Econ Midterm 3
The marginal social cost of producing the last unit of a good is $1.10 while the consumers' willingness to pay for the last unit is $0.80. The deadweight loss from the production of the last unit of the good in equilibrium is ...
$0.30
A firm sells 20 units of a good at a price of $5 per unit. If the average cost of production of the good equals $3 per unit, the firm's revenue is:
$100
If a seller's marginal cost is $25, and the price at which the good is sold is $15, the producer surplus is ...
-$10
Vaccination against a disease helps in preventing the spread of the disease. Which of the following can help in increasing the number of people vaccinated to the socially optimal level?
A corrective tax
Refer to the figure above. The consumer surplus before the tax is imposed is given by the area...
CAE
Which of the following goods have a high excludability? -Cell Phone -None. -Public library -National Defense
Cell Phone
How would you depict the trade-off between equity and efficiency on a graph?
Inequality on one axis and social surplus on the other with a positively-sloped function
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.
The tables below show the reservation values of buyers and sellers in the market for used iPhones. Suppose the minimum price is given as $55 (a "price floor"). Which of the following statements is true in the market for used iPhones?
Madeline and Katie will each be willing to buy an iPhone
Which of the following is the largest source of revenue for state governments? -Miscellaneous taxes and fees, such as tolls and roads and public transportation tickets -Individual(federal) income tax -Property tax -Sales tax
Miscellaneous taxes and fees, such as tolls and roads and public transportation tickets
Which of the following is necessary for efficient markets?
Pecuniary externalities
...taxes are paid by a buyer as a percentage of the market price of an item.
Sales
Which of the following is true? -The central as well as the local governments collect taxes in the U.S. -Local governments cannot collect taxes in the U.S. -Only the federal government can collect taxes in the U.S. -Only the state governments can collect taxes in the U.S.
The central as well as the local governments collect taxes in the U.S.
Refer to the figure above. Which of the following is likely to happen if a price control of $40 is imposed?
There will be a shortage of 20 units in the market.
A manufacturing plant is emitting hazardous gas into the nearby area,adversely affecting the local citizens. In which of the following situations does private bargaining not likely to lead to an efficient outcome?
When negotiating an agreement on the allowable level of emissions and who gets compensated is difficult.
Tax incidence refers to...
Who bears the burden of a tax
An externality occurs when ...
an economic activity affects third parties not engaged in the activity
A buyer is said to be a price taker if she:
can purchase any amount of a good at a fixed price provided she has the money to pay for it
Pay-per-view broadcasts are ...
club goods
A government regulation that bans the use of a certain polluting technology in the production of a good is an example of a ... to solve an externality.
command and control approach
Consider the tax burden on consumers and producers of a $1 per-unit tax to be paid by producers when demand is perfectly elastic and supply is perfectly inelastic. The incidence of the tax falls entirely on producers because...
consumers are infinitely price sensitive.
The figure below shows the demand, supply, and marginal social bene t curves for Good Y. The triangular region ABC represents the...
economic loss of not recognizing a positive externality
Free entry is said to exist in an industry when:
entry is unfettered by any special legal or technical barriers
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 ... problem.
incentive
An economic agent ... when he accounts for the full costs and benefits of his actions
internalizes an externality
The marginal social cost curve ... when production involves negative externalities.
lies above the supply curve
A minimum wage policy is an example of a ...
price floor
The Coase Theorem states that ...
private bargaining will result in an efficient allocation of resources
In the United States, income taxes are ...
progressive
Scenario: There are 4 households in a locality. The annual income of the first household is $20,000, the annual income of the second household is $47,000, the annual income of the third household is $50,000, and the annual income of the fourth household is $71,000. Refer to the scenario above. If each family pays 12% of its income as tax every year, the local government follows a(n) ... tax system.
proportional
One reason governments impose taxes is to ...
redistribute funds via transfer payments
The government redistributes funds via transfer payments in order to...
reduce inequality among the citizens
A restaurant charges its customers 12% of the total food price as tax. This is an example of a ... tax
sales
The total producer surplus in the entire market is given by the:
sum of all of the individual sellers' producer surplus
The entry of new firms into a perfectly competitive market will cause:
the equilibrium price to decrease but the equilibrium quantity to increase
When a Pigouvian tax is imposed ...
the marginal private cost curve shifts upward
The reservation value of a buyer reflects her ...
willingness to pay for a good or service
Suppose a market has only one seller and only one buyer of a good. The buyer has a reservation value of $25 and the seller has a reservation value of $15. The market price of the good is determined at $20. If they trade, the social surplus will be ...
