ECON 202 Final 2

Suppose there are four firms that are each willing to sell one unit of a good. Each firm has a different minimum price that they are willing to sell for: Firm A $6, Firm B $7, Firm C $10, and Firm D $12. If the market price is $11, then the total producer surplus is

$10

Refer to Figure 16.2. The marginal damage cost imposed as a result of producing automobiles is

$10.00 per car

Figure 4-3 shows the market for tiger shrimp. The market is initially in equilibrium at a price of $15 and a quantity of 80. Now suppose producers decide to cut output to 40 in order to raise the price to $18. Refer to Figure 4-3. What is the total amount that consumers pay at the equilibrium price of $15? Selected Answer: $1,440

$1200

Figure 4-3 shows the market for tiger shrimp. The market is initially in equilibrium at a price of $15 and a quantity of 80. Now suppose producers decide to cut output to 40 in order to raise the price to $18.. What is the value of producer surplus at the equilibrium price of $15?

$160

The above figure shows the U.S. market for replacement cell phone batteries. When there is no international trade, the equilibrium price is ________ per battery and when there is international trade the equilibrium price is ________ per battery.

$16; $12

If a firm produces five chairs with marginal costs of $25, $30, $40, $55, and $75, respectively, and sells them for $80 each, what is the firm's total producer surplus?

$175

Figure 4- 1 shows Arnold's demand curve for burritos. Arnold's marginal benefit from consuming the second burrito is

$2.00

Figure 4- 8 shows the market for beer. The government plans to impose a unit tax in this market. Refer to Figure 4 -8. For each unit sold, the price sellers receive after the tax (net of tax) is

$20

Suppose that Tim is willing to pay $50 for a dozen of roses for Kim on Valentine's Day. If he actually pays $2.50 per rose for the 12 roses, his total consumer surplus is:

$20.

The figure tells us about the market for red roses. The consumer surplus is ________ a day.

$200

Figure 4-3 shows the market for tiger shrimp. The market is initially in equilibrium at a price of $15 and a quantity of 80. Now suppose producers decide to cut output to 40 in order to raise the price to $18. Refer to Figure 4-3. What is the value of consumer surplus at the equilibrium price of $15?

$240

A used car was recently priced at $20,000.00. Seeing the car, Bobby thought, "It's nice, but if I have to pay more than $19,500 for this car, then I would rather do without it." After negotiations, Bobby purchased the car for $19,250.00. His consumer surplus was equal to

$250.00

Suppose that the price of a coffee mug is $2. Lee's marginal cost of producing coffee mugs $0.50 for the first mug, Tammy's marginal cost of producing coffee mugs is $1 for the second mug, Stan's marginal cost of producing coffee mugs is $1.50 for the third mug, Joy's marginal cost of producing coffee mugs is $2 for the fourth mug, and Jody's marginal cost of producing coffee mugs is $3 for the fifth mug. In equilibrium, what is the producer surplus from producing coffee mugs?

$3

Arthur buys a new cell phone for $150. He receives consumer surplus of $150 from the purchase. How much does Arthur value his cell phone?

$300

Tom would be willing to pay a maximum of $2,500 to attend the Super Bowl this year, and he can buy a ticket for $2,050. His consumer surplus is

$450

Figure 4- 8 shows the market for beer. The government plans to impose a unit tax in this market. Refer to Figure 4 -8. How much of the tax is paid by buyers?

$5

What is the total amount that Arnold is willing to pay for 3 burritos?

$6.00

The figure illustrates the market for hot dogs on Big Foot Island. The producer surplus is

$60 an hour

Refer to Table 4-6. The equations above describe the demand and supply for Chef Ernie's Sushi-on-a-Stick. What are the equilibrium price and quantity (in thousands) for Chef Ernie's sushi?

$60 and 20 thousand

Figure 4- 8 shows the market for beer. The government plans to impose a unit tax in this market.

$7

The marginal social benefit from the production of the last unit of a good is $4,800. If the willingness to pay for that unit is $3,900, what is the external benefit from its production?

