Global Economics Midterm Ch. 7-13

When is the level of output in a market socially optimal?

When the total cost is equal to the total value of the market.

Eldin is a house painter. He can paint three houses per week. He is considering hiring his friend Murphy. Together, Eldin and Murphy can paint five houses per week. What is Murphy's marginal product? a. 2 houses b. 3 houses c. 5 houses d. 8 houses

a. 2 houses

Which of the following statements is correct? a. Buyers always want to pay less and sellers always want to be paid more. b. Buyers always want to pay less and sellers always want to be paid less. c. Buyers always want to pay more and sellers always want to be paid more. d. Buyers always want to pay more and sellers always want to be paid less.

a. Buyers always want to pay less and sellers always want to be paid more.

A tariff on a product makes... a. domestic sellers better off and domestic buyers worse off. b. domestic sellers worse off and domestic buyers worse off. c. domestic sellers better off and domestic buyers better off. d. domestic sellers worse off and domestic buyers better off.

a. domestic sellers better off and domestic buyers worse off.

A pizza is... a. excludable and rival in consumption. b. excludable and nonrival in consumption. c. nonexcludable and rival in consumption. d. nonexcludable and nonrival in consumption.

a. excludable and rival in consumption.

As a result of a decrease in price... a. new buyers enter the market, increasing consumer surplus. b. new buyers enter the market, decreasing consumer surplus. c. existing buyers exit the market, increasing consumer surplus. d. existing buyers exit the market, decreasing consumer surplus.

a. new buyers enter the market, increasing consumer surplus.

According to the Coase theorem, in the presence of externalities... a. private parties can bargain to reach an efficient outcome. b. government assistance is necessary to reach an efficient outcome. c. the assignment of legal rights can prevent externalities. d. the initial distribution of property rights will determine the efficient outcome.

a. private parties can bargain to reach an efficient outcome.

Domestic producers of a good become worse off, and domestic consumers of a good become better off, when a country begins allowing international trade in that good and... a. the country becomes an importer of the good as a result. b. the world price exceeds the domestic price of the good that prevailed before international trade was allowed. c. the country in question has a comparative advantage, relative to other countries, in producing the good. d. total surplus does not change as a result.

a. the country becomes an importer of the good as a result

A tax imposed at every stage of production is a... a. value-added tax. b. lump sum tax. c.corrective tax. d.regressive tax.

a. value-added tax.

Josiah installed a metal sculpture in his front yard. A positive externality arises if the sculpture... a. ​increases the value of other properties in the neighborhood. b. increases the value of Josiah's home. c. is visually unappealing to Josiah's neighbors. d. creates a safety hazard for neighborhood children.

a. ​increases the value of other properties in the neighborhood.

Which of the following statements is not correct? a. Patents help internalize the externalities associated with technological advances. b. Economists typically prefer regulations to corrective taxes because regulations provide more incentives for firms to seek continued reductions in pollution. c. Allowing firms to trade pollution permits will lower the total cost of reducing pollution. d. A big impediment to implementing the Coase theorem in many cases is high transactions costs.

b. Economists typically prefer regulations to corrective taxes because regulations provide more incentives for firms to seek continued reductions in pollution.

Which parable describes the problem of wild animals that are hunted to the point of extinction? a. Coase theorem b. The Tragedy of the Commons c. The Wise Woman d. The Tortoise and the Hare

b. The Tragedy of the Commons

At Bert's Bootery, the total cost of producing twenty pairs of boots is $400. The marginal cost of producing the twenty-first pair of boots is $83. We can conclude that the... a. average variable cost of 21 pairs of boots is $23. b. average total cost of 21 pairs of boots is $23. c. average total cost of 21 pairs of boots is $15.09. d. marginal cost of the 20th pair of boots is $20.

b. average total cost of 21 pairs of boots is $23.

