ECNS101 Final

Which of the following is most likely to produce scientific evidence about a theory?

A tenured economist employed at a leading university analyzing the impact of bank regulations on rural lending.

If a producer has market power (can influence the price of the product in the market) then free market solutions

Are inefficient.

In making which of the following statements is an economist acting more like a scientist?

A reduction in unemployment benefits will reduce the unemployment rate.

Which of the following will not shift a country's production possibilities frontier outward?

A reduction in unemployment.

Economic growth is depicted by

A shift in the production possibilities frontier outward.

A negative externality generates

A social cost curve that is above the supply curve (private cost curve) for a good.

A positive externality generates

A social value curve that is above the demand curve (private value curve) for a good.

The most efficient pollution control system would ensure that

The polluters with the lowest cost of reducing pollution reduce their pollution the greatest amount.

A private good is

Both rival in consumption and excludable.

If a market generates a side effect or externality, then free market solutions

Are inefficient.

If a market is efficient, then

- The market allocates output to the buyers who value it the most. - The market allocates buyers to the sellers who can produce the good at least cost. - The quantity produced in the market maximizes the sum of consumer and producer surplus. (ALL ANSWERS ARE CORRECT)

If a buyer's willingness to pay for a new Honda is $30,000 and she is able to actually buy it for $28,000, her consumer surplus is

$2,000.

Suppose you find $20. If you choose to use the $20 to go to the football game, your opportunity cost of going to the game is

$20 (because you could have used the $20 to buy other things) plus the value of your time spent at the game.

Suppose that the price of a new bicycle is $300. Sue values a new bicycle at $400. It costs $200 for the seller to produce the new bicycle. What is the value of total surplus if Sue buys a new bike?

$200.

At Nick's Bakery, the cost to make a cheese danish is $1.50 per danish. As a result of selling 10 danishes, Nick experiences a producer surplus in the amount of $20. Nick must be selling his danishes for

$3.50 each.

Suppose that requiring motorcycle riders to wear helmets reduces the probability of a motorcycle fatality from 0.3 percent to 0.2 percent over the lifetime of a motorcycle rider and that the cost of a lifetime supply of helmets is $500. It is efficient for the government to require riders to wear helmets if human life is valued at

$500,000 or more.

Which of the following are potential solutions to the problem of air pollution?

- Auction off pollution permits - Grant rights of the clean air to citizens so that firms must purchase the right to pollute - Regulate the amount of pollutants that firms can put in the air (ALL ANSWERS ARE CORRECT)

The Occupational Safety and Health Administration (OSHA) has determined that the probability of a worker dying from exposure to a hazardous chemical used in the production of fertilizer is 0.008. The cost of imposing a regulation that would ban the chemical is $32 million. If the value of a human life is equal to $10 million, how many people must the policy affect in order for the benefits to exceed the costs?

401.

Kristi and Rebecca sell lemonade on the corner for $0.50 per cup. It costs them $0.10 to make each cup. On a certain day, their producer surplus is $20. How many cups did Kristi and Rebecca sell?

50.

A congested toll road is

A private good.

A negative externality affects market efficiency in a manner similar to

A common resource.

A person who regularly watches public television but fails to contribute to public television's fund-raising drives is known as

A free rider.

Which of the following is an example of a common resource?

A national park.

When an individual buys a car in a congested urban area, it generates

A negative externality.

Producer surplus is the area

Above the supply curve and below the price.

In general, if a benevolent social planner wanted to maximize the total benefits received by buyers and sellers in a market, the planner should

Allow the market to seek equilibrium on its own.

The gas-guzzler tax that is placed on new vehicles that get very poor mileage is an example of

An attempt to internalize a negative externality.

When wealthy alumni provide charitable contributions to their alma mater to reduce the tuition payments of current students, it is an example of

An attempt to internalize a positive externality.

Becca is a single mother of two young children who spend their days at a daycare center while Becca goes to work. The daycare center closes at 5:30. If parents do not pick up their children at or before 5:30, the daycare center charges a late fee of $5 per child for every 10 minutes the parent is late. Due to traffic, Becca expects to be 20 minutes late to pick up her children. Which of the following most accurately describes the set of prices that she would be willing to pay for a variable toll road that would get her to the daycare center on time?

