Econ 260 Final Exam

The quantity exchanged of a good ______ under a binding price floor. a)changes in an indeterminate direction b)falls c)remains the same d)rises

b)

An external cost: a)leads to economic efficiency only when private costs are greater than external costs. b)causes markets to allocate resources efficiently. c)is a cost paid by people other than the producer or consumer trading in the market. d)affects producers but not consumers.

c)

A Pigouvian tax: a)is levied on a good that creates a negative externality and should be set equal to the external cost to eliminate the deadweight loss. b)subsidizes a good that creates a negative externality and should be set equal to the external cost to eliminate the deadweight loss. c)is levied on a good that creates a positive externality and should be set equal to the external benefit to eliminate the deadweight loss. d)is levied on a good that creates a positive externality and should be set equal to the social benefit to eliminate the deadweight loss.

a)

A price floor is: a)a minimum price allowed by law. b)a maximum price allowed by law. c)a tool used to increase government revenues. d)able to produce an efficient outcome.

a)

A private cost is: a)a cost paid by the consumer or the producer trading in the market. b)the cost of reaching an agreement. c)a cost paid by people other than the consumer or the producer trading in the market. d)the cost to everyone trading in all markets.

a)

Deadweight loss is: a)the total of lost consumer and producer surplus when not all mutually profitable gains from trade are exploited. b)necessary to ensure that resources are channeled to their highest-valued use. c)usually offset by deadweight gains. d)the loss to the economy from firms going out of business due to competition

a)

Many remedies to resolving externalities involve "internalizing the externality." Which BEST approximates that goal? a)placing a large dome over a polluting factory b)punching people who smell nice c)giving candy to disruptive children d)buying yourself flowers to counteract the bad smell from a neighboring pig farm

a)

Price ceilings create five important effects: a)shortages, reductions in product quality, wasteful lineups, a loss from gains to trade, and a misallocation of resources. b)surpluses, increases in product quality, search costs, gains from trade, and resource attrition. c)shortages, reduced time costs, low vacancy rates, blat, and deadweight loss. d)excess demand, long lines, poor service, efficiency, and arbitrage.

a)

Price ceilings do not have much effect: a)when market prices are at or below the ceiling. b)in nonmarket economies. c)in times of high inflation. d)ever.

a)

Products that create external benefits are: a)underconsumed because consumers only consider the private benefits of consumption. b)overconsumed because the private benefits exceed the private costs. c)underconsumed because the social costs exceed the social benefits. d)neither overconsumed nor underconsumed because the marginal benefits equal the marginal costs

a)

The question of who pays the greater amount of a commodity tax is determined by: a)the relative elasticities of demand and supply. b)Congress. c)the President of the United States. d)the individual who writes the check for the tax.

a)

When supply and demand are equally elastic, a)producers and consumers carry an equal amount of the tax burden. b)consumers carry the majority of the tax burden. c)consumers carry all of the tax burden. d)producers carry the majority of the tax burden.

a)

Whether a buyer or a seller pays more of a commodity tax depends on: a)their relative price elasticities. b)the decisions made by Congress. c)whether the supply curve is negatively or positively sloped. d)whether the demand curve is negatively or positively sloped.

a)

Which statement illustrates the concept of external cost? a)Raymond cannot open his windows at times because he lives downwind from a mushroom farm. b)A small business owner frequently buys raw materials by using her bank's line of credit. c)Margaret purchases all her food and clothing in the big city outside her residence. d)Felicia, an economics major, asks the most insightful questions in class.

a)

(Figure: Costs of Price Ceilings) Refer to the figure. What is the dollar amount of the value of wasted time if a price ceiling of $4 is implemented? a)$220 b)$160 c)$180 d)$320

b)

(Figure: Price Controls) Refer to the figure. Which price control would cause a shortage of 20 units of the good? a)a price floor of $10 b)a price ceiling of $6 c)a price ceiling of $10 d)a price floor of $6

b)

A price ceiling is a(n): a)illegally established maximum price that can be charged for a good. b)legally established maximum price that can be charged for a good. c)legally established minimum price that can be charged for a good. d)illegally established minimum price that can be charged for a good.

b)

Government solutions to externality problems include: a)taxing the consumption of goods that cause externalities. b)All of the answers are correct. c)subsidies. d)allowing firms to trade the rights to create pollutants.

b)

If consumers pay 100 percent of a commodity tax, what could one conclude? a)The commodity in question has a perfectly elastic demand curve. b)The commodity in question has a perfectly elastic supply curve. c)Suppliers have more effective lobbying in Washington than consumers. d)Neither side has a perfectly elastic curve but the supply side is more elastic than the demand side.

b)

Private solutions to externalities are MOST likely to occur when there are: a)communal property rights and large numbers of sellers. b)well-defined property rights and low transaction costs. c)communal property rights and large numbers of buyers and sellers with equal bargaining power. d)private property rights and high transaction costs.

b)

The proposition that private parties with clearly defined property rights and low transaction costs can resolve externalities problems on their own is called the: a)transaction cost theorem. b)Coase theorem. c)Bee theorem. d)voluntary tax theorem.

b)

Two parties fail to solve an externality problem because reaching an agreement requires high-priced lawyers to negotiate and write up contracts. This illustrates the problem of: a)punitive-cost agreements. b)transaction costs. c)Pigouvian legal fees. d)legal inefficiency.

b)