$900

The figure above provides information for a factory that produces chemicals that pollute a waterway. The waterway is used by water skiers. If the waterway is owned by the factory and the Coase theorem applies, then the factory will produce ________ tons of chemicals a week.

1 ton

The table above lists the marginal cost of cowboy hats by The Waco Kid, a firm that specializes in producing western wear. If the market price of cowboy hats is $35, The Waco Kid will produce

2 hats

The figure above shows the market for annual influenza immunizations the United States. The efficient quantity of immunizations is

22 million per year

Broomfield city council is deciding how many police officers the city needs. Broomfield's population is 10,000 people. The marginal cost of a police officer is $60,000 per year. The marginal benefit schedule of an average city resident from police protection is shown in the table above. Police protection is a public good. The efficient number of police officers in Broomfield is

3

Refer to Table 16.8. Assume that the marginal cost of hiring a police officer is $120. If A and B are the only two people in the society, the optimal number of police officers is

3

Table: Number of police officers Marginal benefit (dollars from the last officer) 1- 8.00 2 -7.20 3- 6.40 4 -5.60 5- 4.80 6 -4.00 7 -3.20Broomfield city council is deciding how many police officers the city needs. Broomfield's population is 10,000 people. The marginal cost of a police officer is $60,000 per year. The marginal benefit schedule of an average city resident from police protection is shown in the table above. Police protection is a public good. The efficient number of police officers in Broomfield is

3

The figure above shows the market for private elementary school education in Chicago. There is no external cost of private elementary education. If the government does not intervene in this market, the equilibrium number of students being privately educated is ________ and the efficient quantity is ________.

400 students; 600 students

Refer to Figure 4 -2. What area represents the increase in producer surplus when the market price rises from P1 to P2?

A + B

Refer to Figure 4 -2. What area represents producer surplus at a price of P2?

A + B + C

Which of the following occurs when an economic activity has a spillover benefit on third parties not engaged in the activity?

A positive externality

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

A radio broadcast

A tariff is

A tax on imported goods

The table above lists the highest prices five consumers are willing to pay for a theater ticket. If the price of one of the tickets is $18

Basil will receive $2 of consumer surplus from buying one ticket.

Which of the following statements about rent seeking is false?

Because rent seeking redistributes society's resources, anyone engaging in such behavior is violating the law.

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

Cable TV

________ is maximized in a competitive market when marginal benefit equals marginal cost.

Economic Surplus

Which of the following statements is true?

Economists believe that marginal tax rates have a greater influence on behavior than average tax rates.

For a given supply curve, the deadweight loss from the imposition of a tax is smaller if demand is more elastic.

False

If transactions costs are low, private bargaining will always result in an efficient solution to the problem of externalities.

False

The total amount of producer surplus in a market is equal to the area below the supply curve.

False

Some economists who use the public choice model to explain the ways government intervenes in the economy believe that regulatory capture results when an agency or commission is given authority over a particular industry or product. Which of the following is the best example of regulatory capture?

Firms that were regulated by the Interstate Commerce Commission (ICC) attempted for many years to influence the ICC's actions.

In which of the following cases does the tragedy of the commons occur? I. Cattle grazing on private ranches. II. Catching lobsters off the coast of Florida. III. Raising salmon on salmon farms. IV. Using legal services provided by the courts.

II only

What is the assumption underlying public-choice theory?

Individuals act within the political process to improve their own individual well-being.

For certain public projects such as building a dam on a river or a bridge to an island, what procedure is a government likely to use to determine what quantity of a public good should be supplied?

It evaluates the costs and benefits of producing the good.

What is regulatory capture?

It is a situation in which a firm being regulated successfully influences the regulatory agency's actions to benefit the interests of the firm, rather than the public interest.

John has a marginal benefit of $7 for 1 slice of pizza, $5 for a second slice, $3 for a third slice, $1 for a fourth slice, and $0.50 for a fifth slice. The price of pizza is $1.50 per slice. Which of the following statements is correct?

John will purchase 3 slices of pizza and have consumer surplus of $10.50.

New York City, which has had a rent ceiling law for more than sixty years, has many abandoned apartment buildings throughout the city. Which of the following explains this?