$10
The following table displays the reservation values of eight buyers and eight sellers where each individual wants to buy or sell a calculator. Refer to the table above. If the market is perfectly competitive, the equilibrium price of calculators is:
$12
If the total revenue collected by the federal government in a particular year is $1.2 billion and the total amount spent by the government during the same year is $3.8 billion, what is the budget deficit?
$2.6 billion
John is ready to pay $5 for an extra loaf of bread. Due to an ongoing discount in the store, he gets a loaf for $2. John's consumer surplus from the purchase is ...
$3
If a firm faces an average total cost of $100 and sells its product for $115, how much profit does it make when it sells 20 units of the product?
$300
A firm with a fixed cost of $300 every month and variable cost of $200 every month decides to shut down. In such a situation it would lose:
$300 every month
The government of Lithasia ran a budget deficit of $60,000 in 2014. If the tax revenue of the Lithasian government in 2014 was $320,000,000, how much did the government spend in that year?
$320,060,000
Suppose a market has only one seller and one,y one buyer of a good in the market. The buyer is willing to pay $50 for the good and the seller is willing to accept $15. The market price of the good is determined at $30. If they trade, the social surplus will be ...
$35
If a seller enjoys a producer surplus of $30 when he sells a good for $79, his reservation value for the good is...
$49
If a seller's reservation value for a good is $10 and the price at which the good is sold is $15, his producer surplus is:
$5
If Kate pays an average tax rate of 12.5% and her total income is $34,000, she pays ... as tax.
$5,500
Refer to the figure above. What is the market-wide consumer surplus when the market price of wine is $9?
$60,000
A firm has an average total cost of $50. If it sells 20 units of its product at $80 each, what is its profit?
$600
The figure below shows the demand, supply, and marginal social bene t curves for good Y. Social welfare will be maximized if units of good Y are produced.
16 million
Mr. Smith pays $20,000 annually as tax. If his annual income is $100,000, what is his average tax?
20%
A firm produced 376 units with 10 workers. When the eleventh worker was hired, the output increased to 398 units. The marginal product of the eleventh worker is:
22 units
Refer to the table. If Maxine earns $40,000, which of the following would be her marginal tax rate and her average tax rate?
25%; about 14%
Refer to the table above (card 27). If the market is perfectly competitive, the equilibrium quantity of calculators is:
5 units
The price at which a seller is indifferent between making a sale and not doing so is known as his...
A and C only (willingness-to-sell and reservation price)
Smoking increases the risk of lung infections not only for active smokers but also for other people inhaling the smoke passively. Which of the following will help in reducing smoking? -A life insurance -A health tax -A health insurance -A corrective tax
A corrective tax
Ron plays loud music, which prevents his neighbor from studying. His neighbor values studying at $5,000, while the cost of soundproofing Ron's room is $3,000. Which of the following problems arises in this scenario? -Low transaction costs -The free-rider problem -A negative externality -Moral hazard
A negative externality
In assessing the performance of a perfectly competitive market, we can say that...
All of the above (price efficiently allocates goods and services to buyers and sellers, any departure from the equilibrium necessarily reduces social surplus, and no individual can be made better off without making someone else worse off)
Which of the following economic tools can be used to solve the tragedy of the commons? -Incentives toself-regulate the use of resources -Privatization of the resource. -Pigouvian tax. -All of the above.
All of the above.
In an economy, if the government implements a law for individuals that requires them to save at least 25% of their annual income in a social savings plan framed by the government. For supporting this plan, the government raises revenues by implementing income tax rates that are higher compared to the other countries. Which of the following will be a result(s) of this scenario? -An increase in the deadweight losses -It strengthens the view of consumer sovereignty -An increase in immigration of high-income -None of the above
An increase in the deadweight losses
Ron plays loud music, which prevents his neighbor from studying. His neighbor values studying at $5,000, while the cost of soundproofing Ron's room is $3,000. If Ron has the right to listen to music at night, how much does his neighbor need to pay him to stop playing music?
