surplus is a. the amount a buyer is willing to pay for a good minus the amount the buyer actually pays for it. b. the amount a buyer is willing to pay for a good minus the cost of producing the good. c. the amount by which the quantity supplied of a good exceeds the quantity demanded of the good. d. a buyer's willingness to pay for a good plus the price of the good.

a. the amount a buyer is willing to pay for a good minus the amount the buyer actually pays for it.

Suppose that elementary education creates a positive externality. If the government subsidizes education by anamount equal to the per-unit externality it creates, then a. the equilibrium quantity of education will equal the socially optimal quantity of education. b. the equilibrium quantity of education will be greater than the socially optimal quantity of education. c. the equilibrium quantity of education will be less than the socially optimal quantity of education. d. There is not enough information to answer the question.

a. the equilibrium quantity of education will equal the socially optimal quantity of education

Refer to Figure 7-21. When the price is P1, area B+C represents a. total surplus. b. producer surplus. c. consumer surplus. d. None of the above is correct.

a. total surplus

A price floor will be binding only if it is set a. equal to the equilibrium price. b. above the equilibrium price. c. below the equilibrium price. d. either above or below the equilibrium price.

b. above the equilibrium price

Suppose that the equilibrium price in the market for tomatoes is $3 per pound. If a law reduced the maximumlegal price for tomatoes to $2 per pound, a. any possible increase in consumer surplus would be larger than the loss of producer surplus. b. any possible increase in consumer surplus would be smaller than the loss of producer surplus. c. the resulting increase in producer surplus would be larger than any possible loss of consumer surplus. d. the resulting increase in producer surplus would be smaller than any possible loss of consumer surplus.

b. any possible increase in consumer surplus would be smaller than the loss of producer surplus

Policymakers use taxes a. to raise revenue for public purposes but not to influence market outcomes. b. both to raise revenue for public purposes and to influence market outcomes. c. when they realize that price controls alone are insufficient to correct market inequities. d. only in those markets in which the burden of the tax falls clearly on the sellers.

b. both to raise revenue for public purposes and to influence market outcomes

Suppose you are in charge of setting prices at a local ice cream shop. The business needs to increase its totalrevenue, and your job is on the line. You evaluate the data and determine that the price elasticity of demand forice cream at your shop is 1.8. You should a. increase the price of ice cream. b. decrease the price of ice cream. c. decrease the cost of operating the ice cream shop. d. increase the price of bottled water also sold at the ice cream shop because its price elasticity of demand is1.2.

b. decrease the price of ice cream

A tax on the sellers of coffee mugs a. increases the size of the coffee mug market. b. decreases the size of the coffee mug market. c. has no effect on the size of the coffee mug market. d. may increase, decrease, or have no effect on the size of the coffee mug market.

b. decreases the size of the coffee mug market

The government provides public goods because a. private markets are incapable of producing these types of goods. b. free-riders make it difficult for private markets to supply the socially optimal quantity. c. markets are always better off with some government oversight. d. external benefits will accrue to private producers.

b. free-riders make it difficult for private markets to supply the socially optimal quantity

Refer to Figure 6-1. A binding price ceiling is shown in a. panel (a) only. b. panel (b) only. c. both panel (a) and panel (b). d. neither panel (a) nor panel (b).

b. panel (b) only

The smaller the price elasticity of demand, the a. more likely the product is a luxury. b. smaller the responsiveness of quantity demanded to a change in price. c. more substitutes the product has. d. greater the responsiveness of quantity demanded to a change in price

b. smaller the responsiveness of quantity demanded to a change in price

An externality is a. the costs that parties incur in the process of agreeing and following through on a bargain. b. the uncompensated impact of one person's actions on the well-being of a bystander. c. the proposition that private parties can bargain without cost over the allocation of resources. d. a market equilibrium tax.

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

The Coase theorem suggests that private solutions to an externality problem a. are effective under all conditions. b. will usually allocate resources efficiently if private parties can bargain without cost. c. are only efficient when there are negative externalities. d. may not be possible because of the distribution of property rights.

b. will usually allocate resources efficiently if private parties can bargain without cost

Refer to Table 7-3. If the price is $20, then consumer surplus in the market is a. $20, and Wilbur and Ming-la purchase the good. b. $45, and Carlos and Quilana purchase the good. c. $45, and Quilana, Wilbur, and Ming-la purchase the good. d. $55, and Carlos, Wilbur, and Ming-la purchase the good.

c. $45, and Quilana, Wilbur, and Ming-la purchase the good

Because it is a. excludable but not rival in consumption, a sweatshirt is a club good. b. rival in consumption but not excludable, a sweatshirt is a club good. c. both excludable and rival in consumption, a sweatshirt is a private good. d. neither excludable nor rival in consumption, a sweatshirt is a public good

c. both excludable and rival in consumption, a sweatshirt is a private good

Governments can improve market outcomes for a. public goods but not common resources. b. common resources but not public goods. c. both public goods and common resources. d. neither public goods nor common resources.