Landlords have no incentive to finance maintenance and remodeling of apartment buildings.

If Congress wanted to change the Social Security tax so that firms paid most of the tax, they would need to

None of the above because the incidence of the Social Security tax does not depend on the tax laws but instead depends on the elasticities of the demand for labor and the supply of labor.

The following equations represent the demand and supply for silver pendants. Q D = 50 - 2 P Q S = -10 + 2 P What is the equilibrium price ( P) and quantity ( Q - in thousands) of pendants?

P = $15; Q = 20 thousand

If the quantity of fishing poles demanded is represented by the equation Q D = 60 - P then the corresponding price of fishing poles is represented by the equation

P = 60 - QD

If the price of chewing gum is represented by equation P = 25 - 0.5 Q D, then the corresponding quantity of chewing gum demanded is represented by the equation

Q D = 50 -2 P.

When a price ceiling is in place keeping the price below the market price, what's larger: quantity demanded or quantity supplied?

Quantity demanded.

Which of the following exemplifies the tragedy of the commons?

The Malaysian tapir, distinguished for its unusual coloration, is a target for poachers who hunt it for its tough and leathery hide.

Which of the following happens when a Pigouvian subsidy is provided?

The marginal private benefit curve shifts upward.

Which of the following will lead to an efficient private solution if negative externalities are present in a market?

The parties involved negotiate with each other and reach an agreement.

Why might a politician start a costly spending program if its costs exceed its social benefits?

The politician gains prestige and voters are not well informed of the benefits and costs.

Which of the following must be present to reach a private solution to an externality problem?

The transactions costs to negotiate a solution must be relatively low.

Refer to Table 4 -1. The table above lists the highest prices three consumers, Tom, Dick and Harriet, are willing to pay for a short- sleeved polo shirt. If the price of one of the shirts is $28 dollars

Tom will receive $12 of consumer surplus from buying one shirt.

For the Coase theorem to work there must be clear assignment of property rights.

True

If the government wants to minimize the welfare loss of a tax, it should tax goods with more inelastic demands or supplies.

True

Which of the following episodes would most likely contain an externality?

You decide to grow flowers in your front yard where everyone else can see them.

A rent ceiling results in a shortage. As a result, which of the following do you expect?

a black market for apartments whereby higher rents are obtained through various other charges

Government imposed quantitative limits on the amount of pollution firms are allowed to produce is an example of

a command-and-control approach to pollution reduction.

A rent ceiling creates a shortage. As a result, there is

a decrease in the producer surplus in the housing market.

A private good is

a good that is rivalrous and excludable.

If the social cost of producing a good or service exceeds the private cost

a negative externality exists.

Rent control is an example of

a price ceiling

Rent control is an example of

a price ceiling.

Which term refers to a legally established minimum price that firms may charge?

a price floor

A tax rate system characterized by higher marginal tax rates as income increases is known as

a progressive tax system.

A family that earns $20,000 a year pays $200 a year in city wage taxes. A family that earns $40,000 a year pays $1,600 a year in city wage taxes. The city wage tax is

a progressive tax.

A family that earns $20,000 a year pays $1,000 a year in payroll taxes. A family that earns $40,000 a year pays $2,000 a year in payroll taxes. The payroll tax is

a proportional tax

"Free riding" is a characteristic of which type of good?

a public good

An example of a common resource is

a public parking lot

A gallon of milk costs $4 in Bonland. If the government fixes the price at $3.50, ________.

a shortage of milk will occur in the market

Rational ignorance is the decision NOT to

acquire information because the marginal cost of doing so exceeds the expected marginal benefit.

Marginal benefit is equal to the ________ benefit to a consumer receives from consuming one more unit of a good or service.

additional

In the figure above, imposing a tax on the sellers of the product results in a division in which

all of the tax is paid by the sellers.

In the figure above, suppose the market is at equilibrium. Then area B is the

amount of the producer surplus

The public choice model

applies economic analysis to government decision making.

In the political market place, typical voters

are sometimes rationally ignorant about a policy.

If you burn your trash in the back yard in spite of regulations against it, then you are

avoiding the private costs associated with disposing your trash some other way and creating a social cost.

