Micro Exam 2

A positive externality occurs when

A.) Jack receives a benefit from John's consumption of a certain good.

Refer to Figure 5. This graph represents the tobacco industry. Without any government intervention, the equilibrium price and quantity are a. $1.90 and 38 units, respectively.b. $1.80 and 35 units, respectively.c. $1.60 and 42 units, respectively.d. $1.35 and 58 units, respectively.

C.) $1.60 and 42 units, respectively.

Refer to Figure 4. At the equilibrium price, consumer surplus is

C.) $300 1/2 x 10 x $60 = $300 (150 - 90) = 60

Refer to Figure 4. At the equilibrium price, total surplus is

D.) $500 TS = CS + PS TS = $300 + $200 TS = $500

Who among the following is a free rider?

Fred watches many public television programs, but he has never sent in a contribution to the station.

Refer to Figure 10-4. If all external costs were internalized, then the market's equilibrium output would be

Q2.

Which of the following is not correct?

Taxes levied on sellers and taxes levied on buyers are not equivalent.

Which of the following equations is not valid?

Total surplus = Value to sellers - Cost to sellers

2.Refer to Table 1. Which of the following price ceilings would be binding in this market?

a. $2

Refer to Figure 1. The per-unit burden of the tax is

a. $4 on buyers and $6 on sellers

Refer to Figure 1. The effective price received by sellers after the tax is imposed is

a. $8.

Suppose the government imposes a price ceiling of $5 on this market. What will be the size of the shortage in this market?

a. 0 units

Suppose the government imposes a price floor of $1 on this market. What will be the size of the surplus in this market?

a. 0 units

Refer to Table 2. If the market price is $5.50, the consumer surplus in the market will be

b. $4.50

Refer to Figure 1. How much tax revenue does this tax produce for the government?

b. $600

If the price of oak lumber increases, what happens to consumer surplus in the market for oak cabinets?

b. Consumer surplus decreases.

Producer surplus is the

b. amount a seller is paid minus the cost of production.

Refer to Figure 2. In which market will the majority of the tax burden fall on buyers?

b. market (b)

15.Refer to Figure 1. The amount of the tax per unit is

d. $10.

A tax on buyers will

shift the demand curve downwards by the amount of the tax

If a tax is levied on the sellers of a product, then the demand curve

will not shift.

Diana is a personal trainer whose client Charles pays $80 per hour-long session. Charles values this service at $100 per hour, while the opportunity cost of Diana's time is $75 per hour. The government places a tax of $10 per hour on personal trainers. Before the tax, what is the total surplus?

A.) $25 100 - 75 = 25

The Tragedy of the Commons occurs because

A.) a common resource is rival in consumption.

A local manufacturing plant that emitted sulfur dioxide was forced to stop production because it did not comply with local clean air standards. This decision provides an example of

A.) a direct regulation of an externality.

The term market failure refers to

A.) a market that fails to allocate resources efficiently.

Corrective taxes differ from most taxes in that corrective taxes

A.) enhance economic efficiency.

Refer to Figure 5. This graph represents the tobacco industry. The socially optimal price and quantity are a. $1.90 and 38 units, respectively.b. $1.80 and 35 units, respectively.c. $1.60 and 42 units, respectively.d. $1.35 and 58 units, respectively

B.) $1.80 and 35 units, respectively.

Refer to Figure 4. If the government imposes a price floor of $120 in this market, then total surplus will decrease by

B.) $125 1/2 x $50 x 5 = $120

.In the market for widgets, the supply curve is the typical upward-sloping straight line, and the demand curve is the typical downward-sloping straight line. The equilibrium quantity in the market for widgets is 200 per month when there is no tax. Then a tax of $5 per widget is imposed. The price paid by buyers increases by $2 and the after-tax price received by sellers falls by $3. The government is able to raise $750 per month in revenue from the tax. The deadweight loss from the tax is

B.) $125 Because: 750/(3 + 2) = 150 = New Quantity [(200 - 150) x (2 + 3)]/2

Refer to Figure 4. At the equilibrium price, producer surplus is

B.) $200 1/2 x 10 x $40 = $200 (90 - 50) = 40

Which of the following statements is correct?

