Micro Econ: Exam 2 Q&A. Ch 6,8,10,11

Consider a public road that anyone is allowed to drive on. If the road is often congested, the road would be considered a: A. common resource. B. private good. C. club good. D. public good.

Correct Answer: A

Figure 10-13. On the graph, Q represents the quantity of plastics and P represents the price of plastics. If 250 units of plastics are produced and consumed, then the: A. social optimum has been reached. B. negative externality associated with plastics has been eliminated. C. positive externality associated with plastics has been eliminated. D. market equilibrium has been reached.

Correct Answer: A

If a price ceiling is not binding, then A. the equilibrium price is below the price ceiling. B. it has no legal enforcement mechanism. C. the equilibrium price is above the price ceiling. D. None of the above is correct because all price ceilings must be binding.

Correct Answer: A

If the government removes a binding price floor from a market, then the price paid by buyers will A. decrease, and the quantity sold in the market will increase. B. increase, and the quantity sold in the market will increase. C. increase, and the quantity sold in the market will decrease. D. decrease, and the quantity sold in the market will decrease.

Correct Answer: A

Property rights are well established for A. private goods. B. public goods. C. common resources. D. both (b) and (c).

Correct Answer: A

Refer to Figure 6-4. A government-imposed price of $6 in this market is an example of a

Correct Answer: A

Refer to Figure 6-7. Which of the following price controls would cause a shortage of 20 units of the good? A. a price ceiling set at $6 B. a price floor set at $8 C. a price ceiling set at $5 D. a price floor set at $9

Correct Answer: A

Suppose that smoking creates a negative externality. If the government does not interfere in the cigarette market, then A. the equilibrium quantity of cigarettes smoked will be greater than the socially optimal quantity of cigarettes smoked. B. the equilibrium quantity of cigarettes smoked will equal the socially optimal quantity of cigarettes smoked. C. the equilibrium quantity of cigarettes smoked will be less than the socially optimal quantity of cigarettes smoked. D. There is not enough information to answer the question.

Correct Answer: A

When the government imposes taxes on buyers or sellers of a good, society A. loses some of the benefits of market efficiency. B. gains efficiency but loses equality. C. is better off because the government's tax revenues exceed the deadweight loss. D. moves from an elastic supply curve to an inelastic supply curve.

Correct Answer: A

Which of the following statements is correct? A. Corrective taxes are often preferred over direct regulation because they typically reduce externalities at a lower cost. B. Corrective taxes distort economic incentives. C. Corrective taxes are often preferred over direct regulation because they typically reduce externalities at a faster rate. D. Both a and b are correct.

Correct Answer: A

Without government intervention, public goods tend to be A. underproduced and common resources tend to be overconsumed. B. underproduced and common resources tend to be underconsumed. C. overproduced and common resources tend to be overconsumed. D. overproduced and common resources tend to be underconsumed.

Correct Answer: A

A city street is A. a public good when it is congested, but it is a common resource when it is not congested. B. a common resource when it is congested, but it is a public good when it is not congested. C. always a public good, whether or not it is congested. D. always a common resource, whether or not it is congested.

Correct Answer: B

A legal maximum on the price at which a good can be sold is called a price A. floor. B. ceiling. C. subsidy. D. support.

Correct Answer: B

If the government removes a tax on a good, then the price paid by buyers will A. increase, and the price received by sellers will increase. B. decrease, and the price received by sellers will increase. C. increase, and the price received by sellers will decrease. D. decrease, and the price received by sellers will decrease

Correct Answer: B

The term market failure refers to A. an unsuccessful advertising campaign which reduces demand. B. a market that fails to allocate resources efficiently. C. ruthless competition among firms. D. a firm that is forced out of business because of losses.

Correct Answer: B

A tax imposed on the sellers of a good will raise the A. price paid by buyers and raise the equilibrium quantity. B. effective price received by sellers and raise the equilibrium quantity. C. price paid by buyers and lower the equilibrium quantity. D. effective price received by sellers and lower the equilibrium quantity.

Correct Answer: C

Figure 8-23. The figure represents the relationship between the size of a tax and the tax revenue raised by that tax. If the economy is at point A on the curve, then a decrease in the tax rate will: A. increase the deadweight loss of the tax and increase tax revenue. B. decrease the deadweight loss of the tax and increase tax revenue. C. decrease the deadweight loss of the tax and decrease tax revenue. D. increase the deadweight loss of the tax and decrease tax revenue.

Correct Answer: C

For private goods allocated in markets, A. the government guides the decisions of buyers and sellers and these decisions lead to an efficient allocation of resources. B. the government guides the decisions of buyers and sellers and these decisions lead to an inefficient allocation of resources. C. prices guide the decisions of buyers and sellers and these decisions lead to an efficient allocation of resources. D. prices guide the decisions of buyers and sellers and these decisions lead to an inefficient allocation of resources.

Correct Answer: C

If the size of a tax increases, tax revenue A. remains the same. B. increases. C. may increase, decrease, or remain the same. D. decreases.

Correct Answer: C

In deciding whether a good is a public good, one must determine the A. incomes of those who benefit from the good. B. value of the external benefits that accrue to resource owners. C. excludability of the good. D. All of the above are correct.

