Exam 2
A Pigovian tax sets the price of pollution while tradable pollution permits sets the quantity of pollution.
True
Which of the following statements is true if the government places a price ceiling on petrol at €1.50 per litre and the equilibrium price is €1.00 per litre? a. A significant increase in the demand for petrol could cause the price ceiling to become a binding constraint. b. A significant increase in the supply of petrol could cause the price ceiling to become a binding constraint. c. There will be a shortage of petrol. d. There will be a surplus of petrol.
A. A significant increase in the demand for petrol could cause the price ceiling to become a binding constraint
Which of the following workers would be most likely to find it more difficult to get a job after a rise in the minimum wage rate? a. A teenage worker with few qualifications. b. A manual worker with fifteen years of work experience. c. A professional worker with a university degree. d. All three are equally likely to find it difficult to get a job.
A. a teenage worker with few qualifications
A tax of €1.00 per litre on petrol a. places a tax wedge of €1.00 between the price the buyers pay and the price the sellers receive. b. decreases the price the sellers receive by €1.00 per litre. c. increases the price the buyers pay by €1.00 per litre. d. increases the price the buyers pay by precisely €0.50 and reduces the price received by sellers by precisely €0.50.
A. places a tax wedge of 1.00 between the price the buyers pay and the price the sellers receive
Which of the following is an example of a price floor? a. the minimum wage b. rent controls c. restricting petrol prices to €1.00 per litre when the equilibrium price is €1.50 per litre d. All of these answers are price floors.
A. the minimum wage
For a price ceiling to be a binding constraint on the market, the government must set it a. above the equilibrium price. b. below the equilibrium price. c. precisely at the equilibrium price. d. at any price because all price ceilings are binding constraints.
B. Below the equilibrium price
A binding price ceiling creates a. a shortage or a surplus depending on whether the price ceiling is set above or below the equilibrium price. b. a surplus. c. a shortage. d. an equilibrium.
C. a shortage
The surplus caused by a binding price floor will be greatest if a. demand is inelastic and supply is elastic. b. supply is inelastic and demand is elastic. c. both supply and demand are elastic. d. both supply and demand are inelastic.
C. both supply and demand are elastic
A tax placed on a good that is a necessity for consumers will likely generate a tax burden that a. falls more heavily on sellers. b. falls entirely on sellers. c. falls more heavily on buyers. d. is evenly distributed between buyers and sellers.
C. falls more heavily on buyers
Which of the following statements about the burden of a tax is correct? a. The tax burden generated from a tax placed on a good consumers perceive to be a necessity will fall most heavily on the sellers of the good. b. The burden of a tax falls on the side of the market (buyers or sellers) from which it is collected. c. The distribution of the burden of a tax is determined by the relative elasticities of supply and demand and is not determined by legislation. d. The tax burden falls most heavily on the side of the market (buyers or sellers) that is most willing to leave the market when price movements are unfavourable to them.
C. the distribution of the burden of a tax is determined by the relative elasticities of supply and demand and is not determined by legislation
Which side of the market is more likely to lobby government for a price floor? a. the buyers b. Neither buyers nor sellers desire a price floor. c. the sellers d. Both buyers and sellers desire a price floor.
C. the sellers
Which of the following takes place when a tax is placed a good? a. a decrease in the price buyers pay, an increase in the price sellers receive, and a decrease in the quantity sold b. an increase in the price buyers pay, a decrease in the price sellers receive, and an increase in the quantity sold c. a decrease in the price buyers pay, an increase in the price sellers receive, and an increase in the quantity sold d. an increase in the price buyers pay, a decrease in the price sellers receive, and a decrease in the quantity sold
D. an increase in the price buyers pay, a decrease in the price sellers receive, and a decrease in the quantity sold
Within the supply and demand model, a tax collected from the buyers of a good shifts the a. supply curve downward by the size of the tax per unit. b. supply curve upward by the size of the tax per unit. c. demand curve upward by the size of the tax per unit. d. demand curve downward by the size of the tax per unit.