B.) Internalizing a negative externality will cause an industry to decrease the quantity it supplies to the market and increase the price of the good produced.

Refer to Figure 6. The socially optimal quantity would be

B.) Q2.

1.Price controls are usually enacted

B.) When policymakers believe that the market price of a good or service is unfair to buyers or sellers.

The government provides public goods because

B.) free-riders make it difficult for private markets to supply the socially optimal quantity.

Refer to Figure 5. This graph represents the tobacco industry. The industry createsa. positive externalities.b. negative externalities.c. no externalities.d. no equilibrium in the market

B.) negative externalities.

Bill owns 3 acres of beautiful wooded land. When Bill decides to move to be closer to his grandchildren, he donates the land to the state with the understanding that the land will be used as a state park. This state park is large enough that it is not congested. It is an example of a good that is

B.) neither rival in consumption nor excludable.

The provision of a public good generates a

B.) positive externality and the use of a common resource generates a negative externality.

Refer to Figure 6. This market

B.) would benefit from a tax on the product.

Refer to Figure 6. Without government intervention, the equilibrium quantity would be

C.) Q3.

Refer to Figure 6. This market is characterized by

C.) a negative externality.

When a tax is levied on buyers of a good,

C.) a wedge is placed between the price buyers pay and the price sellers effectively receive.

Using a toll to reduce traffic when congestion is greatest is an example of a

C.) corrective tax

The decrease in total surplus that results from a market distortion, such as a tax, is called a

C.) deadweight loss.

In a market economy, government intervention

C.) may improve market outcomes in the presence of externalities.

Each of the following would be considered a common resource except

C.) national defense.

Which of the following would be considered a private good?

D.) a bottle of natural mineral water

A tax affectsa. buyers only.b. sellers only.c. buyers and sellers only.d. buyers, sellers, and the government.

D.) buyers, sellers, and the government.

A cost imposed on someone who is neither the consumer nor the producer is called a

D.) negative externality.

Refer to Figure 2. In which market will the majority of the tax burden fall on sellers?

a. market (a)

Refer to Figure 2. In which market will the tax burden be most equally divided between buyers and sellers?

a. market (a)

Willingness to pay

a. measures the value that a buyer places on a good.

Refer to Figure 10-4. Externalities in this market could be internalized if

a. there were a tax on the product

Refer to Figure 3. If the price of the good is $14, then producer surplus is

c. $25

Refer to Figure 3. If the price of the good is $8.50, then producer surplus is

c. $8.00

Suppose the government imposes a price ceiling of $1 on this market. What will be the size of the shortage in this market?

c. 8 units

Suppose the government imposes a price floor of $5 on this market. What will be the size of the surplus in this market?

c. 8 units

Refer to Figure 1. The price paid by buyers after the tax is imposed is

d. $18.

3.Refer to Table 1. Which of the following price floors would be binding in this market?

d. $4

Refer to Figure 4. If the government imposes a price ceiling of $120 in this market, then total surplus will be

d. $500

Refer to Figure 4. If the government imposes a price floor of $70 in this market, then total surplus will be

d. $500.

Refer to Table 2. If the price of Vanilla Coke is $6.90, who will purchase the good?

d. David and Laura

Refer to Table 2. If the market price is $3.80

egan's consumer surplus is $1.70 and total consumer surplus for the five individuals is $9.80.

A cheeseburger is

excludable and rival in consumption

Suppose there is currently a tax of $50 per ticket on airline tickets. Sellers of airline tickets are required to

he supply curve will shift downward by $20, and the effective price received by sellers will increase by $20.

A tax levied on the sellers of blueberries

increases sellers' costs, reduces profits, and shifts the supply curve up.