Correct Answer: C

Price controls are usually enacted A. when policymakers tax a good. B. as a means of raising revenue for public purposes. C. when policymakers believe that the market price of a good or service is unfair to buyers or sellers. D. All of the above are correct.

Correct Answer: C

Refer to Figure 10-10. Taking into account private and external costs, the maximum total surplus that can be achieved in this market is A. $1,440. B. $760. C. $1,080. D. $1,920.

Correct Answer: C

Refer to Figure 10-7. Which quantity represents the social optimum for this market? A. Q1. B. Q2. C. Q3. D. Q4.

Correct Answer: C

Refer to Figure 6-7. Suppose a price floor of $8 is imposed on this market. As a result, A. buyers' total expenditure on the good decreases by $20. B. the price of the good continues to serve as the rationing mechanism. C. the quantity of the good demanded decreases by 10 units. D. the supply curve shifts to the left; quantity sold is now 30 units and the price is $8.

Correct Answer: C

Suppose that installing an overhead pedestrian walkway would cost a college town $150,000. The walkway is expected to reduce the risk of fatality by 3 percent, and the cost of a human life is estimated at $10 million. The town should A. not install the walkway, since the cost is twice the estimated benefit. B. install the walkway because the estimated benefit equals the cost. C. install the walkway because the estimated benefit is twice the cost. D. install the walkway, since the cost of even a single life is too great not to take action.

Correct Answer: C

When a tax is placed on the sellers of a product, buyers pay A. more, and sellers receive more than they did before the tax. B. less, and sellers receive less than they did before the tax. C. more, and sellers receive less than they did before the tax. D. less, and sellers receive more than they did before the tax.

Correct Answer: C

A neighborhood voted to develop a vacant lot into a vegetable garden. All of the neighbors worked the land and sowed the seeds. A few neighbors picked and ate the produce before the other neighbors had a chance. Which of the following could solve this example of the Tragedy of the Commons? A. The neighborhood divides the lot into equal size plots and each family can plant and harvest only on their plot. B. The neighborhood continues to work the land and sow the seeds as a group, but sells all of the produce to willing buyers and reinvests the proceeds into the garden for the next year. C. The neighborhood decides to stop gardening on this land because there is no equitable way to allocate the produce. D. Both a and b are possible solutions to this example of the Tragedy of the Commons

Correct Answer: D

Figure 8-8 Suppose the government imposes a $10 per unit tax on a good. One effect of the tax is to A. create a deadweight loss of $60. B. reduce producer surplus by $72. C. reduce consumer surplus by $108. D. All of the above are correct. Hide Feedback

Correct Answer: D

If a tax is levied on the sellers of flour, then A. the government will bear the entire burden of the tax. B. sellers will bear the entire burden of the tax. C. buyers will bear the entire burden of the tax. D. buyers and sellers will share the burden of the tax.

Correct Answer: D

Refer to Figure 6-5. If the horizontal line on the graph represents a price ceiling, then the price ceiling is A. binding and creates a surplus of 60 units of the good. B. binding and creates a surplus of 20 units of the good. C. not binding but creates a surplus of 40 units of the good. D. not binding, and there will be no surplus or shortage of the good.

Correct Answer: D

Suppose a tax is imposed on bananas. In which of the following cases will the tax cause the equilibrium quantity of bananas to shrink by the largest amount? A. The response of buyers and sellers to a change in the price of bananas is weak. B. The response of buyers to a change in the price of bananas is strong, and the response of sellers to a change in the price of bananas is weak. C. The response of sellers to a change in the price of bananas is strong, and the response of buyers to a change in the price of bananas is weak. D. The response of buyers and sellers to a change in the price of bananas is strong. Hide Feedback

Correct Answer: D

Suppose the government places a per-unit tax on a good. The smaller the price elasticities of demand and supply for the good, the A. more equitable is the distribution of the tax burden between buyers and sellers. B. less efficient is the tax. C. greater the deadweight loss from the tax. D. smaller the deadweight loss from the tax.

Correct Answer: D

Taxes are of interest to A. macroeconomists because they consider how policymakers can use the tax system to stabilize economic activity. B. microeconomists because they consider how to balance equality and efficiency. C. microeconomists because they consider how best to design a tax system. D. All of the above are correct.

Correct Answer: D

When the government imposes taxes on buyers or sellers of a good, society A. moves from an elastic supply curve to an inelastic supply curve. B. is better off because the government's tax revenues exceed the deadweight loss. C. gains efficiency but loses equality. D. loses some of the benefits of market efficiency.

Correct Answer: D

Which of the following is an example of a positive externality? A. a person littering in a public park B. the pollution of a stream C. air pollution D. a nice garden in front of your neighbor's house

Correct Answer: D

TRUE/FALSE A tax will create a wedge between the price buyers pay and the price sellers receive, as well as result in a post-tax quantity that is above the equilibrium quantity.

Correct Answer: FALSE

TRUE/FALSE When a tax is imposed on a good, consumer surplus decreases and producer surplus remains unchanged.

Correct Answer: FALSE

TRUE/FALSE A tax on hamburgers would likely create a larger deadweight loss than a tax on cigarettes.

Correct Answer: TRUE

TRUE/FALSE Normally, both buyers and sellers of a good become worse off when the good is taxed.

Correct Answer: TRUE

TRUE/FALSE To be binding, a price floor must be set above the equilibrium price.

Correct Answer: TRUE