Which statement explains the difference between command and control policies and tradable allowances? a)Tradable allowances allow for less flexibility than command and control policies. b)Command and control policies require all firms to reduce pollutants by a specific quantity, whereas tradable allowances allow some firms to pollute more than others by trading for pollution rights. c)Tradable allowances sometimes result in higher overall levels of pollutants because firms can simply purchase the rights to pollute more, whereas the quantity of pollution is fixed under command and control. d)Command and control policies are a government solution to externalities, whereas tradable allowances are a type of private market solution.

b)

Without taxes, the market price per bag of apples is $5. With a $2 tax per bag of apples, buyers now pay $5.75 per bag. What is the final price per bag of apples received by sellers? a)$3.00 b)$3.75 c)$5.00 d)$7.75

b)

(Figure: Costs of Price Ceilings) Refer to the figure. What is the dollar amount of lost consumer surplus if a price ceiling of $4 is implemented? a)$20 b)$90 c)$10 d)$80

c)

(Figure: Losses from Price Ceilings) Refer to the figure. At a price ceiling of $1, the area representing the total value of wasted time is ________, and the area of the deadweight loss is ________. a)bc; de b)abdf; ce c)bd; ce d)ab; de

c)

A deadweight loss is the total of: a)lost consumer and producer surplus when all mutually profitable gains from trade are exploited. b)consumer and producer surplus when all mutually profitable gains from trade are not exploited. c)lost consumer and producer surplus when all mutually profitable gains from trade are not exploited. d)consumer and producer surplus when all mutually profitable gains from trade are exploited.

c)

A rent control is a regulation that: a)upholds rents to above equilibrium levels. b)ensures that there are apartments available for rent. c)prevents rents from rising to equilibrium levels. d)controls rents at constant levels

c)

Externalities are: a)neither good nor bad. b)always bad. c)sometimes good and sometimes bad. d)always good.

c)

If a steel manufacturer does NOT bear the entire cost of the sulfur dioxide it emits, it will: a)emit a lower level of sulfur dioxide than is socially efficient. b)not emit any sulfur dioxide in an attempt to avoid paying the entire cost. c)emit a higher level of sulfur dioxide than is socially efficient. d)emit an acceptable level of sulfur dioxide

c)

If the government taxes walnuts at 50 cents a package, who pays the tax? a)walnut retailers b)walnut manufacturers c)walnut retailers and consumers d)walnut consumers

c)

The most common example of a price being controlled above market levels involves a good for which the: a)market is controlled by the government. b)buyers outnumber the sellers. c)sellers outnumber the buyers. d)market is controlled by a monopolist.

c)

When external benefits are significant: a)market output is too high. b)social surplus is maximized. c)market output is too low. d)market output is at the efficient level.

c)

(Figure: Effects of Price Ceilings) Refer to the figure. At a price ceiling of $2 per unit, consumers are willing to pay a maximum of: a)$4.00. b)$2.50. c)$2.00. d)$3.00.

d)

(Figure: Government Price Controls) Refer to the figure. If the government sets the price ceiling at $31, there will be: a)a shortage of 15 units. b)a supply of 20 units. c)a surplus of 15 units. d)no effect on the market.

d)

(Figure: Government Price Controls) Refer to the figure. If the government sets the price ceiling at $31, there will be: a)a surplus of 15 units. b)a supply of 20 units. c)a shortage of 15 units. d)no effect on the market.

d)

(Figure: Price Ceiling) Refer to the figure. When a price ceiling of $10 is instituted by the government, consumers are able to buy how many units of the product? a)40 units b)310 units c)290 units d)270 units

d)

A(n) ______ is a tax on a good with external costs. a)ad valorem tax b)Orwellian tax c)specific tax d)Pigouvian tax

d)

An external cost: a)leads to economic efficiency only when private costs are greater than external costs. b)affects producers but not consumers. c)causes markets to allocate resources efficiently. d)is a cost paid by people other than the producer or consumer trading in the market.

d)

Antibiotics may be ________ since people consider only the ________. a)underused; external and not the private costs of consumption b)underused; private and not the social costs of consumption c)overused; external and not the private costs of consumption d)overused; private and not the social costs of consumption

d)

If a seller facing excess demand is unable to raise the price of the good due to a price ceiling, a likely result will be: a)a further decrease in the price of the product. b)an increase in the price of the product. c)an increase in the quantity supplied of the product. d)a decrease in the quality of the product.

d)

In the presence of external costs, the social cost curve lies ______ the supply curve. a)below b)with c)sometimes above and sometimes below d)above

d)

The Coase theorem says that private bargains can ensure an efficient market equilibrium even when externalities exist if: a)the market is sufficiently competitive. b)the government does not involve itself in the process. c)the number of market participants is large. d)transaction costs are low and property rights are clearly defined.

d)

When a price ceiling is in effect: a)all mutually beneficial trades between buyers and sellers occur. b)no mutually beneficial trades between buyers and sellers occur. c)it is impossible to say if any, some, or all beneficial trades between buyers or sellers fail to occur. d)some mutually beneficial trades between buyers and sellers do not occur.

d)

When the government uses a command-and-control policy to solve an externality, it: a)usually involves taxing the consumption of a commodity. b)relies on the Coase theorem to structure the policy. c)is usually the most effective policy option available. d)creates policies that directly regulate behavior.

d)

Which equation is TRUE? a)private cost + average cost = social cost b)external cost = private cost c)private cost + social cost = external cost d)social cost = private cost + external cost

d)