The commercial value of ivory is a threat to the elephant, but the commercial value of beef is a guardian of the cow. This is because... a. the cow is raised in developed countries, while the elephant lives primarily in less-developed countries. b. cows are private goods, while elephants tend to roam freely without owners. c. cows and elephants are public goods, but ivory is nonrival. d. ivory is nonrival and nonexclusive, but beef is rival and exclusive.

b. cows are private goods, while elephants tend to roam freely without owners.

A tax levied on the buyers of a good shifts the... a. supply curve upward (or to the left). b. supply curve downward (or to the right). c. demand curve downward (or to the left). d. demand curve upward (or to the right).

c. demand curve downward (or to the left).

National defense is a classic example of a public good because... a. there is no market for private security services. b. it is difficult to exclude people from receiving the benefits from national defense once it is provided. c. everyone agrees that some level of national defense is important, but only the government knows the optimal amount. d. there are no private firms willing to supply defense goods such as tanks and weapons.

b. it is difficult to exclude people from receiving the benefits from national defense once it is provided

A negative externality will cause a private market to produce... a. less than is socially desirable. b. more than is socially desirable. c. exactly the quantity that is socially desirable. d. less than the same market would produce in the presence of a positive externality.

b. more than is socially desirable.

The things that must be forgone to acquire a good are called... a. implicit costs. b. opportunity costs. c. explicit costs. d. accounting costs.

b. opportunity costs.

A seller is willing to sell a product only if the seller receives a price that is at least as great as the a. seller's producer surplus. b. seller's cost of production. c. seller's profit. d. average willingness to pay of buyers of the product.

b. seller's cost of production

A consumption tax is a tax on... a. goods but not on services. b. the amount of income that people spend. c. the amount of income that people earn. d. the amount of income that people save.

b. the amount of income that people spend.

Efficiency in a market is achieved when... a. a social planner intervenes and sets the quantity of output after evaluating buyers' willingness to pay and sellers' costs. b. the sum of producer surplus and consumer surplus is maximized. c. all firms are producing the good at the same low cost per unit. d. no buyer is willing to pay more than the equilibrium price for any unit of the good.

b. the sum of producer surplus and consumer surplus is maximized

Efficiency in a market is achieved when... a. a social planner intervenes and sets the quantity of output after evaluating buyers' willingness to pay and sellers' costs. b. the sum of producer surplus and consumer surplus is maximized. c. all firms are producing the good at the same low cost per unit. d. no buyer is willing to pay more than the equilibrium price for any unit of the good.

b. the sum of producer surplus and consumer surplus is maximized.

Karen's potted plant causes Danny to sneeze. Karen values her potted plant at $300 per year. The cost to Danny of tissues and her allergy medication is $350 per year. Based on the Coase theorem... a. Karen should pay Danny $400 so that she may keep her potted plant. b. Karen should pay Danny $350 for tissues and allergy medication. c. Danny should pay Karen $325 to give away her potted plant. d. Danny should move

c. Danny should pay Karen $325 to give away her potted plant.

Suppose that policymakers are doing cost-benefit analysis on a proposal to add traffic barriers to divide the flow of traffic in an effort to increase safety on a given highway. Which of the following statements is correct? a. The benefits are usually easier to measure than the costs. b. Because human life is priceless, any measure to increase traffic safety would generate benefits that outweigh the costs. c. Estimating the value of a human life is difficult but necessary to evaluate the proposal. d. Both a and b are correct.

c. Estimating the value of a human life is difficult but necessary to evaluate the proposal.

If only a few people are affected by an externality, then it is likely that... a. the government will play a role in collective action. b. command-and-control regulation will provide the most efficient solution to the externality. c. a private solution to the inefficiency will occur. d. a private solution will be very difficult to negotiate.

c. a private solution to the inefficiency will occur.

Which of the following goods is not excludable and not rival in consumption? a. fish in the ocean b. tickets to a professional basketball game c. a tornado siren d. a premium television channel

c. a tornado siren

Marginal cost tells us the... a. value of all resources used in a production process. b. marginal increment to profitability when price is constant. c. amount by which total cost rises when output is increased by one unit. d. amount by which output rises when labor is increased by one unit.

c. amount by which total cost rises when output is increased by one unit.

