Micro Economics Final

Refer to Figure 6-26. The effective price received by sellers after the tax is imposed is

$8

Kelly is willing to pay $5.20 for a gallon of gasoline. The price of gasoline at her local gas station is $3.80. If she purchases ten gallons of gasoline, then Kelly's consumer surplus is

$14

Refer to Table 5-5. As price rises from $7 to $8, the price elasticity of demand using the midpoint method is approximately

0.65

Melissa engages in an activity that influences the well-being of a bystander. In order for Melissa's activity to give rise to an externality, it must be the case that

Melissa neither pays nor receives any compensation for her activity.

The private value of the 420th unit of output is $15. The social value of the 420th unit of output is $42. The external benefit of the 420th unit of output is $27.

Refer to Figure 10-11. Which of the following statements is correct?

650

Refer to Figure 10-2. Suppose that the production of plastic creates a social cost which is depicted in the graph above. Without any government regulation, how much plastic will be produced?

Panel (c)

Refer to Figure 10-9. The installation of a scrubber in a smokestack reduces the emission of harmful chemicals from the smokestack. Therefore, the market for smokestack scrubbers is shown in

producer surplus

When the Price is P1, area C represents

Goods that are rival in consumption but not excludable would be considered

common resources.

When the government imposes taxes on buyers or sellers of a good, society

loses some of the benefits of market efficiency

When economists are trying to explain the world, they are

scientist

Differences in scientific judgment between economists are similar to all of the following except

two politicians arguing about the fairness of the tax code.

Without government intervention, public goods tend to be

underproduced and common resources tend to be overconsumed.

The minimum wage does not apply to

unpaid internships

The federal taxes owed by a taxpayer depend

upon all the marginal tax rates up to the taxpayer's overall level of income.

Figure 6-18 The vertical distance between points A and B represents the tax in the market. Refer to Figure 6-18. The price that buyers pay after the tax is imposed is

$24

The largest source of income for the federal government is

individual income taxes.

The higher a country's tax rates, the more likely that country will be

on the negatively sloped part of the Laffer curve

Cross-price elasticity of demand measures how

the quantity demanded of one good changes in response to a change in the price of another good.

Suppose Max values a concert ticket at $45. Charles values the same concert ticket at $40. The pre-tax price of a concert ticket is $30. The government imposes a tax of $5 on each concert ticket, and the price rises to $35. The deadweight loss from the tax is

$0

Refer to Table 7-16. Both the demand curve and the supply curve are straight lines. If 6 units are bought and sold, then total surplus is

$18 lower than it would be if the equilibrium number of units were bought and sold

Josh is willing to pay $500 for a set of tire, but he is able to pay $300 at the local tire store. His consumer surplus is

$200

Scenario 12-1 Ken places a $20 value on a cigar, and Mark places a $17 value on it. The equilibrium price for this brand of cigar is $15. Refer to Scenario 12-1. Suppose the government levies a tax of $1 on each cigar, and the equilibrium price of a cigar increases to $16. What is total consumer surplus after the tax is levied?

$5

Refer to Figure 4-4. If Yasmine and Mercedes are the only two consumers in the market, then the market quantity demanded at a price of $12 is

9 units.

The federal government is concerned about the negative effects of cigarette smoking in the United States. Suppose Congress is considering two plans. One plan would limit the production of cigarettes. The other would require manufacturers to include graphic photos on cigarette packages of people suffering cancer's effects. Which of the following statements is true?

Both programs would reduce the quantity of cigarettes sold.

How did the farm population in the United States change between 1950 and today?

It dropped from 10 million to fewer than 3 million people.

Suppose the state of Illinois passes a law that bans smoking in restaurants. As a result, residents of Wisconsin who do not like breathing second-hand smoke begin driving across the border to Illinois to eat at restaurants there. Which of the following principles does this best illustrate?

People respond to incentives

420 units to any other quantity of output.

Refer to Figure 10-11. A benevolent social planner would prefer

Which of the following statements is correct?

Sales taxes and property taxes are the two most important revenue sources for state and local governments.

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?

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

Which of the following is an example of an externality?

a. A drunk driver causes an accident that injures another person. b. A neighbor's loud music disrupts sleep. c. A paper mill dumps waste into the river.

If a consumer places a value of $20 on a particular good and if the price of the good is $25, then the

consumer does not purchase the good.

Good news for farming can be bad news for farmers because the

demand for basic foodstuffs is usually inelastic, meaning that factors that shift supply to the right decrease total revenues to sellers.

One advantage of a lump-sum tax over other taxes is that it

doesn't cause deadweight loss.

Advocates of the minimum wage

emphasize the low annual incomes of those who work for the minimum wage.