Any amount between $3,000 and $5,000
Which of the following goods have a high excludability? -(iii) Club goods. -Both (i) and (iii). -(ii) Public goods. -(i) Ordinary private goods.
Both (i) and (iii).
The Coase Theorem will breakdown when ...
Both A and B (there is a large number of agents and when property rights are not clearly defined)
Sara and Jim are going to lunch together and rank the restaurant options in the following way. Which of the following restaurant choices are Pareto efficient for Sara and Jim?
Both A and C are correct (Blaze and Naf Naf)
Imagine you are a buyer in a double oral auction with a reservation value of $13 and there is a seller asking for $9. If you are the only buyer, and you know that the lowest ask price is $3, should you accept this offer?
Both A and C are correct (Yes, accepting an offer from any other seller will reduce you surplus and Yes, since you will gain $10)
Firm A uses production technology that affects the environment. Which of the following are command-and-control policies used by the government to regulate firm A? -The government makes it compulsory for firm A to use environment friendly technology. -Firm A has to pay a penalty to the government for not using environment-friendly technology. -Firm A is not allowed by the government to produce more than 100 units if it does not use environment-friendly technology. -Both A and C.
Both A and C.
Which of the following statements explains the concept of the tragedy of the commons? -It is an example of a positive externality. -The open access to common resources results in their depletion through overuse. -It results when the free market equilibrium quantity is higher than the optimal equilibrium quantity. -Both B and C.
Both B and C.
Which of the following is a cost associated with government intervention in an economic system? -Inequality -Unemployment -Bureaucracies -Externalities
Bureaucracies
The new governor of Vermont is worried about increasing geographic inequality within the state. The richest county in Vermont, Chittenden, has median per capita income of about $32,000, while the poorest counties, Caledonia, Franklin, Orleans and Essex, have median income per capita around $20,000. Vermont has a budget of about $5 billion. The governor is considering changing the allocation of the budget and taxes in order to deal with the inequality problem. His first proposal is to increase transfers to the residents of Caledonia, Franklin, Orleans, and Essex. There are about 50,000 households in the four counties, and the governor would like to transfer $5,000 to each household. How much will this increase Vermont's budget?
By $250 million
Which of the following statements is true? -Command economies do a better job at maximizing social welfare in comparison to market economies. -Central planners in command economies have to make decisions that prices would have automatically made in market economies. -Bringing economic agents together to trade is easier in command economies in comparison to market economies. -The incentive problem and the coordination problem lead to lower efficiency in market economies.
Central planners in command economies have to make decisions that prices would have automatically made in market economies.
Which of the following gives rise to a positive externality? -Sudden increase in the price of oil due to a supply shock -Sudden increase in the demand for diamonds leading to an increase in their price -Deforestation leading to the extinction of many species -Consumption of a drug to cure a communicable disease
Consumption of a drug to cure a communicable disease
Which of the following statements are true regarding externalities? -None of the above. -Deadweight loss can be either a foregone benefit or the total cost of the externality to society. -In the case of anexternality, the free market will maximize social surplus. -For computing efficientoutcomes, economic agents adjust the demand curve to account for negative externalities.
Deadweight loss can be either a foregone benefit or the total cost of the externality to society.
Refer to the figure above. What is the equilibrium price and quantity of the good?
Equilibrium price = $60, equilibrium quantity = 20 units
Refer to the figure above (card 30). Which of the following statements is true?
Firm A will have a higher reservation value for the good than Firm B
Refer to the figure above. The producer surplus before the imposition of the tax is given by the area...
GAE
Which of the following is an implication of the Coase Theorem? -Negotiation leads to an efficient outcome if transaction costs are high. -Bargaining cannot lead to an efficient allocation of resources. -Taxation leads to an efficient allocation of resources regardless of who holds the property rights. -Government intervention is not always necessary to solve externality problems.
Government intervention is not always necessary to solve externality problems.