Why will a private market be unable to produce the efficient quantity of public goods?

because the good is nonexcludable, so there is the free rider problem

Beautification of the national highways through the planting of shrubs and wildflowers will

benefit even people who do not help pay.

In general, who will benefit as the result of a tariff? I. Domestic producers II. Domestic consumers III. The domestic government

both I and III

Who gains from international trade?

both the importing and the exporting nations

For-profit producers will produce only private goods because

buyers will be willing to pay for the goods since the benefits are excludable.

If a rent ceiling is below the equilibrium rent, some allocation scheme must be used. The allocation methods include all of the following EXCEPT

charging the equilibrium rent.

The "invisible hand" refers to the notion that

competitive markets send resources to their highest valued uses.

A paint firm has just announced that it will be building a new plant in a small town that is currently experiencing a high level of unemployment. The new plant will create 500 new jobs in the area and will occupy unused land at the edge of town. The plant will also dump some harmful chemicals into the town's river. From an economic standpoint this dumping of chemicals

creates a negative externality.

A rent ceiling set below the equilibrium rent

creates a situation in which the quantity demanded of housing is greater than quantity supplied.

The burden of a proportional tax ________ as a percentage of income as income ________.

does not change; rises or falls

An example of an activity that generates an external cost is

dumping soapsuds into a trout stream.

In a competitive market for a private good with no price or quantity regulations, no external cost nor external benefit, low transactions costs, and no taxes or subsidies,

efficiency can be attained in the market with no government intervention.

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

elephants in the wild

Financial contributions to the campaigns of members of Congress, state legislators, and other elected officials by firms that seek special interest legislation that make the firms better off are

examples of rent seeking.

When the government taxes a firm that generates external costs, the firm will produce

fewer units of output than before the tax was imposed in order to continue maximizing profits.

An example of a good that is rival in consumption is:

flowers planted on the side of the highway. a scientific discovery that allows florists to grow flowers to which no one is allergic. a floral display at a large university's graduation ceremony. none of the above!!!

What does the phrase "internalizing an external cost" mean?

forcing producers to factor into their production costs the cost of the externalities created in the production of their output

Suppose the government imposes a tax on labor income. Which of the following describe the effect of the tax in the labor market? i. If the demand for labor is more elastic than the supply, workers will bear more of the tax. ii. Employment is not affected because workers need jobs. iii. The tax creates a deadweight loss.

i and iii only

A tariff placed on a foreign good will

increase the price of a competing domestic good

Search activity

increases when an effective price ceiling is set on a good.

A price ceiling set below the equilibrium price ________ search activity and ________ the use of black markets.

increases; increases

A Pigouvian tax is a tax designed to ________.

induce producers generating negative externalities to reduce production

Assume that production from an electric utility caused acid rain. If the government imposed a tax on the utility equal to the cost of the acid rain, the government's action would

internalize the externality.

An economic agent ________ when he accounts for the full costs and benefits of his actions.

internalizes an externality

If a consumer buys a good, we know that her willingness to pay:

is either greater than or equal to its price.

Economic surplus

is equal to the sum of consumer surplus and producer surplus.

A distinguishing feature of a public good is that it:

is not possible to exclude people who don't pay for the public good.

If there is pollution in producing a product, then the market equilibrium price

is too low and equilibrium quantity is too high.

The more elastic the demand for a good, the

less a sales tax raises the price paid by buyers.

The difference between the ________ and the ________ from the sale of a product is called producer surplus.

lowest price a firm would have been willing to accept; price it actually receives

In a competitive market the demand curve shows the ________ received by consumers and the supply curve shows the ________.

marginal benefit; marginal cost

Suppose the tax rate on the first $10,000 income is 0 percent; 10 percent on the next $20,000; 20 percent on the next $20,000; 30 percent on the next $30,000; and 40 percent on any income over $80,000. Family A has income of $50,000. What is the marginal and average tax rate for Family A?

marginal—20 percent; average—12 percent

When efficiency is attained, the sum of the total amount of consumer surplus and producer surplus is

maximized

The supply curve shows the

minimum price that firms must receive to supply a certain quantity of a good.