An increase in the price of a good would

give producers an incentive to produce more.

Economists at the Department of Justice

help enforce the nation's antitrust laws

In 2011, which category represented the largest category of spending for the U.S. federal government?

income security

The supply of oil is likely to be

inelastic in the short run and elastic in the long run

Firms that are involved in more than one type of business could be evidence of an attempt to

internalize some forms of positive externalities.

Suppose the government imposes a 25-cent tax on the buyers of incandescent light bulbs. Which of the following is not correct? The tax would

lower the equilibrium price by 25 cents.

You know an economist has crossed the line from scientist to policy adviser when he or she

makes normative statements.

If a road is congested, then use of that road by an additional person would lead to a

negative externality

Refer to Figure 6-14. If the horizontal line on the graph represents a price floor, then the price floor is

not binding, and there will be no surplus or shortage of the good.

Suppose that 300 bottles of soda are demanded at a particular price. If the price of a bottle of soda rises from that price by 6 percent, the number of bottles of soda demanded falls to 275. Using the midpoint approach to calculate the price elasticity of demand, it follows that the

price elasticity of demand for bottles of soda in this price range is about 1.45

Suppose that a decrease in the price of good X results in fewer units of good Y being demanded. This implies that X and Y are

substitute goods

Deadweight losses are associated with

taxes that distort the incentives that people face

Suppose after graduating from college you get a job working at a bank earning $30,000 per year. After two years of working at the bank earning the same salary, you have an opportunity to enroll in a one-year graduate program that would require you to quit your job at the bank. Which of the following should not be included in a calculation of your opportunity cost?

the $45,000 salary that you will be able to earn after having completed your graduate program

Economists who are primarily responsible for advising Congress on economic matters work in which agency?

the Congressional Budget Office

Prior to the collapse of communism, communist countries worked on the premise that economic well-being could be best attained by

the actions of government central planners.

The failure of communism in a large number of countries is at least partly explained by

the lack of information, on the part of central planners in those countries, about tastes and preferences in their economies.

Refer to Table 11-5. Suppose the cost to run the ferry for each roundtrip is $1,000 per day and the 4 business owners have agreed to split the costs of the ferry trips equally. How many ferry trips would the owner of Store A prefer to have?

0

The design of tax policy is one of the responsibilities of economists who work at the

Department of the Treasury

Which of the following is not an example of a market?

In the United States, a sick person cannot legally purchase a kidney.

Refer to Table 12-9. Bill is a single person whose taxable income is $35,000 a year. What happened to his average tax rate between 2012 and 2013?

It decreased

$6,000

Refer to Figure 8-6. Without a tax, total surplus in this market is

Which parable describes the problem of wild animals that are hunted to the point of extinction?

The Tragedy of the Commons

Which of the following would shift the supply of Packers football jerseys to the right?

The cost of the fabric used to make the jerseys decreases.

Which of the following in not a reason that a lump-sum tax imposes a minimal administrative burden on taxpayers?

The government can easily forecast tax revenues.

Suppose the cost of flying a 200-seat plane for an airline is $100,000 and there are 10 empty seats on a flight. The airline should sell a ticket to a standby passenger only if the passenger is willing to pay

This cannot be determined from the information given

Which of the following is an example of a normative, as opposed to positive, statement?

Universal health care would be good for U.S. citizens.

Which of the following demonstrates the law of supply?

When the price of leather belts rose, leather belt sellers increase their quantity supplied of leather belts.

Refer to Figure 4-8. Suppose the figure shows the market demand for laptop computers. Suppose the price of wireless keyboards, a complementary good, increases. Which of the following changes would occur?

a shift from D1 to D2

European countries tend to rely on which type of tax more so than the United States does?

a value-added tax

Market power refers to the

ability of market participants to influence price

In the market for oil in the short run, demand

and supply are both inelastic.

Economists speaking like policy advisers make

claims about how the world should be.

When a tax is placed on the sellers of a product, buyers pay

more, and sellers receive less than they did before the tax

All remedies for externalities share the goal of

moving the allocation of resources toward the socially optimal equilibrium

Refer to Figure 6-6. If the government imposes a price ceiling of $8 on this market, then there will be

no shortage.

Inefficiency exists in an economy when a good is

not being produced by the lowest-cost producers.

A congested side street in your neighborhood is

not excludable and rival in consumption.

When all market participants are price takers who have no influence over prices, the markets have

numerous buyers and sellers.

