Econ 2302 Exam 2

The above figure shows the U.S. market for 1 carat diamonds. The free trade, the price in the United States for diamonds is equal to ________ and with the quota illustrated in the figure, the price in the United States is equal to ________. A) $2,000; $3,000 B) $4,000; $2,000 C) $2,000; $2,000 D) $4,000; $3,000 E) $2,000; $4,000

A) $2,000; $3,000

The figure above shows the U.S. demand and U.S. supply curves for cherries. Suppose the world price of cherries is $2 per pound. At this price, U.S. consumption of cherries will equal A) 200,000 pounds. B) 400,000 pounds. C) 600,000 pounds. D) 800,000 pounds. E) 0 pounds.

A) 200,000 pounds

The figure shows the market for college education. If the market for education is competitive and with no government intervention, the equilibrium quantity of college students is ________ million and the efficient quantity of college students is ________ million. A) 4; 8 B) 8; 4 C) 8; 2 D) 0; 10 E) 2; 4

A) 4; 8

The figure above shows the market for a good with an external benefit. If the market is competitive and the government takes no action, the equilibrium quantity is ________ units and the equilibrium price is ________ per unit. A) 8; $150 B) 10; $150 C) 10; $100 D) 8; $300 E) 10; $250

A) 8; $150

In the figure above, the equilibrium market price is $20. The producer surplus is shown by the area A) A. B) B. C) A + B. D) A ÷ B. E) A - B.

A) A

The figure above shows the market for pants. If the government subsidizes the production of pants so that production expands from 6 million pairs to 7 million pairs, A) a deadweight loss would result. B) production would be even more efficient than if 6 million pairs of pants are produced because more is always better than less. C) the government's policy would increase the sum of consumer surplus and producer surplus. D) there would be no deadweight loss. E) the government's policy would have no effect on the sum of consumer surplus and producer surplus.

A) a deadweight loss would result

Consumer surplus is the area A) below the demand curve and above the market price. B) above the demand curve and below the market price. C) below the supply curve and above the market price. D) above the supply curve and below the market price. E) below the demand curve and above the supply curve.

A) below the demand curve and above the market price

Which of the following is a common method used by government to cope with the situation in which production of a good creates an external cost? A) cap-and-trade B) removing property rights C) lottery D) vouchers E) subsidizing production

A) cap-and-trade

The size of the deadweight loss, or excess burden, of a tax depends on the A) elasticities of demand and supply. B) strength of demand. C) number of demanders and the number of suppliers. D) strength of supply. E) amount of producer surplus but not the amount of consumer surplus because it is the producers who send the tax revenues to the government.

A) elasticities of demand and supply

To have an effective production quota, the government must set the quota so it is ________ the equilibrium quantity. i. less than ii. equal to iii. more than Correct Answer A) i only B) ii only C) iii only D) i and iii E) i, ii, and iii

A) i only

When the United States imports goods from the rest of the world, which of the following parties is harmed? i. domestic producers of the good ii. domestic consumers of the good iii. foreign producers of the good A) i only B) ii only C) iii only D) i and iii E) i, ii, and iii

A) i only

Education has an external benefit. So to achieve the efficient level of education, an education voucher must equal the difference between the Correct Answer A) marginal (private) benefit and the marginal social benefit. B) marginal (private) cost and the marginal social cost. C) marginal (private) cost and the marginal social benefit. D) dollar price and marginal (private) cost. E) marginal social benefit and the marginal (private) cost.

A) marginal (private) benefit and the marginal social benefit

The average tax rate is the A) percentage of income paid in tax. B) total amount of taxes paid by an individual. C) average of the rates at which income and taxes increase. D) percentage of an additional dollar of income paid in tax. E) same as the marginal tax rate for a progressive tax.

A) percentage of income paid in tax

The above figure shows a labor market with minimum wage equal to $16. In this figure, what area equals the resources lost because of job search? A) area A B) area B C) area C D) area D E) area E

B) area B

Consumers' total benefit from consuming a good is equal to the A) total amount spent on the good divided by the number of units purchased. B) consumer surplus plus the total amount spent on the good. C) consumer surplus minus the total amount spent on the good. D) consumer surplus on the quantity purchased. E) total amount spent on the good.

B) consumer surplus plus the total amount spent on the good

Consider the U.S. market for running shoes shown above. With no international trade, area W represents ________ and area X + Y represents ________. A) deadweight loss; producer surplus. B) consumer surplus; producer surplus. C) consumer surplus; a deadweight loss. D) the total surplus; producer surplus. E) producer surplus; consumer surplus.