D. demand curve downward by the size of the tax per unit
The burden of a tax falls more heavily on the sellers in a market when a. both supply and demand are elastic. b. both supply and demand are inelastic. c. demand is inelastic and supply is elastic. d. demand is elastic and supply is inelastic.
D. demand is elastic and supply is inelastic
The burden of a tax falls more heavily on the buyers in a market when a. both supply and demand are inelastic. b. demand is elastic and supply is inelastic. c. both supply and demand are elastic. d. demand is inelastic and supply is elastic.
D. demand is inelastic and supply is elastic
For which of the following products would the burden of a tax likely fall more heavily on the sellers? a. clothing b. food c. housing d. entertainment
D. entertainment
A price floor a. always determines the price at which a good must be sold. b. sets a legal maximum on the price at which a good can be sold. c. is not a binding constraint if it is set above the equilibrium price. d. sets a legal minimum on the price at which a good can be sold.
D. sets a legal minimum on the price at which a good can be sold
Within the supply and demand model, a tax collected from the sellers of a good shifts the a. demand curve downward by the size of the tax per unit. b. supply curve downward by the size of the tax per unit. c. demand curve upward by the size of the tax per unit. d. supply curve upward by the size of the tax per unit.
D. supply curve upward by the size of the tax per unit
Which of the following statements about a binding price ceiling is true? a. The shortage created by the price ceiling is greater in the short run than in the long run. b. The surplus created by the price ceiling is greater in the short run than in the long run. c. The surplus created by the price ceiling is greater in the long run than in the short run. d. The shortage created by the price ceiling is greater in the long run than in the short run.
D. the shortage created by the price ceiling is greater in the long run than in the short run
When a tax is collected from the buyers in a market, a. the tax burden falls most heavily on the buyers. b. the buyers bear the burden of the tax. c. the sellers bear the burden of the tax. d. the tax burden on the buyers and sellers is the same as an equivalent tax collected from the sellers.
D. the tax burden on the buyers and sellers is the same as an equivalent tax collected from the sellers
Suppose the equilibrium price for apartments is €500 per month and the government imposes rent controls of €250. Which of the following is unlikely to occur as a result of the rent controls? a. There may be long lines of buyers waiting for apartments. b. Landlords may discriminate among apartment renters. c. Landlords may be offered bribes to rent apartments. d. There will be a shortage of housing. e. The quality of apartments will improve.
E. The quality of apartments will improve
A larger tax always generates more tax revenue.
False
A market that generates a negative externality that has not been internalized generates an equilibrium quantity that is less than the optimal quantity.
False
A positive externality is an external benefit that accrues to the buyers in a market while a negative externality is an external cost that accrues to the sellers in a market.
False
A tax always makes a market less efficient.
False
A tax collected from buyers generates a smaller deadweight loss than a tax collected from sellers.
False
A tax on cigarettes would likely generate a larger deadweight loss than a tax on luxury boats.
False
A tax will generate a greater deadweight loss if supply and demand are inelastic.
False
According to the Coase theorem, an externality always requires government intervention in order to internalize the externality.
False
Consumer surplus is the buyer's willingness to pay minus the seller's cost.
False
Deadweight loss is the reduction in consumer surplus that results from a tax.
False
Free markets are efficient because they allocate output to buyers who have a willingness to pay that is below the price.
False
If John values having his hair cut at €20 and Mary's cost of providing the hair cut is €10, any tax on hair cuts larger than €10 will eliminate the gains from trade and cause a €20 loss of total surplus.
False
If Roberto values smoking in a restaurant at €10 and Natalie values clean air while she eats at €15, according to the Coase theorem, Roberto will not smoke in the restaurant only if Natalie owns the right to clean air.
False
If your willingness to pay for a hamburger is €3.00 and the price is €2.00, your consumer surplus is €5.00.
False
Producer surplus is a measure of the unsold inventories of suppliers in a market.