Assume that your roommate is very messy. According to campus policy, you have a right to live in an uncluttered apartment. Suppose she gets an $80 benefit from being messy but imposes a $60 cost on you. The Coase theorem would suggest that an efficient solution would be for your roommate to

pay you at least $60 but less than $80 to live with the clutter

An example of an externality is the impact of

pollution from a factory on the health of people in the vicinity of the factory

Suppose chocolate-dipped strawberries are currently selling for $30 per dozen, but the equilibrium price of chocolate-dipped strawberries is $20 per dozen. We would expect a

surplus to exist and the market price of chocolate-dipped strawberries to decrease.

Refer to Figure 6-30. In which market will the majority of the tax burden fall on sellers?

the market shown in panel (a)

Compared to the original tax, the larger tax will decrease tax revenue

Refer to Figure 8-22. Suppose the government initially imposes a $3 per-unit tax on this good. Now suppose the government is deciding whether to lower the tax to $1.50 or raise it to $4.50. Which of the following statements is not correct?

Total surplus measures the

buyers' willingness to pay less the sellers' cost

Scenario 12-1 Ken places a $20 value on a cigar, and Mark places a $17 value on it. The equilibrium price for this brand of cigar is $15. Refer to Scenario 12-1. Suppose the government levies a tax of $1 on each cigar, and the equilibrium price of a cigar increases to $16. How much tax revenue is collected?

$2

Refer to Table 12-9. Ruby Sue is a single person whose taxable income is $100,000 a year. What happened to her marginal tax rate between 2012 and 2013?

It decreased.

Yi and Avik are both economists. Yi thinks that taxing consumption, rather than income, would result in higher household saving because income that is saved would not be taxed. Avik does not think that household saving would respond much to a change in the tax laws. In this example, Yi and Avik

More than one of the above is correct

Suppose that Bill wants to dine at a fancy restaurant, but the only available table is in the smoking section. Bill dislikes the smell of cigarette smoke. He notices that only one person, Peter, is smoking in the smoking section. Bill values the absence of smoke at $15. Peter values the ability to smoke in the restaurant at $10. In order for Bill to pay Peter not to smoke, he will need to tip the waiter $10 to facilitate the transaction. Which of the following represents an efficient solution?

Peter continues to smoke because the cost to Bill to pay him not to smoke is between $20 and $25, which exceeds the benefit to him of no smoking ($15).

not change tax revenue and increase the deadweight loss from the tax.

Refer to Figure 8-21. Suppose the market is represented by Demand 1 and Supply 1. At first the government places a $3 per-unit tax on this good. Then the government decides to raise the tax to $6 per unit. Compared to the original tax rate, the higher tax will

$8, and the equilibrium quantity is 50

Refer to Figure 8-4. The equilibrium price before the tax is imposed is

Consumer surplus falls by $2,700.

Refer to Figure 8-6. What happens to consumer surplus when the tax is imposed in this market?

$5,000

Refer to Figure 8-9. The amount of amount of deadweight loss as a result of the tax is

Supply-side economics is a term associated with the views of

Ronald Reagan and Arthur Laffer

Which of the following events could cause an increase in the supply of ceiling fans?

The number of sellers of ceiling fans increases.

If a binding price ceiling is imposed on the baby formula market, then

b. the quantity of baby formula supplied will decrease. c. a shortage of baby formula will develop. d. the quantity of baby formula demanded will increase.

An efficient tax system is one that imposes small

deadweight losses and administrative burdens.

Hot dogs and hot dog buns are complements. An increase in the price of flour used to make hot dogs buns will

decrease consumer surplus in the market for hot dog buns and decrease producer surplus in the market for hot dogs.

The government has just passed a law requiring that all residents earn the same annual income regardless of work effort. This law is likely to

decrease efficiency but increase equality

Table 7-5 For each of three potential buyers of oranges, the table displays the willingness to pay for the first three oranges of the day. Assume Allison, Bob, and Charisse are the only three buyers of oranges, and only three oranges can be supplied per day. Refer to Table 7-5. If the market price of an orange increases from $0.80 to $1.05, then consumer surplus

decreases by $0.95

There are very few, if any, good substitutes for motor oil. Therefore, the

demand for motor oil would tend to be inelastic

The property of society getting the most it can from its scarce resources is called

efficiency

When the government places a tax on a product, the cost of the tax to buyers and sellers

exceeds the revenue raised from the tax by the government.

In a market economy, who makes the decisions that guide most economic activity?

firms and households

Scenario 5-3 The supply of aged cheddar cheese is inelastic, and the supply of bread is elastic. Both goods are considered to be normal goods by a majority of consumers. Suppose that a large income tax increase decreases the demand for both goods by 10%. Refer to Scenario 5-3. The change in equilibrium quantity will be

greater in the bread market than in the aged cheddar cheese market.

Some, but not all, government economists are employed within the administrative branch of government. Which of the following government agencies employs economists outside of the administrative branch?

the Congressional Budget Office