Econ 201 exam 2

c

1. Welfare economics is the study of a. the well-being of less fortunate people. b. welfare programs in the United States. c. how the allocation of resources affects economic well-being. d. the effect of income redistribution on work effort.

d

A legal maximum on the price at which a good can be sold is called a price a. floor. b. subsidy. c. support. d. ceiling.

d

A logical starting point from which the study of international trade begins is a. the recognition that not all markets are competitive. b. the recognition that government intervention in markets sometimes enhances the economic welfare of the society. c. the principle of absolute advantage. d. the principle of comparative advantage.

d

A price floor is a. a legal minimum on the price at which a good can be sold. b. often imposed when sellers of a good are successful in their attempts to convince the government that the market outcome is unfair without a price floor. c. a source of inefficiency in a market. d. All of the above are correct.

b

A price floor is binding when it is set a. above the equilibrium price, causing a shortage. b. above the equilibrium price, causing a surplus. c. below the equilibrium price, causing a shortage. d. below the equilibrium price, causing a surplus.

d

A tariff is a tax placed on a. an exported good and consumers pay lower price of the good than the world price. b. an exported good and it does nothing on the price paid by consumers. c. an imported good and consumers pay lower price of the good than the world price. d. an imported good and consumers pay higher price of the good than the world price.

c

Buyer Willingness To Pay Calvin $150.00 Sam $135.00 Andrew $120.00 Lori $100.00 Refer to Table 7-1. If the price of the product is $110, then who would be willing to purchase the product? a. Calvin b. Calvin and Sam c. Calvin, Sam, and Andrew d. Calvin, Sam, Andrew, and Lori

a

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

Deadweight loss is the a. decline in total surplus that results from a tax. b. decline in government revenue when taxes are reduced in a market. c. decline in consumer surplus when a tax is placed on buyers. d. loss of profits to business firms when a tax is imposed.

b

Economists generally agree that the most important tax in the U.S. economy is the a. income tax. b. tax on labor. c. inheritance or death tax. d. tax on corporate profits.

c

Figure 7-3 5. Refer to Figure 7-3. When the price is P1, consumer surplus is a. A. b. A+B. c. A+B+C. d. A+B+D.

a

For any country, if the world price of copper is higher than the domestic price of copper without trade, that country should a. export copper, since that country has a comparative advantage in copper. b. import copper, since that country has a comparative advantage in copper. c. neither export nor import copper, since that country cannot gain from trade. d. neither export nor import copper, since that country already produces copper at a low cost compared to other countries.

b

For any country, if the world price of copper is lower than the domestic price of copper without trade, that country should a. export copper. b. import copper. c. neither export nor import copper, since that country cannot gain from trade. d. neither export nor import copper, since that country already produces copper at a low cost compared to other countries.

c

If a price ceiling is not binding, then a. the equilibrium price is above the price ceiling. b. the equilibrium price is below the price ceiling. c. it has no effect on changing the equilibrium price. d. None of the above is correct because all price ceilings must be binding.

c

Labor taxes may distort labor markets greatly if a. labor supply is highly inelastic. b. many workers choose to work 40 hours per week regardless of their earnings. c. the number of hours many part-time workers want to work is very sensitive to the wage rate. d. "underground" workers do not respond to changes in the wages of legal jobs because they prefer not to pay taxes.

c

Minimum-wage laws dictate a. the exact wage that firms must pay workers. b. a maximum wage that firms may pay workers. c. a minimum wage that firms may pay workers. d. both a minimum wage and a maximum wage that firms may pay workers.

b

Price controls are usually enacted a. as a means of raising revenue for public purposes. b. when policymakers believe that the market price of a good or service is unfair to buyers or sellers. c. when policymakers tax a good. d. All of the above are correct.

c

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.

b

Refer to Figure 9-1. In the absence of trade, total surplus in Guatemala is represented by the area a. A + B + C. b. A + B + C + D + F. c. A + B + C + D + F + G. d. A + B + C + D + F + G + H.

a

Refer to Figure 9-1. When trade in coffee is allowed, consumer surplus in Guatemala a. is A, decreased by the area B + D. b. is A+B, increased by the area B+D. c. is C, decreased by the area B + D. d. is C+B, decreased by the area D + G.

d

Suppose a particular good has its equilibrium price at $10. If now a tax is imposed on buyers' price for the product, so that each buyer needs to pay an extra $1.5 for each purchase, then upon the new equilibrium with tax, a. only sellers pay the whole tax of $1.5 b. only buyers pay the whole tax of $1.5 c. buyers pay roughly 90% of the tax, and sellers pay the rest 10% of the tax d. both sellers and buyers share the burden of the tax, regardless of whether the tax is imposed on buyer's price or seller's price.

a

The Laffer curve relates a. the tax rate to tax revenue raised by the tax. b. the tax rate to the deadweight loss of the tax. c. the price elasticity of supply to the deadweight loss of the tax. d. government welfare payments to the birth rate.

a

The infant-industry argument a. is based on the belief that protecting industries when they are young will pay off later. b. is based on the belief that protecting industries producing goods and services for infants is necessary if a country is to have healthy children. c. has the support of most economists. d. is an argument that is advanced by advocates of free trade.

b

The maximum price that a buyer will pay for a good is called a. consumer surplus. b. willingness to pay. c. equilibrium. d. efficiency.

c

To fully understand how taxes affect economic well-being, we must compare the a. consumer surplus to the producer surplus. b. price paid by buyers to the price received by sellers. c. reduced welfare of buyers and sellers to the revenue raised by the government. d. consumer surplus to the deadweight loss.

d

When a tax is levied on a good, a. neither buyers nor sellers are made worse off. b. only sellers are made worse off. c. only buyers are made worse off. d. both buyers and sellers are made worse off.

d

Which of the following tools help us evaluate how taxes affect economic well-being? (i) consumer surplus (ii) producer surplus (iii) tax revenue (iv) deadweight loss a. (i) and (ii) only b. (i), (ii), and (iii) only c. (iii) and (iv) only d. (i), (ii), (iii), and (iv)