c. both public goods and common resources

A consumer's willingness to pay directly measures a. the extent to which advertising and other external forces have influenced the consumer's preferences. b. the cost of a good to the buyer. c. how much a buyer values a good. d. consumer surplus.

c. how much a buyer values a good

If the government levies a $5 tax per MP3 player on buyers of MP3 players, then the price paid by buyers of MP3 players would likely a. increase by more than $5. b. increase by exactly $5. c. increase by less than $5. d. decrease.

c. increase by less than $5

Economists compute the price elasticity of demand as the a. percentage change in price divided by the percentage change in quantity demanded. b. change in quantity demanded divided by the change in the price. c. percentage change in quantity demanded divided by the percentage change in price. d. percentage change in quantity demanded divided by the percentage change in income.

c. percentage change in quantity demanded divided by the percentage change in price

The presence of price control in a market for a good or service usually is an indication that a. an insufficient quantity of the good or service was being produced in that market to meet the public's need. b. the usual forces of supply and demand were not able to establish an equilibrium price in that market. c. policymakers believed that the price that prevailed in that market in the absence of price controls was unfair to buyers or sellers. d. policymakers correctly believed that price controls would generate no inequities of their own once imposed.

c. policymakers believed that the price that prevailed in the market in the absence of price controls was unfair to buyers or sellers

Markets do not ensure that the air we breathe is clean because a. clean air has no value. b. the government prevents markets from doing so. c. property rights are not well established for clean air. d. clean air is impossible to produce .

c. property rights are not well established for clean air

A tax on sellers will shift the a. demand curve upward by the amount of the tax. b. demand curve downward by the amount of the tax. c. supply curve upward by the amount of the tax. d. supply curve downward by the amount of the tax.

c. supply curve upward by the amount of the tax

When a supply curve is relatively flat, the a. sellers are not at all responsive to a change in price. b. equilibrium price changes substantially when the demand for the good changes. c. supply is relatively elastic. d. supply is relatively inelastic.

c. supply is relatively elastic

Producer surplus is a. measured using the demand curve for a good. b. always a negative number for sellers in a competitive market. c. the amount a seller is paid minus the cost of production. d. the opportunity cost of production minus the cost of producing goods that go unsold.

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

When a negative externality exists in a market, the cost to producers a. is greater than the cost to society. b. will be the same as the cost to society. c. will be less than the cost to society. d. will differ from the cost to society, regardless of whether an externality is present.

c. will be less than the cost to society

Refer to Figure 6-9. A price floor set at a. $4 will be binding and will result in a shortage of 8 units. b. $4 will be binding and will result in a shortage of 16 units. c. $7 will be binding and will result in a surplus of 4 units. d. $7 will be binding and will result in a surplus of 8 units.

d. $7 will be binding and will result in a surplus of 8 units

Which of the following is likely to have the most price elastic demand? a. ice cream b. frozen yogurt c. vanilla ice cream d. Häagen-Dazs® vanilla bean ice cream

d. Häagen-Dazs® vanilla bean ice cream

Demand is said to be price elastic if, a. the price of the good responds substantially to changes in demand. b. demand shifts substantially when income or the expected future price of the good changes. c. buyers do not respond much to changes in the price of the good. d. buyers respond substantially to changes in the price of the good.

d. buyers respond substantially to changes in the price of the good

The tax on gasoline a. reduces efficiency by causing large deadweight losses. b. reduces efficiency by decreasing consumer surplus and producer surplus. c. enhances efficiency by serving as a corrective device in a market with positive externalities. d. enhances efficiency by serving as a corrective device in a market with negative externalities

d. enhances efficiency by serving as a corrective device in a market with negative externalities

If an externality is present in a market, economic efficiency may be enhanced by a. increased competition. b. weakening property rights. c. better informed market participants. d. government intervention.

d. government intervention

In general, elasticity is a measure of a. the extent to which advances in technology are adopted by producers. b. the extent to which a market is competitive. c. how firms' profits respond to changes in market prices. d. how much buyers and sellers respond to changes in market conditions.

d. how much buyers and sellers respond to changes in market conditions

When an externality is present, the market equilibrium is a. efficient, and the equilibrium maximizes the total benefit to society as a whole. b. efficient, but the equilibrium does not maximize the total benefit to society as a whole. c. inefficient, but the equilibrium maximizes the total benefit to society as a whole. d. inefficient, and the equilibrium does not maximize the total benefit to society as a whole.

d. inefficient, and the equilibrium does not maximize the total benefit to society as a whole.

A good is excludable if a. one person's use of the good diminishes another person's enjoyment of it. b. the government can regulate its availability. c. it is not a normal good. d. people can be prevented from using it.

d. people can be prevented from using it