B) consumer surplus; producer surplus

When a nation exports a good, its ________ surplus decreases and its ________ surplus increases. A) total; consumer B) consumer; total C) producer; producer D) consumer; consumer E) producer; consumer

B) consumer; total

When a tax is imposed on a good or service, the A) amount the government collects as tax revenue is the deadweight loss from the tax. B) deadweight loss that arises from a tax is the excess burden. C) share of the tax paid by the seller is the excess burden. D) share of the tax paid by the buyer is the excess burden. E) revenue gained by the government is the excess burden.

B) deadweight loss that arises from a tax is the excess burden

In 2015 the president of a company decided that all employees (from president to custodians) would all earn the same wage of $60,000 per year. The president's policy followed the ________ approach to fairness. A) command B) fair results C) gouging D) fair rules E) majority rule

B) fair results

Mandy saved her allowance to buy a 12 pack of cream soda. When Mandy's brother saw the soda, he took four. Sodas were allocated between Mandy and her brother through A) first-come, first-served. B) force. C) majority rule. D) sharing equally. E) personal characteristics.

B) force

The United States exports A) goods only. B) goods and services. C) manufactured goods only. D) only agricultural products and high-tech goods. E) services only.

B) goods and services

Which of the following is true regarding production quotas in the dairy market? i. Compared to an unregulated market, output will decrease. ii. The dairy market will suffer a deadweight loss. iii. Market efficiency is improved in the dairy market because farmers' profit increases. A) i, ii and iii B) i and ii only C) i and iii D) ii only E) iii only

B) i and ii only

A black market A) is defined as the deadweight loss associated with taxes. B) is a potential outcome of a price ceiling. C) benefits no one. D) is legal only when it is associated with government price ceilings. E) is always legal.

B) is a potential outcome of a price ceiling

Suppose the equilibrium wage rate for apricot pickers is $9.00 per hour in California and at that wage rate the equilibrium quantity of apricot pickers is 14,000. If the minimum wage is set at $7.50 per hour, then the A) wage rate for apricot pickers increases. B) quantity of apricot pickers employed does not change. C) quantity of apricot pickers employed increases. D) some apricot pickers are unemployed. E) quantity of apricot pickers employed decreases.

B) quantity of apricot pickers employed does not change.

The people who immediately benefit from a minimum wage are A) employers who now pay the minimum wage. B) the workers who retain their jobs after enactment of the minimum wage. C) those people who enter the labor force to search for minimum wage jobs. D) everyone, both demanders and suppliers, because the minimum wage benefits everyone. E) all workers.

B) the workers who retain their jobs after enactment of the minimum wage

If a price ceiling is introduced in the market for milk below the market equilibrium price, then the producer surplus made by dairy farmers A) will not change. B) will decrease. C) will increase. D) might increase or decrease depending on whether the demand for milk increases or decreases. E) might increase or decrease depending on whether the supply of milk decreases or increases.

B) will decrease

A tariff makes the total economy A) better off because it increases the domestic production of the good. B) worse off because it creates a deadweight loss. C) worse off because it creates revenue for the government. D) better off because it decreases the deadweight loss from international trade. E) worse off because it decreases both domestic consumer surplus and domestic producer surplus.

B) worse off because it creates a deadweight loss

The figure above shows the supply curve for soda. The market price is $1.00 per soda. The producer surplus from the 10,000th soda is A) $1.00. B) $0.00. C) $0.50. D) more than $1.00. E) None of the above answers is correct.

C) $0.50

Marginal benefit is the A) minimum amount of other goods or services we are willing to give up. B) opportunities given up to get one more unit of a good or service. C) additional benefit we receive from consuming one more unit of a good or service. D) total benefit we receive from consuming a good or service. E) the benefit we receive from consuming one more unit of a good or service minus the cost of the producing one more unit of the good or service.

C) additional benefit we receive from consuming one more unit of a good or service

The figure above shows the market for tires. According to the figure, the price elasticity of demand is ________ the price elasticity of supply. A) equal to B) less than C) greater than D) not comparable to E) More information is needed to determine if the price elasticity of demand is greater than, equal to, less than, or comparable to the price elasticity of supply.

C) greater than

In general, the marginal cost curve A) has a negative slope. B) is vertical. C) has a positive slope. D) is horizontal. E) is U-shaped.

C) has a positive slope

Goods and services that we buy from firms in other countries are called our A) obligations. B) inputs. C) imports. D) raw materials. E) exports.