Any price less than $20.

Flu shots provide a positive externality. Suppose that the market for vaccinations is perfectly competitive. Without government intervention in the vaccination market, which of the following statements is correct?

At the current output level, the marginal social benefit exceeds the marginal private benefit.

Consumer surplus is the area

Below the demand curve and above the price.

Total surplus is the area

Below the demand curve and above the supply curve.

Economic models are

Built with assumptions.

Buyer - Willingness to pay Calvin - 150 Sam - 135 Andrew - 120 Lori - 100 If the price of the product is $110, then who would be willing to purchase the product?

Calvin, Sam, and Andrew

The Tragedy of the Commons is a parable that illustrates why

Common resources are overconsumed.

Which of the following is true regarding tradable pollution permits and corrective taxes?

Corrective taxes and tradable pollution permits create an efficient market for pollution.

Justin builds fences for a living. Justin's out-of-pocket expenses (for wood, paint, etc.) plus the value that he places on his own time amount to his

Cost of building fences.

If the government decides to build a new highway, the first step would be to conduct a study to determine the value of the project. The study is called a

Cost-benefit analysis.

According to the principle of comparative advantage,

Countries should specialize in the production of goods for which they have a lower opportunity cost of production than their trading partners

Dallas buys strawberries, and he would be willing to pay more than he now pays. Suppose that Dallas has a change in his tastes such that he values strawberries more than before. If the market price is the same as before, then

Dallas's consumer surplus would increase.

An increase in the price of a good along a stationary demand curve

Decreases consumer surplus.

Suppose two economists are arguing about policies that deal with unemployment. One economist says, "The government could lower unemployment by one percentage point if it would just increase government spending by 50 billion dollars." The other economist responds, "That's ridiculous. If the government spent an additional 50 billion dollars, it would reduce unemployment by only one-tenth of 1 percent, and that effect would only be temporary!" These economists

Disagree because they have different scientific judgments.

Suppose two economists are arguing about policies that deal with unemployment. One economist says, "The government should fight unemployment because it is the greatest social evil." The other economist responds, "That's ridiculous. Inflation is the greatest social evil." These economists

Disagree because they have different values.

Joe has ten baseball gloves and Sue has none. A baseball glove costs $50 to produce. If Joe values an additional baseball glove at $100 and Sue values a baseball glove at $40, then to maximize

Efficiency, Joe should receive the glove.

Points on the production possibilities frontier are

Efficient.

A negative externality (that has not been internalized) causes the

Equilibrium quantity to exceed the optimal quantity.

If a person can be prevented from using a good, the good is said to be

Excludable.

Suppose the world consists of two countries—the United States and Mexico. Furthermore, suppose there are only two goods—food and clothing. Which of the following statements is true?

If the United States has a comparative advantage in the production of food, then Mexico must have a comparative advantage in the production of clothing.

Raising taxes and increasing welfare payments

Improves equality at the expense of efficiency.

An increase in the price of a good along a stationary supply curve

Increases producer surplus.

If a nation has a comparative advantage in the production of a good,

It can produce that good at a lower opportunity cost than its trading partner

If a nation has an absolute advantage in the production of a good,

It can produce that good by using fewer resources than its trading partner

Bob and Tom live in a university dorm. Bob values playing loud music at a value of $100. Tom values peace and quiet at a value of $150. Which of the following statements is true?

It is efficient for Bob to stop playing loud music regardless of who has the property right to the level of sound.

Suppose each of 20 neighbors on a street values street repairs at $3,000. The cost of the street repair is $40,000. Which of the following statements is true?

It is efficient for the government to tax the residents $2000 each and repair the road.

On hot summer days, electricity-generating capacity is sometimes stretched to the limit. At these times, electric companies may ask people to voluntarily cut back on their use of electricity. An economist would suggest that

It would be more efficient if the electric company raised its rates for electricity at peak times.

Adam Smith's "invisible hand" concept suggests that a competitive market outcome

Maximizes total surplus.

Which of the following is NOT a factor of production?

Money.

Which of the following is an example of a public good?

National defense.

If a road is congested, then use of that road by an additional person would lead to a

Negative externality.

A public good is

Neither rival in consumption nor excludable.

A club good is

Not rival in consumption but excludable.