False
Producing more of a product always adds to total surplus.
False
T/F A price ceiling set below the equilibrium price causes a surplus.
False
T/F A price floor in a market always creates a surplus in that market.
False
T/F A €10 tax on football boots will always raise the price that the buyers pay for football boots by €10.
False
T/F The government can choose to place the burden of a tax on the buyers in a market by collecting the tax from the buyers rather than the sellers.
False
T/F The minimum wage helps all teenagers because they receive higher wages than they would otherwise.
False
T/F When we use the model of supply and demand to analyse a tax collected from the buyers, we shift the demand curve upward by the size of the tax.
False
T/F If the equilibrium price of petrol is €1.00 per litre and the government places a price ceiling on petrol of €1.50 per litre, the result will be a shortage of petrol.
False
The majority of economists do not like the idea of putting a price on polluting the environment.
False
To reduce pollution by some targeted amount, it is most efficient if each firm that pollutes reduces its pollution by an equal amount.
False
Total surplus is the seller's cost minus the buyer's willingness to pay.
False
When a tax is placed on a good, the revenue the government collects is exactly equal to the loss of consumer and producer surplus from the tax.
False
A deadweight loss results when a tax causes market participants to fail to produce and consume units on which the benefits to the buyers exceeded the costs to the sellers.
True
A larger tax always generates a larger deadweight loss.
True
A tax causes a deadweight loss because it eliminates some of the potential gains from trade.
True
An advantage of using tradable pollution permits to reduce pollution is that the regulator need not know anything about the demand for pollution rights.
True
Consumer surplus is a good measure of buyers' benefits if buyers are rational.
True
Cost to the seller includes the opportunity cost of the seller's time.
True
Equilibrium in a competitive market maximizes total surplus.
True
Externalities are side effects, such as pollution, that are not taken into account by the buyers and sellers in a market.
True
For any given demand curve for pollution, a regulator can achieve the same level of pollution with either a Pigovian tax or by allocating tradable pollution permits.
True
If a market generates a negative externality, a Pigovian tax will move the market toward a more efficient outcome.
True
If a market generates a negative externality, the social cost curve is above the supply curve (private cost curve).
True
If a market generates a positive externality, the social value curve is above the demand curve (private value curve).
True
If a tax is doubled, the deadweight loss from the tax more than doubles.
True
If a tax is placed on a good and it reduces the quantity sold, there must be a deadweight loss from the tax.
True
If a tax is placed on a good in a market where supply is perfectly inelastic, there is no deadweight loss and the sellers bear the entire burden of the tax.
True
If an income tax rate is high enough, a reduction in the tax rate could increase tax revenue.
True
If the demand curve in a market is stationary, consumer surplus decreases when the price in that market increases.
True
If transactions costs exceed the potential gains from an agreement between affected parties to an externality, there will be no private solution to the externality.
True
In general, a tax raises the price the buyers pay, lowers the price the sellers receive, and reduces the quantity sold.
True
Producer surplus is the area above the supply curve and below the price.
True
T/F A 10 per cent increase in the minimum wage is more likely to raise unemployment among teenage workers than among mid-career professional workers
True
T/F A price ceiling that is not a binding constraint today could cause a shortage in the future if demand were to increase and raise the equilibrium price above the fixed price ceiling.
True
T/F A price floor set above the equilibrium price is a binding constraint.
True
T/F A tax collected from buyers has an equivalent impact to a same size tax collected from sellers.
True
T/F A tax creates a tax wedge between a buyer and a seller. This causes the price paid by the buyer to rise, the price received by the seller to fall, and the quantity sold to fall.
True
T/F If medicine is a necessity, the burden of a tax on medicine will probably fall more heavily on the buyers of medicine.
True
T/F The shortage of housing caused by a binding rent control is likely to be more severe in the long run when compared to the short run.
True
T/F The ultimate burden of a tax falls most heavily on the side of the market that is less elastic.