Dawn's bridal boutique is having a sale on evening dresses. The increase in consumer surplus comes from the benefit of the lower prices to... a. only existing customers who now get lower prices on the gowns they were already planning to purchase. b. only new customers who enter the market because of the lower prices. c. both existing customers who now get lower prices on the gowns they were already planning to purchase and new customers who enter the market because of the lower prices. d. Consumer surplus does not increase; it decreases.

c. both existing customers who now get lower prices on the gowns they were already planning to purchase and new customers who enter the market because of the lower prices

Suppose that the market price for pizzas increases. The increase in producer surplus comes from the benefit of the higher prices to... a. only existing sellers who now receive higher prices on the pizzas they were already selling. b. only new sellers who enter the market because of the higher prices. c. both existing sellers who now receive higher prices on the pizzas they were already selling and new sellers who enter the market because of the higher prices. d. Producer surplus does not increase; it decreases.

c. both existing sellers who now receive higher prices on the pizzas they were already selling and new sellers who enter the market

When the nation of Mooseland first permitted trade with other nations, domestic producers of sugar experienced a decrease in producer surplus of $5 million and total surplus in Mooseland's sugar market increased by $2 million. We can conclude that... a. Mooseland became an exporter of sugar. b. the overall economic well-being of participants in the sugar market in Mooseland fell because of trade. c. consumer surplus in Mooseland increased by $7 million. d. the opening of trade caused the domestic demand curve for sugar in Mooseland to shift to the right.

c. consumer surplus in Mooseland increased by $7 million

Assume that for good X the supply curve for a good is a typical, upward-sloping straight line, and the demand curve is a typical downward-sloping straight line. If the good is taxed, and the tax is tripled, the... a. The deadweight loss doubles. b. The deadweight loss does not change. c. deadweight loss of the tax increases by a factor of nine. d. All of the above are correct.

c. deadweight loss of the tax increases by a factor of nine

Assume, for Vietnam, that the domestic price of textiles without international trade is higher than the world price of textiles. This suggests that, in the production of textiles, a. Vietnam has a comparative advantage over other countries and Vietnam will import textiles. b. Vietnam has a comparative advantage over other countries and Vietnam will export textiles. Incorrect c. other countries have a comparative advantage over Vietnam and Vietnam will import textiles. d. other countries have a comparative advantage over Vietnam and Vietnam will export textiles.

c. other countries have a comparative advantage over Vietnam and Vietnam will import textiles.

All of the following are transfer payments except... a. welfare payments. b. unemployment compensation. c. personal income taxes. d. Social Security.

c. personal income taxes.

Diminishing marginal product suggests that the marginal... a. cost of an extra worker is unchanged. b. cost of an extra worker is less than the previous worker's marginal cost. c. product of an extra worker is less than the previous worker's marginal product. d. product of an extra worker is greater than the previous worker's marginal product.

c. product of an extra worker is less than the previous worker's marginal product.

The North American Free Trade Agreement... a. is an example of the unilateral approach to free trade. b. eliminated tariffs on imports to North America from the rest of the world. c. reduced trade restrictions among Canada, Mexico and the United States. d. All of the above are correct.

c. reduced trade restrictions among Canada, Mexico and the United States.

The Laffer curve illustrates that... a. deadweight loss rises by the square of the increase in a tax. b. deadweight loss rises exponentially as a tax increases. c. tax revenue first rises, then falls as a tax increases. d. Both a) and b) are correct.

c. tax revenue first rises, then falls as a tax increases.

The amount of deadweight loss that results from a tax of a given size is determined by... a. whether the tax is levied on buyers or sellers. b. the number of buyers in the market relative to the number of sellers. c. the price elasticities of demand and supply. d. the ratio of the tax per unit to the effective price received by sellers.

c. the price elasticities of demand and supply

The deadweight loss of an income tax is proportional to... a. the square root of the tax rate. b. the tax rate. c. the square of the tax rate. d. the median tax rate.

c. the square of the tax rate.

