ECO SPRING MIDTERM

Tom tunes pianos in his spare time for extra income. Buyers of his service are willing to pay $155 per tuning. One particular week, Tom is willing to tune the first piano for $120, the second piano for $125, the third piano for $140, and the fourth piano for $160. Assume Tom is rational in deciding how many pianos to tune. His producer surplus is a. $80. b. $75. c. $95. d. $60.

A 80

Refer to Figure 8-1. Suppose the government imposes a tax of P' - P'''. The area measured by K+L represents a. total surplus before the tax. b. consumer surplus before the tax. c. producer surplus after the tax. d. tax revenue.

D Tax Revenue

To be binding, a price floor must be set above the equilibrium price. a. True b. False

True

Consumer surplus measures the benefit to buyers of participating in a market. a. True b. False

a. True

Refer to Figure 6-4. A government-imposed price of $6 in this market could be an example of a (i) binding price ceiling. (ii) non-binding price ceiling. (iii) binding price floor. (iv) non-binding price floor. a. (i) only b. (i) and (iv) only c. (ii) only d. (ii) and (iii) only

b. (i) and (iv) only

Refer to Figure 6-16. In this market, a minimum wage of $2.75 creates a labor a. surplus of 2,250 workers. b. shortage of 4,500 workers. c. neither a labor shortage nor surplus. d. shortage of 2,250 workers.

c. neither a labor shortage nor surplus.

Refer to Figure 8-6. When the tax is imposed in this market, the price buyers effectively pay is a. $6. b. $4. c. $10. d. $16.

d. $16.

Refer to Figure 8-7. The deadweight loss associated with this tax amounts to a. $80, and this figure represents the surplus that is lost because the tax discourages mutually advantageous trades between buyers and sellers. b. $80, and this figure represents the amount by which tax revenue to the government exceeds the combined loss of producer and consumer surpluses. c. $60, and this figure represents the surplus that is lost because the tax discourages mutually advantageous trades between buyers and sellers. d. $60, and this figure represents the amount by which tax revenue to the government exceeds the combined loss of producer and consumer surpluses.

A $80, and this figure represents the surplus that is lost because the tax discourages mutually advantageous trades between buyers and sellers

The Coase theorem states that a. in the absence of transaction costs, private parties can solve the problem of externalities on their own. b. industrial policies encourage technology spillovers. c. subsidies are an efficient way for governments to remedy positive externalities. d. taxes are an efficient way for governments to remedy negative externalities.

A in the absence of transaction costs, private parties can solve the problem

When a tax on a good is enacted, a. sellers bear the full burden of the tax if the tax is levied on them; buyers bear the full burden of the tax if the tax is levied on them. b. buyers and sellers share the burden of the tax regardless of whether the tax is levied on buyers or on sellers. c. sellers always bear the full burden of the tax. d. buyers always bear the full burden of the tax.

B buyers and sellers share the burden of the tax regardless of whether the tax is levied on buyers or on sellers.

Suppose Russia exports sunflower seeds to Ireland and imports coffee from Brazil. This situation suggests a. Russia has an absolute advantage over Brazil in producing coffee, and Ireland has an absolute advantage over Russia in producing sunflower seeds. b. Russia has an absolute advantage over Ireland in producing sunflower seeds, and Brazil has an absolute advantage over Russia in producing coffee. c. Russia has a comparative advantage over Brazil in producing coffee, and Ireland has a comparative advantage over Russia in producing sunflower seeds. d. Russia has a comparative advantage over Ireland in producing sunflower seeds, and Brazil has a comparative advantage over Russia in producing coffee.

D Russia has a comparative advantage over Ireland in producing sunflower seeds, and Brazil has a comparative advantage over Russia in producing coffee.

Refer to Figure 9-2. With free trade, this country will a. export 100 calculators. b. import 100 calculators. c. export 50 calculators. d. import 50 calculators.