C) imports

Evidence of external costs in the production of a product is present if A) the price of the product is higher than it should be. B) buyers refuse to purchase the product. C) non-buyers and/or non-producers of the product experience a loss for which they are not compensated. D) the production cost increases because of an increase in the minimum wage. E) producers pay all of the costs of producing the good or service.

C) non-buyers and/or non-producers of the product experience a loss for which they are not compensated.

If the supply of capital is perfectly elastic, the incidence of a tax on capital income is A) paid entirely by the suppliers of capital. B) shared but not equally between firms that demand capital and the suppliers of capital. C) paid entirely by firms that demand capital. D) shared equally between firms that demand capital and the suppliers of capital. E) unknown.

C) paid entirely by firms that demand capital

Which of the following occurs when a market is efficient? A) Production costs equal total benefit. B) Every consumer has all of the good or service he or she wants. C) Scarce resources are used to produce the goods and services that people value most highly. D) Producers earn the highest income possible. E) Consumer surplus equals producer surplus.

C) scarce resources are used to produce the goods and services that people value most highly

A tax on income from land in Montana is borne entirely by landowners because the A) demand for land is perfectly elastic. B) demand for land is perfectly inelastic. C) supply of land is perfectly inelastic. D) deadweight loss from the tax would otherwise be infinite. E) supply of land is perfectly elastic.

C) supply of land is perfectly inelastic

Vertical equity is the idea that A) people should pay taxes equal to the benefits they receive from public benefits. B) taxes must be fairest to people with the largest incomes. C) taxpayers with a greater ability to pay should bear a greater share of the taxes. D) as income rises, taxes should be efficient, not equitable. E) the marriage tax is equitable.

C) taxpayers with a greater ability to pay should bear a greater share of the taxes

The figure shows the t-shirt market. For which shirt does the marginal cost of producing the shirt equal the producer surplus from the shirt? A) the 12,000th shirt B) the 8,000th shirt C) the 4,000th shirt D) the 24,000th shirt E) All of the answers above are correct because the marginal cost of producing a shirt always equals the producer surplus from the shirt.

C) the 4,000th shirt

The above figure shows the U.S. market for flip-flops. With international trade, U.S. consumers buy ________ flip-flops and U.S. producers produce ________ flip-flops. A) 300,000; 700,000 B) 500,000; 300,000 C) 500,000; 500,000 D) 700,000; 300,000 E) 700,000; 500,000

D) 700,000; 300,000

The figure shows the market for milk. As a result of the production quota, the consumer surplus shrinks by area ________ and a deadweight loss of area ________ occurs. A) ABE; ACE B) ABE; ABE C) ABC; ACE D) ABC; ABE E) ACE; ABE

D) ABC; ABE

What is an effective counter against the argument that international trade should be restricted to protect domestic jobs? A) The more diversified the economy, the more stable it is. B) Free trade in "green" goods will increase jobs. C) Rent seeking behavior should be encouraged. D) Free trade increases the number of jobs in which workers earn higher incomes. E) A more effective policy would be to support the industry with subsidies.

D) Free trade increases the number of jobs in which workers earn higher incomes

As pointed out by the "big tradeoff," government action that redistributes incomes so that everyone has the same income leads to A) lower taxes on the rich than on the poor so that the rich do not lose their incentive to work. B) fairness according to the "fair rules" approach. C) resources being allocated according to a command system. D) a smaller total output. E) efficient markets.

D) a smaller total output

When Ronald takes another economics class, other people in society benefit. The benefit to these other people is called the marginal ________ benefit of the class. A) Coasian B) social C) private D) external E) extra

D) external

The consumer acquires a consumer surplus on a good if the marginal benefit is A) zero. B) less than the price. C) equal to the price. D) greater than the price. E) less than the marginal cost.

D) greater than the price

Which of the following can result in a market producing an inefficient quantity of a good? i. competition ii. an external cost or an external benefit iii. a tax A) i only B) i and iii C) ii only D) ii and iii E) iii only

D) ii and iii

Why does redistribution, so that the distribution of income is equal, bring about less total output? A) Those in political power will likely receive a larger income. B) No one can determine marginal benefit or marginal cost as a result. C) Because the marginal benefit and marginal cost of work have been equally increased. D) Incentives to work are reduced. E) The premise of the question is incorrect because an equal distribution of income would increase rather than decrease the total amount produced.

D) incentives to work are reduced

The deadweight loss from a rent ceiling below the equilibrium rent is smallest when the supply of housing is A) unit elastic. B) perfectly elastic. C) inelastic but not perfectly inelastic. D) perfectly inelastic. E) elastic but not perfectly elastic.