An example of an opportunity cost that is also an implicit cost is... a. a lease payment. b. the cost of raw materials. c. the value of the business owner's time. d. All of the above are correct.

c. the value of the business owner's time.

Since the 1980s, Wal-Mart stores have appeared in almost every community in America. Wal-Mart buys its goods in large quantities and, therefore, at cheaper prices. Wal-Mart also locates its stores where land prices are low, usually outside of the community business district. Many customers shop at Wal-Mart because of low prices. Local retailers, like the neighborhood drug store, often go out of business because they lose customers. This story demonstrates that... a. consumers do not react to changing prices. b. there are diseconomies of scale in retail sales. c. there are economies of scale in retail sales. d. there are diminishing returns to producing and selling retail goods.

c. there are economies of scale in retail sales.

Because taxes distort incentives, they typically result in... a. deadweight losses. b. reductions in consumer surplus. c. reductions in producer surplus. d. All of the above are correct.

d. All of the above are correct.

A tax... a. lowers the price buyers pay and raises the price sellers receive. b. raises the price buyers pay and lowers the price sellers receive. c. places a wedge between the price buyers pay and the price sellers receive. d. Both b and c are correct.

d. Both b and c are correct

A dentist shares an office building with a radio station. The electrical current from the dentist's drill causes static in the radio broadcast, causing the radio station to lose $10,000 in profits. The radio station could put up a shield at a cost of $30,000; the dentist could buy a new drill that causes less interference for $6,000. Either would restore the radio station's lost profits. What is the economically efficient outcome? a. The radio station puts up a shield, which it pays for. b. The radio station puts up a shield, which the dentist pays for. c. Neither the radio station nor the dentist purchase additional equipment. d. The dentist gets a new drill; it does not matter who pays for it.

d. The dentist gets a new drill; it does not matter who pays for it.

Suppose that the U.S. has a comparative advantage in the production of spreadsheet software. As a result of opening up the market to international trade, a. U.S. citizens benefit from lower software prices, increasing consumer surplus in the market. b. U.S. software producers are harmed, since the price that these producers receive will decline as the price falls to the world price. c. total surplus in this market will remain unchanged, as the decline in benefits received by software producers exactly balances the increase in benefits received by US software consumers. d. U.S. producers benefit from higher software prices, increasing producer surplus in the market.

d. U.S. producers benefit from higher software prices, increasing producer surplus in the market

An example of a private good would be... a. a fireworks display. b. a rose garden. c. an internet radio subscription. d. a sleeping bag.

d. a sleeping bag.

If your income is $40,000 and your income tax liability is $5,000, your... a. marginal tax rate is 8 percent. b. average tax rate is 8 percent. c. marginal tax rate is 12.5 percent. d. average tax rate is 12.5 percent.

d. average tax rate is 12.5 percent.

Welfare economics is the study of... a. taxes and subsidies. b. how technology is best put to use in the production of goods and services. c. government welfare programs for needy people. d. how the allocation of resources affects economic well-being.

d. how the allocation of resources affects economic well-being.

Average total cost is increasing whenever... a. total cost is increasing. b. marginal cost is increasing. c. marginal cost is less than average total cost. d. marginal cost is greater than average total cost.

d. marginal cost is greater than average total cost.

Assume, for England, that the domestic price of wine without international trade is higher than the world price of wine. This suggests that, in the production of wine, a. England has a comparative advantage over other countries and England will export wine. b. England has a comparative advantage over other countries and England will import wine. c. other countries have a comparative advantage over England and England will export wine. d. other countries have a comparative advantage over England and England will import wine.

d. other countries have a comparative advantage over England and England will import wine.

The Tragedy of the Commons for sheep grazing on common land can be eliminated by the government doing each of the following except... a. assigning land property rights. b. auctioning off sheep-grazing permits. c. taxing sheep flocks. d. subsidizing sheep flocks.

d. subsidizing sheep flocks.