Export 100 A

When cities prevent landlords from charging market rents, which of the following are common long-run outcomes? 1. The future supply of rental housing units increase 2. The quantity of available rental housing units falls 3. The quality of rental housing units falls 4. Nonprice methods of rationing emerge a. 2, 3, 4 b. 1, 2, 4 c. 1, 2, 3 d. All of the above

a. 2, 3, 4

Refer to Figure 9-1. When trade is allowed, a. Guatemalan producers of coffee become better off and Guatemalan consumers of coffee become worse off. b. both Guatemalan producers and consumers of coffee become worse off. c. both Guatemalan producers and consumers of coffee become better off. d. Guatemalan consumers of coffee become better off and Guatemalan producers of coffee become worse off.

a. Guatemalan producers of coffee become better off and Guatemalan consumers of coffee become worse off.

University researchers create a positive externality because what they discover in their research labs can easily be learned by others who haven't contributed to the research costs. If there are no subsidies, what is the relationship between the equilibrium quantity of university research and the optimal quantity of university research produced? a. The equilibrium quantity is less than the socially optimal quantity. b. The equilibrium quantity is greater than the socially optimal quantity. c. They are equal. d. There is not enough information to answer the question.

a. The equilibrium quantity is less than the socially optimal quantity.

Suppose a tax is imposed on baseball bats. In which of the following cases will the tax cause the equilibrium quantity of baseball bats to shrink by the smallest amount? a. The response of buyers and sellers to a change in the price of baseball bats is weak. b. The response of sellers to a change in the price of baseball bats is strong, and the response of buyers to a change in the price of baseball bats is weak. c. The response of buyers to a change in the price of baseball bats is strong, and the response of sellers to a change in the price of baseball bats is weak. d. The response of buyers and sellers to a change in the price of baseball bats is strong.

a. The response of buyers and sellers to a change in the price of baseball bats is weak.

Refer to Figure 8-23. If the economy is at point B on the curve, then an increase in the tax rate will a. increase the deadweight loss of the tax and decrease tax revenue. b. decrease the deadweight loss of the tax and decrease tax revenue. c. decrease the deadweight loss of the tax and increase tax revenue. d. increase the deadweight loss of the tax and increase tax revenue.

a. increase the deadweight loss of the tax and decrease tax revenue.

When a good is taxed, the burden of the tax falls mainly on consumers if a. supply is elastic, and demand is inelastic b. supply is inelastic, and demand is elastic c. the tax is levied on consumers d. the tax is levied on producers

a. supply is elastic, and demand is inelastic

The term tax incidence refers to a. the distribution of the tax burden between buyers and sellers. b. whether the demand curve or the supply curve shifts when the tax is imposed. c. widespread view that taxes (and death) are the only certainties in life. d. whether buyers or sellers of a good are required to send tax payments to the government.

a. the distribution of the tax burden between buyers and sellers.

When a country allows trade and becomes an exporter of a good, a. the gains of the domestic producers of the good exceed the losses of the domestic consumers of the good. b. the losses of the domestic producers of the good exceed the gains of the domestic consumers of the good. c. the losses of the domestic consumers of the good exceed the gains of the domestic producers of the good. d. the gains of the domestic consumers of the good exceed the losses of the domestic producers of the good.

a. the gains of the domestic producers of the good exceed the losses of the domestic consumers of the good.

Refer to Figure 8-9. The consumer surplus without the tax is a. $5,000. b. $8,000. c. $16,000. d. $2,000.

b. $8,000.

Which of the following is the most likely explanation for the imposition of a price ceiling on the market for milk? a. Buyers and sellers of milk have agreed that the price ceiling is good for both of them and have therefore pressured policymakers into imposing the price ceiling. b. Buyers of milk, recognizing that the price ceiling is good for them, have pressured policymakers into imposing the price ceiling. c. Policymakers have studied the effects of the price ceiling carefully, and they recognize that the price ceiling is advantageous for society as a whole. d. Sellers of milk, recognizing that the price ceiling is good for them, have pressured policymakers into imposing the price ceiling.

b. Buyers of milk, recognizing that the price ceiling is good for them, have pressured policymakers into imposing the price ceiling.

