MicroEconomics Test 2

Which of the following is not a characteristic of a public good? a. Because it is a free good, there is no opportunity cost. b. Its benefits cannot be withheld from anyone. c. It is not excludable. d. It is not diminished or depreciated as additional people consume the good.

a. Because it is a free good, there is no opportunity cost.

When a good is taxed, a. both buyers and sellers of the good are made worse off. b. neither buyers nor sellers are made worse off, since tax revenue is used to provide goods and services that would otherwise not be provided in a market economy. c. only sellers are made worse off, because they ultimately bear the burden of the tax. d. only buyers are made worse off, because they ultimately bear the burden of the tax.

a. both buyers and sellers of the good are made worse off.

When a country that imports a particular good imposes an import quota on that good, a. consumer surplus decreases and total surplus decreases in the market for that good. b. consumer surplus increases and total surplus decreases in the market for that good. c. consumer surplus decreases and total surplus increases in the market for that good. d. consumer surplus increases and total surplus increases in the market for that good.

a. consumer surplus decreases and total surplus decreases in the market for that good.

The world price of a pound of almonds is $4.50. Before Uruguay allowed trade in almonds, the price of a pound of almonds there was $3.00. Once Uruguay began allowing trade in almonds with other countries, Uruguay began a. exporting almonds and the price per pound in Uruguay increased to $4.50. b. importing almonds and the price per pound in Uruguay remained at $3.00. c. exporting almonds and the price per pound in Uruguay remained at $3.00. d. importing almonds and the price per pound in Uruguay increased to $4.50.

a. exporting almonds and the price per pound in Uruguay increased to $4.50.

The failure of markets to adequately protect the environment can be viewed either as a problem of a. externalities or as a problem of common resources. b. club goods or as a problem that arises when the quantity of excludable goods exceeds the socially-efficient quantity. c. externalities or as a problem of private goods. d. the overprovision of public goods or as a problem of the underprovision of private goods.

a. externalities or as a problem of common resources.

The nation of Wheatland forbids international trade. In Wheatland, you can buy 1 pound of corn for 3 pounds of fish. In other countries, you can buy 1 pound of corn for 2 pounds of fish. These facts indicate that a. if Wheatland were to allow trade, it would import corn. b. Wheatland has a comparative advantage, relative to other countries, in producing corn. c. the price of fish in Wheatland exceeds the world price of fish. d. other countries have a comparative advantage, relative to Wheatland, in producing fish.

a. if Wheatland were to allow trade, it would import corn.

Most economists prefer corrective taxes to regulation as a way to correct the problem of pollution because the market-based solution a. is less costly to society. b. lowers revenue for the government. c. is less efficient. d. can result in a greater increase in pollution.

a. is less costly to society

An externality is the uncompensated impact of a. one person's actions on the well-being of a bystander. b. society's decisions on the poorest person in the society. c. a person's actions on that person's well-being. d. society's decisions on the well-being of society.

a. one person's actions on the well-being of a bystander.

If a sawmill creates too much noise for local residents, a. the government can raise economic well-being through noise-control regulations. b. the government should avoid intervening because the market will always allocate resources efficiently. c. a sense of social responsibility will cause owners of the mill to reduce noise levels. d. noise restrictions will force residents to move out of the area.

a. the government can raise economic well-being through noise-control regulations.

Producers have little incentive to produce a public good because a. there is a free-rider problem. b. the social benefit is less than the private benefit. c. the social benefit is less than the social cost. d. there is a Tragedy of the Commons.

a. there is a free-rider problem.

It is commonly argued that national defense is a public good. Nevertheless, the weapons used by the U.S. military are produced by private firms. We can conclude that a. weapons are rival in consumption and excludable, but national defense is not rival in consumption and not excludable. b. resources would be used more efficiently if the government produced the weapons. c. national defense is rival in consumption and excludable, but weapons are not rival in consumption and not excludable. d. resources would be used more efficiently if private firms provided national defense.

a. weapons are rival in consumption and excludable, but national defense is not rival in consumption and not excludable.

Which of the following statements about a well-maintained yard best conveys the general nature of the externality? a. A well-maintained yard conveys a positive externality because it increases the home's market value. b. A well-maintained yard conveys a positive externality because it increases the value of adjacent properties in the neighborhood. c. A well-maintained yard cannot provide any type of externality. d. A well-maintained yard conveys a negative externality because it increases the property tax liability of the owner.

b. A well-maintained yard conveys a positive externality because it increases the value of adjacent properties in the neighborhood.