D) perfectly inelastic

The marginal social cost of producing a good or service is the A) cost of producing an additional unit borne by people other than the producer. B) same as marginal external cost. C) cost of producing an additional unit borne by the producer. D) sum of the marginal private cost and the marginal external cost. E) sum of the marginal private cost and the marginal external cost minus the marginal social benefit.

D) sum of the marginal private cost and the marginal external cost.

Which of the following taxes best illustrate the ability-to-pay principle of tax fairness? A) State parks are maintained through the state lottery. B) The local library is funded through a flat $10 tax levied on all homeowners. C) Roads and highways are built and maintained through a tax on gasoline. D) The WIC program provides food to low income mothers and is funded through the progressive federal income tax. E) A sales tax on food pays for local police and fire protection.

D) the WIC program provides food to low income mothers and is funded through the progressive federal income tax

The graph shows the market for mattresses. As a result of a tax imposed by the government, the price buyers pay changes from ________ and the equilibrium quantity changes from ________ mattresses. A) $325 to $295; 4,000 to 5,000 B) $295 to $325; 5,000 to 4,000 C) $295 to $300; 4,000 to 5,000 D) $325 to $300; 4,000 to 5,000 E) $300 to $325; 5,000 to 4,000

E) $300 to $325; 5,000 to 4,000

Which of the following is an example of the unfairness of rent ceilings? A) Racial discrimination in renting is discouraged by rent ceilings. B) Too many people rent apartments. C) Rich people do not get apartments in these markets. D) Voluntary exchange is encouraged by rent ceilings. E) Newcomers have a more difficult time finding apartments.

E) Newcomers have a more difficult time finding apartments

Which of the following methods of restricting trade does NOT create a deadweight loss? A) a quota B) a tariff C) a voluntary export restraint D) Both answers A and B are correct. E) None of the above answers is correct because all the methods create a deadweight loss.

E) None of the above answers is correct because all the methods create a deadweight loss

Suppose the United States engage in less international trade, decreasing both imports and exports. As a result of this policy, U.S. consumer surplus would ________, U.S. producer surplus would ________ and U.S. total surplus would ________. A) decrease; increase; increase B) decrease; increase; not change C) increase; increase; increase D) increase; decrease; not change E) decrease; decrease; decrease

E) decrease; decrease; decrease

If there is an income tax levied on labor income, the labor demand curve ________ and the labor supply curve ________. A) shifts leftward; shifts leftward B) shifts leftward; does not shift C) shifts rightward; does not shift D) does not shift; shifts rightward E) does not shift; shifts leftward

E) does not shift; shifts leftward

Because the supply of capital is highly elastic, taxing the income from capital results in i. firms that demand capital paying the greater share of the tax. ii. a decrease in the equilibrium quantity of capital. iii. a deadweight loss. A) i only B) ii only C) i and iii D) ii and iii E) i, ii, and iii

E) i, ii, and iii

Which of the following is an argument that is used for protection from free trade? i. the national security argument ii. the infant-industry argument iii. the dumping argument A) i only B) ii only C) iii only D) i and iii E) i, ii, and iii

E) i, ii, and iii

Which of the following is an example of an activity that creates an external cost? i. a smoker emitting second-hand smoke ii. sulfur emitting from a smoke stack iii. throwing garbage on the roadside A) i only B) iii only C) i and ii D) ii and iii E) i, ii, and iii

E) i, ii, and iii

When a nation imports a good, its ________ surplus decreases and its ________ surplus increases. A) consumer; consumer B) producer; producer C) consumer; producer D) total; consumer E) producer; consumer

E) producer; consumer

Suppose the equilibrium price of a gallon of milk is $4. If the government imposes a price floor of $5 per gallon of milk, the A) supply increases. B) quantity supplied of milk falls short of the quantity demanded. C) price of milk remains $4 per gallon. D) demand decreases. E) quantity supplied of milk exceeds the quantity demanded.

E) quantity supplied of milk exceeds the quantity demanded.

The 2010 health care reform that expanded public health care coverage for low income individuals by increasing taxes on high income earners. Taking more tax revenue from high income earners reflects A) a regressive tax system since high income earners will pay a greater dollar amount in taxes. B) the benefits principle because high income earners can more easily bear the burden of taxes. C) the benefits principle because high income earners use more public health care services. D) the ability-to-pay principle because high income earners use more public health care services. E) the ability-to-pay principle because high income earners can more easily bear the burden of taxes.

E) the ability-to-pay principle because high income earners can more easily bear the burden