True
The height of the supply curve is the marginal seller's cost.
True
The major advantage of allowing free markets to allocate resources is that the outcome of the allocation is efficient.
True
The two main types of market failure are market power and externalities.
True
When a group of neighbours ask a householder to tidy his front garden because they keep their own gardens tidy and attractive, they are attempting to use moral codes and social sanctions to internalize the externality associated with an untidy garden in a residential area.
True
Roberto and Thomas live in a university hall of residence. Roberto values playing loud music at a value of €100. Thomas values peace and quiet at a value of €150. Which of the following statements is true? a. It is efficient for Roberto to stop playing loud music regardless of who has the property right to the level of sound. b. It is efficient for Roberto to continue to play loud music. c. It is efficient for Roberto to stop playing loud music only if Thomas has the property right to peace and quiet. d. It is efficient for Roberto to stop playing loud music only if Roberto has the property right to play loud music.
a. It is efficient for Roberto to stop playing loud music regardless of who has the property right to the level of sound.
A negative externality generates a. a social cost curve that is above the supply curve (private cost curve) for a good. b. none of these answers. c. a social cost curve that is below the supply curve (private cost curve) for a good. d. a social value curve that is above the demand curve (private value curve) for a good.
a. a social cost curve that is above the supply curve (private cost curve) for a good.
When wealthy alumni provide charitable contributions to their universities to reduce the tuition payments of current students, it is an example of a. an attempt to internalize a positive externality. b. an attempt to internalize a negative externality. c. a Pigovian tax. d. a command-and-control policy.
a. an attempt to internalize a positive externality.
Consumer surplus is the area a. below the demand curve and above the price. b. above the supply curve and below the price. c. above the demand curve and below the price. d. below the supply curve and above the price. e. below the demand curve and above the supply curve.
a. below the demand curve and above the price
When a tax distorts incentives to buyers and sellers so that fewer goods are produced and sold than otherwise, the tax has a. caused a deadweight loss. b. decreased equity. c. generated no tax revenue. d. increased efficiency.
a. caused a deadweight loss.
An increase in the price of a good along a stationary supply curve a. increases producer surplus. b. does all of the things described in these answers. c. decreases producer surplus. d. improves market equity.
a. increases producer surplus.
Adam Smith's "invisible hand" concept suggests that a competitive market outcome a. maximizes total surplus. b. generates equality among the members of society. c. minimizes total surplus. d. both maximizes total surplus and generates equality among the members of society.
a. maximizes total surplus.
According to the Coase theorem, private parties can solve the problem of externalities if a. there are no transaction costs. b. each affected party has equal power in the negotiations. c. the party affected by the externality has the initial property right to be left alone. d. there are a large number of affected parties. e. the government requires them to negotiate with each other.
a. there are no transaction costs.
Which of the following is true regarding tradable pollution permits and Pigovian taxes? a. All of these answers are true. b. Pigovian taxes and tradable pollution permits create an efficient market for pollution. c. Tradable pollution permits efficiently reduce pollution only if they are initially distributed to the firms that can reduce pollution at the lowest cost. d. To set the quantity of pollution with tradable pollution permits, the regulator must know everything about the demand for pollution rights. e. Pigovian taxes are more likely to reduce pollution to a targeted amount than tradable pollution permits.
b. Pigovian taxes and tradable pollution permits create an efficient market for pollution.
If a market is efficient, then a. the market allocates buyers to the sellers who can produce the good at least cost. b. all of these answers. c. none of these answers. d. the quantity produced in the market maximizes the sum of consumer and producer surplus. e. the market allocates output to the buyers that value it the most.
b. all of these answers.
In general, if a benevolent social planner wanted to maximize the total benefits received by buyers and sellers in a market, the planner should a. choose a price below the market equilibrium price. b. allow the market to seek equilibrium on its own. c. choose any price the planner wants because the losses to the sellers (buyers) from any change in price are exactly offset by the gains to the buyers (sellers). d. choose a price above the market equilibrium price.
b. allow the market to seek equilibrium on its own.