Who among the following is a free rider? a. Bert takes the commuter rail to work, but he purchases the discounted monthly passes rather than buying tickets each day. b. Ernie listens to National Public Radio, but does not contribute to any fundraising efforts. c. Oscar goes to Elmo's house to watch a football game on the local commercial television channel. d. Grover sends his five children to a private school rather than to the public school in his neighborhood.

b. Ernie listens to National Public Radio, but does not contribute to any fundraising efforts.

Which of the following is NOT a way of internalizing technology spillovers? a. Industrial policy b. Taxes c. Patent protection d. Subsidies

b. Taxes

Suppose Yolanda needs a dog sitter so that she can travel to her sister's wedding. Yolanda values dog sitting for the weekend at $200. Rebecca is willing to dog sit for Yolanda so long as she receives at least $175. Yolanda and Rebecca agree on a price of $185. Suppose the government imposes a tax of $30 on dog sitting. What is the deadweight loss of the tax? a. The $30 tax b. The lost benefit to Yolanda and Rebecca because after the tax, Rebecca will not dog sit for Yolanda c. The lost benefit to Yolanda of being unable to hire a dog sitter because Yolanda is the one who would pay the tax d. The maximum value that Yolanda would pay for dog sitting

b. The lost benefit to Yolanda and Rebecca because after the tax, Rebecca will not dog sit for Yolanda

Which of the following is not a typical solution to the "Tragedy of the Commons?" a. Turning the common resource into a private good b. Turning the common resource into a club good c. Regulating the use of the common resource d. Taxing the use of the common resource

b. Turning the common resource into a club good

Zaria and Hannah are roommates. Zaria assigns a $30 value to smoking cigarettes. Hannah values smoke-free air at $15. Which of the following scenarios is a successful example of the Coase theorem? a. Hannah offers Zaria $15 not to smoke. Zaria accepts and does not smoke. b. Zaria pays Hannah $16 so that Zaria can smoke. c. Hannah offers Zaria $20 not to smoke. Zaria accepts and does not smoke. d. Zaria pays Hannah $14 so that Zaria can smoke.

b. Zaria pays Hannah $16 so that Zaria can smoke.

Goods that are rival in consumption include both a. private goods and club goods. b. common resources and private goods. c. club goods and public goods. d. public goods and common resources.

b. common resources and private goods.

When a country is on the downward-sloping side of the Laffer curves, a cut in the tax rate will: a. increase tax revenue and increase the deadweight loss. b. increase tax revenue and decrease the deadweight loss. c. decrease tax revenue and increase the deadweight loss. d. decrease tax revenue and decrease the deadweight loss.

b. increase tax revenue and decrease the deadweight loss

Private decisions about consumption of common resources and production of public goods usually lead to an a. efficient allocation of resources and no external effects. b. inefficient allocation of resources and external effects. c. efficient allocation of resources and external effects. d. inefficient allocation of resources and no external effects.

b. inefficient allocation of resources and external effects.

The deadweight loss from a tax per unit of good will be smallest in a market with a. elastic supply and inelastic demand. b. inelastic supply and inelastic demand. c. elastic supply and elastic demand. d. inelastic supply and elastic demand

b. inelastic supply and inelastic demand.

Cost-benefit analysts often encounter the problem that those who would benefit from government provision of a public good tend to a. overstate the benefit they would receive from the public good and those who would be harmed by government provision of a public good tend to understate the costs they would incur from the public good. b. overstate the benefit they would receive from the public good and those who would be harmed by government provision of a public good tend to overstate the costs they would incur from the public good. c. understate the benefit they would receive from the public good and those who would be harmed by government provision of a public good tend to overstate the costs they would incur from the public good. d. understate the benefit they would receive from the public good and those who would be harmed by government provision of a public good tend to understate the costs they would incur from the public good.

b. overstate the benefit they would receive from the public good and those who would be harmed by government provision of a public good tend to overstate the costs they would incur from the public good.

A textbook is a a. common resource and the knowledge that one gains from reading the book is a private good. b. private good and the knowledge that one gains from reading the book is a public good. c. common resource and the knowledge that one gains from reading the book is a public good. d. private good and the knowledge that one gains from reading the book is a common resource.

b. private good and the knowledge that one gains from reading the book is a public good.

When the nation of Duxembourg allows trade and becomes an importer of software, a. residents of Duxembourg who produce software become better off; residents of Duxembourg who buy software become worse off; and the economic well-being of Duxembourg rises. b. residents of Duxembourg who produce software become worse off; residents of Duxembourg who buy software become better off; and the economic well-being of Duxembourg rises. c. residents of Duxembourg who produce software become worse off; residents of Duxembourg who buy software become better off; and the economic well-being of Duxembourg falls. d. residents of Duxembourg who produce software become better off; residents of Duxembourg who buy software become worse off; and the economic well-being of Duxembourg falls.

b. residents of Duxembourg who produce software become worse off; residents of Duxembourg who buy software become better off; and the economic well-being of Duxembourg rises.