A ________ occurs when an economic activity has a spillover cost that does not affect those directly engaged in the activity.

negative externality

The Coase Theorem states that ________.

negotiation between economic agents leads to an efficient allocation of resources

In the figure above, the demand curve shifts rightward from D 0 to D 1 so that D 1 is the relevant demand curve. Suppose the government imposes a rent ceiling of $500 per month. In the short run there will be

neither a shortage nor a surplus of apartments.

A green pasture has turned barren due to overgrazing. This happened because the pasture was ________.

non-excludable but rival

One reason governments impose taxes is to ________.

non-excludable but rival

Space on a popular, public beach is ________ in consumption.

non-excludable but rival

People who live in apartment buildings across from a football stadium are able to watch football games from the balconies of their apartments instead of paying for tickets to sit inside the stadium. For these free riders, the football games are

nonrival and nonexcludable.

A radio signal broadcast through the air is ________ in consumption, and listeners are ________.

nonrival; nonexcludable

Private producers have no incentive to provide public goods because

once produced, it will not be possible to exclude those who do not pay for the good.

In economics, the term "free rider" refers to

one who waits for others to produce a good and then enjoys its benefits without paying for it.

A loud band plays a concert late at night in a neighborhood park. The noise produced by the band that keeps the neighbors not attending the concert awake is

only an external cost.

The free rider problem refers to a situation in which

people consume a pure public good without payment, even though the good may not be produced if no one chooses to pay.

The free-rider problem is the absence of an incentive for

people to pay for what they consume.

A positive externality results when

people who are not directly involved in producing or paying for a good or service benefit from it.

The tragedy of the commons is the absence of incentives to

prevent overuse and depletion of a common resource.

The price of a gallon of gasoline in Bonland is $3.20. However, just before the election, the government decides to fix the price of gasoline at $2.80 per gallon. This is an example of a ________.

price ceiling

If a profit-maximizing perfectly competitive firm does not have to compensate society for a negative externality, the firm will choose to produce where

price equals marginal cost.

The government of Lithasia has decided to set a minimum price for certain agricultural products in order to safeguard the interests of farmers. This is an example of a ________.

price floor

The producer surplus is found by subtracting the ________ and then adding the difference for all units sold.

price from marginal cost

Producer surplus is the ________ summed over the quantity produced.

price of the good minus the marginal cost of producing it

A market demand curve reflects the

private benefits of consuming a product.

A market supply curve reflects the

private costs of producing a good or service

Suppose Patty has a house in a good neighborhood in Philadelphia. She decides to have the exterior of her house painted and the windows replaced. After the work is completed, her house has appreciated in value and has also helped her neighbors' houses to go up in value. This is an example of a

private good with external benefits.

A ________ tax system is one in which tax rates increase with taxable base incomes.

progressive

If, as your taxable income decreases, you pay a smaller percentage of your taxable income in taxes, then the tax is

progressive

If you pay a constant percentage of your taxable income in taxes, the tax is

proportional

A street light is a

public good

a street light is a

public good

When it comes to ________ goods, it is important to remember only one level of output can be realized and consumers are ________ for that level.

public; willing to pay different amounts

Which of the following displays these two characteristics: nonrivalry and excludability?

quasi-public goods

If a seller charges a buyer the exact price the buyer is willing to pay, then the buyer would

receive no consumer surplus from that unit of the good.

If the average tax rate exceeds the marginal tax rate, the tax would be

regressive

In a ________ tax system, the marginal tax rate declines with income.

regressive

Jamal earns $160,000 per year and Josephina earns $80,000 per year. They both pay the same price to buy the identical automobile and each pays $1,600 in sales tax. In relation to their relative incomes, this is an example of a

regressive tax

Goods can be classified on the basis of whether their consumption is

rival and excludable.

If the government taxes a steel company by an amount equal to the damages of each marginal ton of steel, then the steel company's marginal cost curve is the same as the marginal

social cost curve.

When production generates a negative externality, the true cost of production is the

social cost of production.