A tax on petrol is likely to a. generate a deadweight loss that is unaffected by the time period over which it is measured. b. cause a greater deadweight loss in the long run when compared to the short run. c. none of these answers d. cause a greater deadweight loss in the short run when compared to the long run.
b. cause a greater deadweight loss in the long run when compared to the short run.
Which of the following is not considered a transaction cost incurred by parties in the process of contracting to eliminate a pollution externality? a. costs incurred due to lawyers fees b. costs incurred to reduce the pollution c. costs incurred to enforce the agreement d. costs incurred due to a large number of parties affected by the externality e. All of these answers are considered transaction costs.
b. costs incurred to reduce the pollution
An increase in the price of a good along a stationary demand curve a. improves the material welfare of the buyers. b. decreases consumer surplus. c. improves market efficiency. d. increases consumer surplus.
b. decreases consumer surplus.
Joe has ten pairs of football boots and Sue has none. A pair of football boots costs €50 to produce. If Joe values an additional pair of boots at €100 and Sue values a pair of boots at €40, then to maximize a. efficiency Sue should receive the glove. b. efficiency Joe should receive the glove. c. equity, Joe should receive the glove. d. consumer surplus both should receive a glove.
b. efficiency Joe should receive the glove.
Medical care clearly enhances people's lives. Therefore, we should consume medical care until a. everyone has as much as they would like. b. the benefit buyers place on medical care is equal to the cost of producing it. c. buyers receive no benefit from another unit of medical care. d. we must cut back on the consumption of other goods.
b. the benefit buyers place on medical care is equal to the cost of producing it.
If a benevolent social planner chooses to produce more than the equilibrium quantity of a good, then a. the value placed on the last unit of production by buyers exceeds the cost of production. b. the cost of production on the last unit produced exceeds the value placed on it by buyers. c. consumer surplus is maximized. d. total surplus is maximized. e. producer surplus is maximized.
b. the cost of production on the last unit produced exceeds the value placed on it by buyers.
The seller's cost of production is a. none of these answers. b. the minimum amount the seller is willing to accept for a good. c. the seller's producer surplus. d. the maximum amount the seller is willing to accept for a good. e. the seller's consumer surplus.
b. the minimum amount the seller is willing to accept for a good.
If a benevolent social planner chooses to produce less than the equilibrium quantity of a good, then a. total surplus is maximized. b. the value placed on the last unit of production by buyers exceeds the cost of production. c. producer surplus is maximized. d. the cost of production on the last unit produced exceeds the value placed on it by buyers. e. consumer surplus is maximized.
b. the value placed on the last unit of production by buyers exceeds the cost of production.
The government engages in a technology policy a. by allocating tradable technology permits to high technology industry. b. to internalize the positive externality associated with technology-enhancing industries. c. to help stimulate private solutions to the technology externality. d. to internalize the negative externality associated with industrial pollution.
b. to internalize the positive externality associated with technology-enhancing industries.
Suppose an industry emits a negative externality such as pollution and the possible methods to internalize the externality are command-and-control policies, Pigovian taxes, and tradable pollution permits. If economists were to rank these methods for internalizing a negative externality based on efficiency, ease of implementation, and the incentive for the industry to further reduce pollution in the future, they would probably rank them in the following order (from most favoured to least favoured): a. Pigovian taxes, command-and-control policies, tradable pollution permits. b. tradable pollution permits, Pigovian taxes, command-and-control policies. c. tradable pollution permits, command-and-control policies, Pigovian taxes. d. command-and-control policies, tradable pollution permits, Pigovian taxes. e. They would all rank equally high because the same result can be obtained from any one of the policies.
b. tradable pollution permits, Pigovian taxes, command-and-control policies.