Which of the following is true? -If production of a good gives rise to a negative externality, it can be internalized by taxing the producers of the good -If consumption of a good gives rise to a negative externality, it can be internalized by subsidizing the purchase of the good -If production of a good gives rise to a positive externality, it can be internalized by taxing the consumers of the good -If consumption of a good gives rise to a positive externality, it can be internalized by taxing the producers of the good.
If production of a good gives rise to a negative externality, it can be internalized by taxing the producers of the good
Which of the following statements regarding the Coase Theorem is not true? -Negotiation between the concerned parties is necessary to solve the externality problems. -Initial property right allocation determines whether the socially efficient outcome can be achieved. -Regardless of who has the legal ownership of property orresources, the socially efficient outcome can be achieved through private bargaining. -The final outcome of bargaining will match the preferences of those who value ownership the most.
Initial property right allocation determines whether the socially efficient outcome can be achieved.
Which of the following statements regarding internalizing an externality is true? -It means companies and individuals consider the internal effects of their actions. -It is a theme that separates various solutions to the problem of externalities. -It means agents account for the full costs and benefits of their actions. -It results in a market equilibrium that lowers social well-being.
It means agents account for the full costs and benefits of their actions.
Which of the following is NOT an externality? -Alisha did not sleep well because her neighbor was playing loud music -Jordan has lung cancer from smoking cigarettes -Rochelle has asthma caused by the pollution of a local factory near her home -Jose, who is allergic to to pollen, is sick from the flowers that grow in his neighbor's garden
Jordan has lung cancer from smoking cigarettes
Which of the following relationships correctly identifies the profit maximization condition of a firm in a perfectly competitive market?
Marginal cost = Price =Marginal revenue
Government spending in the United States has grown over time and now accounts for more than 40 percent of U.S. national income. Does this mean that the government has been consistently running a budget deficit?
No, government deficits depend upon spending and tax revenue
Does price gouging have the same effect as setting prices above equilibrium level?
No, price gouging is actually an equilibrium outcome, while setting of prices above equilibrium is not.
Is the entire burden of the tax always borne by those on whom it is imposed?
Not necessarily, since the burden of the tax depends on price elasticity
Which of the following best illustrates the tragedy of the commons? -Donating to the World Wildlife Fund -Sneaking into a concert without paying for a ticket -Overfishing in public waters -Buying a Nintendo DS instead of funding the public library
Overfishing in public waters
Which of the following best illustrates the tragedy of the commons? -Donating to the World Wildlife Fund. -Buying a Nintendo DS instead of funding the public library. -Sneaking into a concert without paying for a ticket. -Overfishing in public waters.
Overfishing in public waters.
Which of the following are examples of inefficiencies created by government intervention? -An increase in the price of alcohol due to higher taxes imposed by the government -Causing a rise in inflation due to an expansionary fiscal policy of the government -Quality deterioration in a market after government implements a price control -None of the above
Quality deterioration in a market after government implements a price control
Refer to the figure above. Which of the following is likely to happen if a price control below the equilibrium price is imposed?
Quantity demanded will exceed quantity supplied.
You are the County Commissioner of Hazard County. There is a popular lake for fishing located in eastern Hazard County on county-owned park land, which is open to the public. Recently, the Reed brothers have started using large nets to catch large amounts of fish,severely depleting the amount of fish left for other fishermen. The fish in the lake are an example of a common pool resource. What approach would be the least effective way to deal with the overfishing problem? -Enact a law limiting the number of fish that can be caught per person. -Limit who is allowed to fish in the lake. -Restock the lake more often with fish. -Charge a tax per fish caught.
Restock the lake more often with fish.
... taxes are paid by a buyer as a percentage of the market price of an item.
Sales
Which of the following is not a result of corruption? -Inequality in the distribution of resources -Selling goods at a price that does not include taxes -Using public funds for an increasing personal wealth -Using a lesser proportion of the total assigned amount of money for public projects
Selling goods at a price that does not include taxes
Which of the following can give rise to a negative externality? -Working for long hours -Consuming a vegetarian food -Smoking a cigarette -Planting a tree
Smoking a cigarette
In which of the following situations can an externality be internalized by using the Pigouvian subsidy?
Sophia's flower garden provides a pleasant view for her neighbors.