If the production of a good generates external benefits, the government could increase efficiency by

subsidizing production of the good to increase the amount produced.

Governments can increase the consumption of a product that creates positive externalities by

subsidizing the production of the product so that the supply is increased and market price is reduced.

To calculate the revenue government receives when a tax is imposed on a good, multiply the

tax by the after-tax quantity.

The actual division of the burden of a tax is called

tax incidence

According to the special-interest theory of government, government officials and policymakers:

tend to listen to small groups of people who contribute money to their political campaigns

Marginal cost is

the additional cost to a firm of producing one more unit of a good or service. the total cost of producing one unit of a good or service.

Producer surplus is equal to

the area above the supply curve below the good's price.

Consumer surplus in a market for a product would be equal to ________ if the market price was zero.

the area under the demand curve

Rational ignorance means

the benefit from some information is not worth the cost of collecting it.

The supply of milk in Nexus City is perfectly elastic. If a tax is imposed on each gallon of milk sold, ________.

the burden of the tax will fall entirely on the buyers

The tax incidence on sellers is higher if ________.

the buyers are more sensitive to price changes than the sellers

The corporate income tax is ultimately paid by all of the following except

the corporation's debtors in the form of lower rates of return on the corporation's bonds.

If a tax is imposed on a good,________.

the equilibrium quantity of the good in the market falls

The marginal income tax rate applies to

the income in the highest tax bracket reached.

In a competitive market equilibrium

the marginal benefit equals the marginal cost of the last unit sold.

The figure above represents the market for pecans. Assume that this is a competitive market. At a price of $9

the marginal cost of pecans is greater than the marginal benefit; therefore, output is inefficiently high.

A positive externality causes

the marginal social benefit to exceed the marginal private cost of the last unit produced.

In a progressive tax system, ________.

the marginal tax rate exceeds the average tax rate

The Coase theorem will apply only if

the number of people involved is small.

If the production of a good involves negative externalities, ________.

the optimal price of the good is higher than the price charged in the market

The burden of a tax falls entirely on buyers if ________.

the price elasticity of demand is zero (perfectly inelastic)

Suppliers will be willing to supply a product only if

the price received is at least equal to the additional cost of producing the product.

The price system allocates resources efficiently EXCEPT when

the production of a good affects parties other than its buyers and sellers.

The figure above represents the market for pecans. Assume that this is a competitive market. If the price of pecans is $3

the quantity supplied is less than the economically efficient quantity.

When there is a positive externality

the social benefit received by consumers is greater than the private benefit.

What is the total surplus of a market?

the sum of consumer surplus and producer surplus

Economic efficiency is defined as a market outcome in which the marginal benefit to consumers of the last unit produced is equal to the marginal cost of production, and in which

the sum of consumer surplus and producer surplus is at a maximum.

Overfishing leading to a rapid depletion of the stock of fish is an example of ________.

the tragedy of the commons

If a price ceiling is set above the equilibrium price, then

there will be neither a shortage nor a surplus of the good.

Taxes may cause deadweight losses because

they lower the surplus in the market.

A retired athlete built a gym near his house that could be used for free by all the residents in the neighborhood. However, the overuse of the facilities soon led to irreparable damages. This is an example of the ________.

tragedy of the commons

The costs in time and other resources that parties incur in the process of facilitating an exchange of goods and services are called

transaction costs

Common resources differ from public goods in that

unlike public goods, common resources are rivalrous in consumption.

When a rent ceiling is imposed in a housing market, the opportunity cost of housing equals the

value of the time and resources spent searching plus the rent.

________ is an example of a common pool resource.

water

When discussing issues of pollution, it is clear that

we can easily delineate who is the victim and who is the villain. Answers: we can easily delineate who is the victim and who is the villain. the most efficient amount of pollution is no pollution at all. since polluters are harming other people they must be made to stop polluting. !!!None of the above are true.!!!

One difference between the demand for a private good and that for a public good is that

with a private good, each consumer chooses the quantity she wants to consume but with a public good, everyone consumes the same quantity.

A product is considered to be rivalrous if

your consumption of the product reduces the quantity available for others to consume.