Roberto and Thomas live in a university hall of residence. Roberto values playing loud music at a value of €100. Thomas values peace and quiet at a value of €150. Which of the following statements is true about an efficient solution to this externality problem if Roberto has the right to play loud music and if there are no transaction costs? a. Thomas will pay Roberto between €100 and €150 and Roberto will continue to play loud music. b. Roberto will pay Thomas €150 and Roberto will continue to play loud music. c. Thomas will pay Roberto between €100 and €150 and Roberto will stop playing loud music. d. Roberto will pay Thomas €100 and Roberto will stop playing loud music.
c. Thomas will pay Roberto between €100 and €150 and Roberto will stop playing loud music.
A positive externality generates a. a social cost curve that is above the supply curve (private cost curve) for a good. b. none of these answers. c. a social value curve that is above the demand curve (private value curve) for a good. d. a social value curve that is below the demand curve (private value curve) for a good.
c. a social value curve that is above the demand curve (private value curve) for a good.
Which of the following is true with regard to a tax on labour income? Taxes on labour income tend to encourage a. the unscrupulous to enter the underground economy. b. the elderly to retire early. c. all of the things described in these answers. d. second earners to stay home. e. workers to work fewer hours.
c. all of the things described in these answers.
If a market generates a side effect or externality, then free market solutions a. maximize producer surplus. b. are efficient. c. are inefficient. d. are equitable.
c. are inefficient.
Total surplus is the area a. above the supply curve and below the price. b. below the demand curve and above the price. c. below the demand curve and above the supply curve. d. below the supply curve and above the price. e. above the demand curve and below the price.
c. below the demand curve and above the supply curve.
The reduction of a tax a. will have no impact on tax revenue. b. will always reduce tax revenue regardless of the prior size of the tax. c. could increase tax revenue if the tax had been extremely high. d. causes a market to become less efficient.
c. could increase tax revenue if the tax had been extremely high.
If a tax on a good is doubled, the deadweight loss from the tax a. doubles. b. stays the same. c. increases by a factor of four. d. could rise or fall.
c. increases by a factor of four.
A positive externality (that has not been internalized) causes the a. equilibrium quantity to exceed the optimal quantity. b. equilibrium quantity to equal the optimal quantity. c. optimal quantity to exceed the equilibrium quantity. d. equilibrium quantity to be either above or below the optimal quantity.
c. optimal quantity to exceed the equilibrium quantity.
A Pigovian tax on pollution a. sets the quantity of pollution. b. reduces the incentive for technological innovations to further reduce pollution. c. sets the price of pollution. d. determines the demand for pollution rights.
c. sets the price of pollution.
To internalize a positive externality, an appropriate public policy response would be to a. ban the good creating the externality. b. tax the good. c. subsidize the good. d. have the government produce the good until the value of an additional unit is zero.
c. subsidize the good.
To internalize a negative externality, an appropriate public policy response would be to a. have the government take over the production of the good causing the externality. b. ban the production of all goods creating negative externalities. c. tax the good. d. subsidize the good.
c. tax the good.
When a tax on a good starts small and is gradually increased, tax revenue a. will fall. b. will rise. c. will first rise and then fall. d. will first fall and then rise. e. none of these answers
c. will first rise and then fall.
If a buyer's willingness to pay for a new Honda is €20,000 and she is able to actually buy it for €18,000, her consumer surplus is a. €18,000. b. €20,000. c. €2,000. d. €0. e. €38,000.
c. €2,000.
Suppose that the price of a new bicycle is €300. Natalie values a new bicycle at €400. It costs €200 for the seller to produce the new bicycle. What is the value of total surplus if Natalie buys a new bike? a. €500 b. €300 c. €200 d. €400 e. €100
c. €200
The graph that shows the relationship between the size of a tax and the tax revenue collected by the government is known as a a. none of these answers b. Reagan curve. c. Keynesian curve. d. Laffer curve. e. Henry George curve.
d. Laffer curve.
When an individual buys a car in a congested urban area, it generates a. a positive externality. b. a technology spillover. c. an efficient market outcome. d. a negative externality.
d. a negative externality.