The new governor of Vermont is worried about increasing geographic inequality within the state. The richest county in Vermont, Chittenden, has median per capita income of about $32,000, while the poorest counties, Caledonia, Franklin, Orleans and Essex, have median income per capita around $20,000. Vermont has a budget of about $5 billion. The governor is considering changing the allocation of the budget and taxes in order to deal with the inequality problem. His advisors inform the governor that the increased budget shortfall would be costly to finance. He instead proposes to tax the residents of Chittenden. There are about 62,500 households in Chittenden. The governor proposes a tax of 12.5 percent on each household to finance his transfer program. His advisors explain to him that the tax revenue generated by this proposal will be less than the necessary amount. Why?
The higher tax will lead to lower labor supply, and thus household income will fall below $32,000 in Chittenden and there will be less tax revenue
In an economy, there is a high level of social inequality. This causes the government to implement a wealth tax on its citizens who earn a high level of income and, therefore, are capable of holding assets. Which of the following is not a result of the implementation of the wealth tax?
The increase in consumer surplus and decrease in social inequality.
The following figure shows the marginal cost curves of two profit-maximizing firms- Firm A and Firm B-in a perfectly competitive market Refer to the figure above. Which of the following statements is true?
The profit-maximizing level of output of Firm B will be greater than that of Firm A at all prices.
Many people have argued that an income tax should be "marriageneutral," that is, two people should pay the same total tax whether they are married or they are single. Suppose Amanda earns nothing,Ben earns $60,000, and Cathy and Dylan each earn $30,000. They are all single. Amanda pays no tax because she has no income. If they all live in a country that has a progressive income tax, which will be higher: the tax that Ben pays or the sum of the taxes Cathy and Dylan pay?
The tax that Ben pays because high-income individuals pay higher income taxes
Which of the following statements is true of perfect competition?
The total value of production across a perfectly competitive industry is maximized
The following figure shows the demand and supply curves for a good. The initial demand curve is D1 and the supply curve is S. Later, due to an external shock, the demand curve shifts to D2. Which of the following is likely to happen if the government imposes a price control at $60, when the demand curve shifts to D2?
There will be a shortage of 15 units of the good in the market.
Which of the following functions is beyond the scope of economics as far as government intervention is considered? -To understand what sorts of activities require intervention -To weigh the costs and benefits of specific interventions. -To make a value judgment on whether government is good or bad. -To help in improving the design of policies
To make a value judgment on whether government is good or bad.
Which of the following is a factor underlying government taxation and spending decisions? -To accumulate debt in order to pay for public goods -To prevent wealth redistribution -To raise revenues to pay for operations -To create externalities
To raise revenues to pay for operations
Which of the following statements is true? -A firm interested in maximizing profits in a perfectly competitive market will produce output at a level where marginal revenue is equal to the price and greater than the marginal cost. -Under a perfectly competitive framework, a ruling authority is essentially required to dictate goals for the betterment of society. -The total cost of production in a perfectly competitive market can be minimized only when the marginal costs across firms in the market are different. -When a competitive market is allowed to operate efficiently, firms end up producing goods using the least amount of scarce resources.
When a competitive market is allowed to operate efficiently, firms end up producing goods using the least amount of scarce resources.
The entry of new firms into a perfectly competitive market will cause:
a decrease in the profitability of existing firms.
Social surplus is maximized when the...
all of the above (competitive market is in equilibrium, highest-value buyers are making a purchase and the lowest-cost sellers are selling, and buyers and sellers as distinct groups are doing as well as they possibly can)
The tragedy of the commons results when ...
common pool resources are overused
The market demand curve for a good shows ... and the market supply curve shows ...
consumers' willingness to pay for the good; producers' marginal cost of producing the good
A difficult problem for central planners is bringing together those economic agents whose interests coincide in order to trade. This is known as the ... problem
coordination
You are the County Commissioner of Hazard County. Dwight'sneighbors bring a complaint before you that Dwight's hog farm is creating a terrible odor, and they are demanding government action. You decide to respond to the neighbor's complaints by limiting the number of hogs that Dwight can have on his farm. This is an example of using a command-and-control approach. If you were to recommend a command-and-control approach, a disadvantage would be that it ...
creates few incentives for innovation.