An externality is the uncompensated impact of

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

A positive externality (that has not been internalized) causes the

Optimal quantity to exceed the equilibrium quantity.

A positive externality affects market efficiency in a manner similar to a

Public good.

A free rider is a person who

Receives the benefit of a good but avoids paying for it.

The goal of requiring licenses for hunting and fishing is to

Reduce the use of a common resource.

When governments employ cost-benefit analysis to help them decide whether to provide a public good, measuring benefits is difficult because

Respondents to questionnaires have little incentive to tell the truth.

A common resource is

Rival in consumption but not excludable.

If one person's consumption of a good diminishes other people's use of the good, the good is said to be

Rival in consumption.

Trade-offs are required because wants are unlimited and resources are

Scarce.

The scientific method requires that

Scientists be objective.

Tradable pollution permits

Set the quantity of pollution.

A corrective tax on pollution

Sets the price of pollution.

Economics is the study of how

Society manages its scarce resources.

Which of the following is true when the price of a good or service rises?

Some buyers exit the market.

Positive statements are

Statements of description that can be tested.

Because people respond to incentives, we would expect that if the average salary of accountants increases by 50 percent while the average salary of teachers increases by 20 percent,

Students will shift majors from education to accounting.

To internalize a positive externality, an appropriate public policy response would be to

Subsidize the good.

To internalize a negative externality, an appropriate public policy response would be to

Tax the good.

A buyer's willingness to pay is

That buyer's maximum amount he is willing to pay for a good.

When markets fail to allocate resources efficiently, the ultimate source of the problem is usually

That property rights have not been well established.

A rational person does not act unless

The action produces marginal benefits that exceed marginal costs.

Medical care clearly enhances people's lives. Therefore, we should consume medical care until

The benefit buyers place on medical care is equal to the cost of producing it.

If a benevolent social planner chooses to produce more than the equilibrium quantity of a good, then

The cost of production on the last unit produced exceeds the value placed on it by buyers.

Suppose a country's workers can produce 4 watches per hour or 12 rings per hour. If there is no trade,

The domestic price of 1 ring is 1/3 of a watch

Which of the following statements regarding the circular-flow diagram is true?

The factors of production are owned by households.

Public goods are difficult for a private market to provide due to

The free-rider problem

Which of the following is a disadvantage of government provision of a public good?

The government lacks information about the value people place on the good.

Which of the following issues is related to microeconomics?

The impact of oil prices on auto production.

The seller's cost of production is

The maximum amount the seller is willing to accept for a good.

Which of the following is not part of the opportunity cost of going on vacation?

The money you spent on food.

Suppose a country's workers can produce 4 watches per hour or 12 rings per hour. If there is no trade,

The opportunity cost of 1 watch is 3 rings

The privately-owned school system in Smalltown has a virtually unlimited capacity. It accepts all applicants and operates on both tuition and private donations. Although every resident places value on having an educated community, the school's revenues have suffered lately due to a large decline in private donations from the elderly population. Since the benefit that each citizen receives from having an educated community is a public good, which of the following would not be correct?

The private market is the best way to supply education.

Which of the following statements is normative?

The unemployment rate should be lower.

If a benevolent social planner chooses to produce less than the equilibrium quantity of a good, then

The value placed on the last unit of production by buyers exceeds the cost of production.

According to the Coase theorem, private parties can solve the problem of externalities if

There are no transaction costs.

Bob and Tom live in a university dorm. Bob values playing loud music at a value of $100. Tom values peace and quiet at a value of $150. Which of the following statements is true about an efficient solution to this externality problem if Bob has the right to play loud music and if there are no transaction costs?

Tom will pay Bob between $100 and $150 and Bob will stop playing loud music.

Which of the following statements about trade is true?

Trade can benefit everyone in a society because it allows people to specialize in activities in which they have a comparative advantage.

Suppose there are three identical vases available to be purchased. Buyer 1 is willing to pay $30 for one, buyer 2 is willing to pay $25 for one, and buyer 3 is willing to pay $20 for one. If the price is $25, how many vases will be sold and what is the value of consumer surplus in this market?

Two vases will be sold, and consumer surplus is $5.

If the price a consumer pays for a product is equal to a consumer's willingness to pay, then the consumer surplus relevant to that purchase is

Zero.