Since the supply of undeveloped land is relatively inelastic, a tax on undeveloped land would generate a. a small deadweight loss and the burden of the tax would fall on the renter. b. a large deadweight loss and the burden of the tax would fall on the landlord. c. a large deadweight loss and the burden of the tax would fall on the renter. d. a small deadweight loss and the burden of the tax would fall on the landlord.
d. a small deadweight loss and the burden of the tax would fall on the landlord.
Which of the following would likely cause the greatest deadweight loss? a. a tax on salt b. a tax on cigarettes c. a tax on petrol d. a tax on cruise line tickets
d. a tax on cruise line tickets
The gas-guzzler tax that is placed on new vehicles that are very fuel inefficient is an example of a. a tradable pollution permit. b. an attempt to internalize a positive externality. c. an application of the Coase theorem. d. an attempt to internalize a negative externality.
d. an attempt to internalize a negative externality.
If a producer has market power (can influence the price of the product in the market) then free market solutions a. are equitable. b. are efficient. c. maximize consumer surplus. d. are inefficient.
d. are inefficient.
Deadweight loss is greatest when a. supply is elastic and demand is perfectly inelastic. b. demand is elastic and supply is perfectly inelastic. c. both supply and demand are relatively inelastic. d. both supply and demand are relatively elastic.
d. both supply and demand are relatively elastic.
A negative externality (that has not been internalized) causes the a. optimal quantity to exceed the equilibrium quantity. b. equilibrium quantity to be either above or below the optimal quantity. c. equilibrium quantity to equal the optimal quantity. d. equilibrium quantity to exceed the optimal quantity.
d. equilibrium quantity to exceed the optimal quantity.
A buyer's willingness to pay is that buyer's a. minimum amount they are willing to pay for a good. b. producer surplus. c. consumer surplus. d. maximum amount they are willing to pay for a good. e. none of these answers.
d. maximum amount they are willing to pay for a good.
Tradable pollution permits a. reduce the incentive for technological innovations to further reduce pollution. b. set the price of pollution. c. determine the demand for pollution rights. d. set the quantity of pollution.
d. set the quantity of pollution.
The most efficient pollution control system would ensure that a. the regulators decide how much each polluter should reduce its pollution. b. no pollution of the environment is tolerated. c. each polluter reduce its pollution an equal amount. d. the polluters with the lowest cost of reducing pollution reduce their pollution the greatest amount.
d. the polluters with the lowest cost of reducing pollution reduce their pollution the greatest amount.
Suppose there are three identical vases available to be purchased. Buyer 1 is willing to pay €30 for one, buyer 2 is willing to pay €25 for one, and buyer 3 is willing to pay €20 for one. If the price is €25, how many vases will be sold and what is the value of consumer surplus in this market? a. Three vases will be sold and consumer surplus is €80. b. One vase will be sold and consumer surplus is €5. c. One vase will be sold and consumer surplus is €30. d. Three vases will be sold and consumer surplus is €0. e. Two vases will be sold and consumer surplus is €5.
e. Two vases will be sold and consumer surplus is €5.
Producer surplus is the area a. below the supply curve and above the price. b. below the demand curve and above the supply curve. c. below the demand curve and above the price. d. above the demand curve and below the price. e. above the supply curve and below the price.
e. above the supply curve and below the price.
If buyers are rational and there is no market failure, a. free market solutions are efficient. b. free market solutions maximize total surplus. c. all of these answers. d. free market solutions are equitable. e. free market solutions are efficient and free market solutions maximize total surplus.
e. free market solutions are efficient and free market solutions maximize total surplus.
An externality is a. the benefit that accrues to the buyer in a market. b. the cost that accrues to the seller in a market. c. none of these answers. d. the compensation paid to a firm's external consultants. e. the uncompensated impact of one person's actions on the well-being of a bystander.
e. the uncompensated impact of one person's actions on the well-being of a bystander.