ECON MIDTERM 2
Suppose the university imposed a $10 fee to cover the cost. This would raise the $40,000 necessary but might make many students upset. Which of the following is likely to happen if the decision to clear snow were put up for a university-wide vote?
A majority-rule vote would induce the university to stop collecting money for snow removal, since 3,000 students would not support the proposed decision.
The mercantilist economic doctrine was widely followed from the sixteenth to the eighteenth centuries in Europe. Mercantilists advocated the use of tariffs to restrict trade, as they believed that countries that export more than they import will increase wealth. What could be the problem with such an economic policy?
Consumers pay a price that is higher than the world price, reducing consumer surplus.
The government of a certain country decides that all its citizens should be equally well off. It decides to redistribute money so that each person has a roughly equal share of the total income. How would this policy affect economic activity in the country?
It would be adversely affected since incentives to work or seek profits would be greatly diminished.
Hardware stores charge higher prices for snow shovels after a big snow storm. What role do prices play in the snow shovel market?
It would incentivize distributors to ship more snow shovels into the area to meet the increased demand.
Why is free trade controversial?
Some individuals may lose.
Which of the following would not be considered a common pool resource good?
Streetlight
In which of the following scenarios would a country export a good?
The domestic price for the good is below the world price.
Compared to the market for cars, the market for vintage buttons has fewer buyers and sellers. Social surplus is likely to be higher in the market for cars than in the vintage button market. Using the concept of Pareto efficiency, which of the following statements is likely to be true?
The outcome in the market for cars is Pareto efficient because it is a perfectly competitive market.
The market for economics textbooks is in equilibrium. The government decides to relax export restrictions on paper, leading to an increase in the demand for paper. How does social surplus in the market for textbooks change? Why?
The social surplus decreases, producer surplus may increase or decrease, and consumer surplus decreases.
A college campus must decide whether to spend $40,000 to clear sidewalks of snow during the winter. There are 4,000 students. One thousand of these students are willing to pay up to $30 each to walk on a snowless sidewalk. The other 3,000 are willing to pay $8 each. In terms of efficiency, which of the following statements is true?
The university should pay $40,000 to keep the snow off the sidewalks, since total benefit is greater than total cost
A university administrator proposes the following: the 3,000 students willing to pay $8 must in fact pay $8 each. This raises $24,000. The students willing to pay $30 have to pay only $16 each (for $16,000 more, for a total of $40,000). Using the above information, which of the following consequences is likely to be true if the administrator uses this method of fund-raising?
The university would not be able to collect $40,000, since the students who were willing to pay $30 would not reveal their true preferences.
What is the intent of a Pigouvian tax?
To induce producers of a negative externality to reduce production to the socially optimal level.
Which of the following would maximize social surplus?
Trade at the competitive market equilibrium.
Two manufacturing plants operate at Acme Corporation: Plant A and Plant B. If Plant A uses older technology than Plant B, it is likely to have (blank) marginal cost than Plant B.
a higher
When economies open up to free trade, trading partners (blank) benefit
always
If you produce at a point inside your PPC, then you are producing at a point that is
attainable but inefficient
Is it true that a country needs to have an absolute advantage in the production of a good in order to benefit from trade in that good? Countries that do not have an absolute advantage in the production of a good (blank) benefit from trade.
can
In a (blank) economy, a central authority determines the goods and services produced while a (blank) economy is based on price signals and strong economic incentives.
command, market
A difficult problem for central planners is bringing together those economic agents whose interests coincide in order to trade This is known as the (blank) problem.
coordination
A deadweight loss is the (blank) in social surplus that results from a market (blank)
decrease, distortion
One reason economists in general (blank) favor protectionism is because it (blank) prices for consumers and (blank) social surplus
do not, raises, lowers
Suppose a country has 100 westerners and 100 easterners. A westerner can produce either 6 units of food or 2 units of national defense; an easterner can produce either 2 units of food or 1 unit of national defense. According to the data, (blank) have a comparative advantage in the production of defense.
easterners
Suppose this country has decided it wants to produce 60 units of defense. In this case, the country will have more food to consume if the (blank) produced these 60 units of defense.
easterners
Many service-sector jobs in the United States have moved to other countries where these jobs are done at a fraction of the cost. The outsourcing of jobs overseas is heavily debated by politicians, policymakers, and economists in the United States. In the domestic economy when outsourcing exists, prices (blank), social surplus (blank), and labor market welfare
fall, increases, decreases
Which of the following is not one of the common arguments against free trade?
firms always win at the expense of consumers
The economy as a whole benefits from outsourcing if the gain in social surplus is (blank) the losses in labor welfare.
greater than
In this case, Plant A requires a market price that is (blank) Plant B in order to produce. At the market price, Plant A will produce (blank) plant B and will earn (blank) economic profit.
higher than, less than, a lower
Once planners have successfully brought economic agents together, a second problem of aligning the interests of the economic agents must be solved. This is known as the (blank) problem
incentive
In a perfectly competitive market, when firms enter and exit competitive markets:
it is a good sign the market is working.
All else being equal, the steeper the demand curve, the (blank) the social surplus in a market.
larger
All else being equal, the steeper the supply curve is, the (blank) the social surplus in a market
larger
All else being equal, the steeper the demand curve, the (blank) the social surplus in a market
larger
According to the principle of comparative advantage, both parties will engage in a trade if the trading price:
lies between their opportunity costs.
When a country opens itself to trade and becomes an importer of goods and services, sellers (blank) and buyers (blank)
lose, win
National security concerns might cause a nation to:
maintain a variety of agricultural industries.
An outcome is Pareto efficient if
no individual can be made better off without making someone else worse off.
A non-market price imposition is a
price control
In a market economy, the alignment of interests is accomplished through the use of
prices
Complete specialization occurs when each individual, firm, or country:
produces only what it has a comparative advantage in.
All else being equal, the flatter the supply curve, the (blank) the social surplus in a market.
smaller
Social surplus is the
sum of consumer surplus and producer surplus.
You should have anticipated this answer because
the easterners have a comparative advantage in the production of defense.
How does a command-and-control policy differ from a market-based policy? With a command-and-control policy, (blank), while with amarket- basedpolicy,
the government directly regulates the allocation of resources, the government provides incentives for private organizations to internalize the externality
Sofia, a political science student, thinks that the government should intervene to revive declining industries like video stores and print newspapers. The government, she reasons, can resolve the coordination problem of getting the agents in these markets to trade. Do you agree with her? Explain your answer.
No, these industries are declining not because of coordination problems but, rather, because of falling demand.