Which of the following is not correct? a. Economists who argue that labor taxes are highly distorting believe that labor supply is fairly elastic. b. Economists who argue that labor supply is fairly inelastic cite elderly workers who adjust the date they retire as an example. c. Economists who argue that labor supply is fairly elastic cite workers who adjust the hours of overtime that they work as an example. d. Economists who argue that labor taxes are not highly distorting believe that labor supply is fairly inelastic.

b. Economists who argue that labor supply is fairly inelastic cite elderly workers who adjust the date they retire as an example.

The burden of the tax falls more heavily on the more elastic side of the market. a. True b. False

b. False

The more inelastic are demand and supply, the greater is the deadweight loss of a tax. a. True b. False

b. False

Refer to Figure 6-7. For a price floor to be binding in this market, it would have to be set at a. any price below $7. b. any price above $7. c. any price below $9. d. any price below $3.

b. any price above $7.

When, in our analysis of the gains and losses from international trade, we assume that a country is small, we are in effect assuming that the country a. cannot have a significant comparative advantage over other countries. b. cannot affect world prices by trading with other countries. c. cannot experience significant gains or losses by trading with other countries. d. All of the above are correct.

b. cannot affect world prices by trading with other countries.

Technology spillover is one type of a. subsidy. b. positive externality. c. negative externality. d. producer surplus.

b. positive externality.

Which of the following would increase quantity supplied, increase quantity demanded and decrease the price that consumers pay? a. the removal of a binding price floor b. the repeal of a tax levied on producers c. the imposition of a binding price floor d. the passage of a tax levied on producers

b. the repeal of a tax levied on producers

In a market with a binding price ceiling, an increase in the ceiling will ______ the quantity supplied, ______ the quantity demanded, and reduce the ______. a. decrease, increase, surplus b. decrease, increase, shortage c. increase, decrease, shortage d. increase, decrease, surplus

c Increase Decrease

Refer to Figure 6-22. Buyers pay how much of the tax per unit? a. $0.50. b. $3.00. c. $1.50. d. $5.00.

c. $1.50.

Refer to Figure 6-28. Suppose a tax of $6 per unit is imposed on this market. What will be the new equilibrium quantity in this market? a. greater than 35 units b. between 20 units and 35 units c. 20 units d. less than 20 units

c. 20 units

Refer to Figure 8-22. Suppose the government changed the per-unit tax from $3.00 to $4.50. Compared to the original tax rate, this higher tax rate would a. decrease tax revenue and increase the deadweight loss from the tax. b. increase tax revenue and decrease the deadweight loss from the tax. c. increase tax revenue and increase the deadweight loss from the tax. d. decrease tax revenue and decrease the deadweight loss from the tax.

c. increase tax revenue and increase the deadweight loss from the tax.

A positive externality will cause a market to produce a. more than the same market would produce in the presence of a negative externality. b. the socially optimal equilibrium amount. c. less than is socially desirable. d. more than is socially desirable.

c. less than is socially desirable.

The benefit to sellers of participating in a market is measured by the a. amount of taxes collected on sales of the good. b. sellers' willingness to sell. c. producer surplus. d. amount sellers receive for their product.

c. producer surplus.

Total surplus in a market will increase when the government a. imposes a binding price floor on that market. b. imposes a tax on that market. c. removes a binding price ceiling from that market. d. None of the above is correct.

c. removes a binding price ceiling from that market.