A price ceiling leads to a(n) ... if below equilibrium price.
decrease in total surplus
The two most important goals for government policy involve a trade-off between ... and ...
equity; efficiency
A concert in a crowded auditorium is in ... consumption.
excludable and rival
Assume there are two industries in our economy: the production of pizza and the production of calzones. Each of these products is produced in a similar way with similar ingredients and requires similar skills. If the market price of pizza in this competitive market is below the AT curve and the price of calzones is above the ATC curve, ...
firms currently making pizza will switch to making calzones
Three friends stay in an apartment. Their landlord offers to air-condition the apartment if they pay for the installation charges. Although they all want an air-conditioner, none of them say so. This is an example of the ...
free-rider problem
If the marginal cost of a perfectly competitive firm producing a good is $50 and the market price off the good is $100, the firm should:
increase its output
The largest source of the federal tax revenue is ...
individual income taxes
The largest source of the federal tax revenue is...
individual income taxes
For computing efficientoutcomes, economic agents adjust the demand curve to account for negative externalities. -marginal cost + marginal benefit. -None of the above. -marginal private cost + marginal external cost. -marginal cost of the externality + marginal external cost.
marginal private cost + marginal external cost.
A chemical factory releases its byproducts in a nearby river, which harms aquatic flora and fauna. This is an example of a ...
negative externality
The Coase theorem relies on internalizing externalities through...
negotiations between the parties involved
In a perfectly competitive market, if market price is higher than the average total cost of production, ...
new firms will enter the industry
In a competitive market equilibrium, the allocation of the social surplus is such that...
no individual can be made better off without making someone else worse off
The free-rider problem exists for goods that are ...
non-excludable
Public goods are ... in consumption.
non-excludable and non-rival
Space on a popular, public beach is ... in consumption.
non-excludable but rival
Five players are given $10 each and asked to contribute any portion of it to a group account. They are also told that the total collection will be doubled and distributed equally among each of them. In this case, the players are likely to contribute ...
nothing
Sale of a popular energy drink called 7D was banned in Bonland after a study revealed that one of its ingredients increases the risk of cancer. This legislation is an example of...
paternalism
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
The government of Lithasia has decided to set a minimum price for certain agriculturalproducts in order to safeguard the interests of farmers. This is an example of a...
price floor
In a perfectly competitive market:
price is always equal to marginal revenue
The federal government relies on ... to limit inequality.
progressive taxes
Given that there are costs involved with government intervention in an economy, governments still choose to intervene in markets to...
reduce poverty
Scenario: There are 4 households in a locality. The annual income of the first household is $20,000, the annual income of the second household is $47,000, the annual income of the third household is $50,000, and the annual income of the fourth household is $71,000. Refer to the scenario above. If the first household pays 20% of its income as tax, the second household pays 17.5% of its income as tax, the third household pays 13% of its income as tax, and the fourth household pays 10% of its income as tax, income taxes are ... in nature.
regressive
A ... is the price at which a trading partner is indifferent between making the trade and not doing so.
reservation value
Many people have argued that an income tax should be "marriageneutral," that is, two people should pay the same total tax whether they are married or they are single. Suppose Amanda earns nothing,Ben earns $60,000, and Cathy and Dylan each earn $30,000. They are all single. Amanda marries Ben and Cathy marries Dylan. This country taxes married couples based on a family's total income. Amanda and Ben will pay the same tax as Cathy and Dylan because ...
the couples have the same family income
The equilibrium price of a good sold in a competitive market is $10. If an individual firm decides to sell its product at a price higher than $10, ...
the firm will lose all its customers
The production of steel in a factory generates a negative externality. A per-unit tax on the factory that equals ... of steel production will internalize the externality entirely.
the marginal external cost
Government invention is required to solve externality problems if ...
the number of people affected by the externality is large
If a tax is imposed per unit of a good sold, ...
the supply curve for the good shifts to the left
If prices are held above the equilibrium price:
there exists a surplus in the market
Deadweight loss refers to the loss in...
total surplus due to a market distortion such as an externality
Social surplus is the...
total value from trade in a 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 commons