Assume that the long-run demand for oranges is the same as the short-run demand. Further, assume that the supply curve for oranges is more elastic in the long-run than in the short-run. You would expect a binding price ceiling to result in a ___________ that is _____________ in the long run than in the short run. a. shortage, smaller b. surplus, larger c. shortage, larger d. surplus, smaller

c. shortage, larger

Which of the following trade policies would benefit producers, hurt consumers, and increase the amount of trade? a. the increase of a tariff in an importing country b. the reduction of a tariff in an importing country c. starting to allow trade when the world price is greater than the domestic price d. starting to allow trade when the world price is less than the domestic price

c. starting to allow trade when the world price is greater than the domestic price

Refer to Table 7-7. You have an extra ticket to the Midwest Regional Sweet 16 game in the men's NCAA basketball tournament. The table shows the willingness to pay of the four potential buyers in the market for a ticket to the game. You hold an auction to sell the ticket. Michael bids $410 for the ticket, and you sell him the ticket. What is his consumer surplus? a. $0 b. $10 c. $410 d. $90

d. $90

Refer to Figure 9-4. Which of the following statements is accurate? a. Consumer surplus with trade is $3,200. b. The gains from trade are represented on the graph by the area bounded by the points (0, $12), (300, $12), (300, $7) and (0, $7). c. The gains from trade amount to $800. d. Producer surplus with trade is $375.

d. Producer surplus with trade is $375.

When a market is characterized by an externality, the government a. cannot correct for externalities due to the existence of patents. b. can correct the market failure only in the case of negative externalities. c. can correct the market failure only in the case of positive externalities. d. can correct the market failure in the case of both positive and negative externalities by inducing market participants to internalize the externality.

d. can correct the market failure in the case of both positive and negative externalities by inducing market participants to internalize the externality.

Refer to Figure 9-12. With trade allowed, this country a. exports 1,600 units of the good. b. exports 400 units of the good. c. imports 400 units of the good. d. exports 800 units of the good.

d. exports 800 units of the good.

The nation of Aquilonia has decided to end its policy of not trading with the rest of the world. When it ends its trade restrictions, it discovers that it is importing rice, exporting steel, and neither importing nor exporting TVs. We can conclude that producer surplus in Aquilonia is now a. lower in the rice and steel markets, and the same in the TV market. b. lower in the rice and TV markets, and higher in the steel market. c. higher in the rice and steel markets, and unchanged in the TV market. d. higher in the steel market, lower in the rice market, and unchanged in the TV market.

d. higher in the steel market, lower in the rice market, and unchanged in the TV market.

When a market is in equilibrium, the buyers are those with the ______ willingness to pay and the sellers are those with the ______ costs. a. highest, highest b. lowest, highest c. lowest, lowest d. highest, lowest

d. highest, lowest

Minimum-wage laws dictate the a. average price employers must pay for labor. b. the highest and lowest prices employers may pay for labor. c. highest price employers may pay for labor. d. lowest price employers may pay for labor.

d. lowest price employers may pay for labor.

An externality is the impact of a. society's decisions on the well-being of society. b. a person's actions on that person's well-being. c. society's decisions on the poorest person in the society. d. one person's actions on the well-being of a bystander.

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

Refer to Figure 9-16. The area C + D + E + F represents a. the deadweight loss of the tariff minus government revenue raised by the tariff. b. the decrease in total surplus caused by the tariff. c. the deadweight loss of the tariff plus government revenue raised by the tariff. d. the decrease in consumer surplus caused by the tariff.

d. the decrease in consumer surplus caused by the tariff.

Refer to Table 7-14. You want to hire a professional photographer to take pictures of your family. The table shows the costs of the four potential sellers in the local photography market. You hire Kevin for a price of $500. What is his producer surplus? a. $50 b. $100 c. $500 d. $150

a. $50

Bob purchases a book for $6, and his consumer surplus is $2. How much is Bob willing to pay for the book? a. $8. b. $4. c. $2. d. $6.

a. $8.

If a country reduces a tariff, then producer surplus decreases, consumer surplus increases, dead weight loss decreases, and tax revenue decreases. a. True b. False

a. True