Concerning the labor market and taxes on labor, economists disagree about a. whether or not a tax on labor places a wedge between the wage that firms pay and the wage that workers receive. b. the size of the deadweight loss of the tax on labor. c. nothing. d. the size of the tax on labor.

b. the size of the deadweight loss of the tax on labor.

The town of Isle is on a small island connected to Big City by a single bridge. Most of the residents of Isle work in Big City. As a result, the bridge becomes very congested for two hours each day at the typical morning and evening commute times. Which of the following policies considered by the mayor of Isle would likely be most efficient in alleviating the congestion? a. A press conference in which the mayor requests that people try to cross the bridge earlier or later than the typical commute times. b. Any vehicle crossing the bridge at any time must have a sticker paid for with a one-time fee of $25. c. A variable toll for the bridge payable only by vehicles crossing the bridge during the congested commute times. d. A fixed toll for the bridge payable by every vehicle crossing the bridge at all days and times.

c. A variable toll for the bridge payable only by vehicles crossing the bridge during the congested commute times.

Which of the following statements is not correct? a. Corrective taxes provide incentives to develop cleaner technologies. b. Corrective taxes can be used to place a price on the right to pollute. c. Corrective taxes require the government to set a target level of pollution. d. Corrective taxes allocate pollution to those producers who face the highest cost of reducing pollution.

c. Corrective taxes require the government to set a target level of pollution.

What happens to the total surplus in a market when the government imposes a tax? a. Total surplus is unaffected by the tax. b. Total surplus increases but by less than the amount of the tax. c. Total surplus decreases. d. Total surplus increases by the amount of the tax.

c. Total surplus decreases.

Two types of private solutions to the problem of externalities are a. taxes and subsidies. b. charities and subsidies. c. charities and the Golden Rule. d. the Golden Rule and taxes.

c. charities and the Golden Rule

If the Korean steel industry subsidizes the steel that it sells to the United States, the a. United States should protect its domestic steel industry from this unfair competition. b. United States should subsidize the products it sells to Korea. c. harm done to U.S. steel producers is less than the benefit that accrues to U.S. consumers of steel. d. harm done to U.S. steel producers from this unfair competition exceeds the gain to U.S. consumers of cheap Korean steel.

c. harm done to U.S. steel producers is less than the benefit that accrues to U.S. consumers of steel.

If the labor supply curve is very elastic, a tax on labor: a. has a relatively small impact on the number of hours that workers choose to work. b. results in a large tax burden on the firms that hire labor. c. has a large deadweight loss. d. raises enough tax revenue to offset the loss in welfare.

c. has a large deadweight loss

A traffic light at an intersection is a. rival and excludable in consumption. b. rival but not excludable in consumption. c. not rival and not excludable in consumption. d. not rival but excludable in consumption.

c. not rival and not excludable in consumption.

The provision of a public good generates a a. negative externality, as does the use of a common resource. b. positive externality, as does the use of a common resource. c. positive externality and the use of a common resource generates a negative externality. d. negative externality and the use of a common resource generates a positive externality.

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

Goods that are excludable include both a. common resources and private goods. b. club goods and public goods. c. private goods and club goods. d. public goods and common resources.

c. private goods and club goods.

The "unfair-competition" argument might be cited by an American who believes that a. young industries should be protected against foreign competition until they become profitable. b. almost every country has a comparative advantage, relative to the United States, in producing almost all goods. c. the French government's subsidies to French farmers justify restrictions on American imports of French agricultural products. d. the American automobile industry should be protected against Japanese firms that are able to produce automobiles at relatively low cost.

c. the French government's subsidies to French farmers justify restrictions on American imports of French agricultural products

A cost-benefit analysis of a highway is difficult to conduct because analysts a. cannot estimate the explicit cost of a project that has not been completed. b. are not able to consider the opportunity cost of resources. c. will have difficulty estimating the value of the highway. d. are unlikely to have access to costs on similar projects.

c. will have difficulty estimating the value of the highway.

For widgets, the supply curve is the typical upward-sloping straight line, and the demand curve is the typical downward-sloping straight line. A tax of $15 per unit is imposed on widgets. The tax reduces the equilibrium quantity in the market by 300 units. The deadweight loss from the tax is a. $3,000. b. $4,500. c. $1,750. d. $2,250.

d. $2,250.

Flu shots provide a positive externality. Suppose that the market for vaccinations is perfectly competitive. Without government intervention in the vaccination market, which of the following statements is correct? a. A per-shot tax could turn an inefficient situation into an efficient one. b. The current output level is inefficiently high. c. At the current output level, the marginal social cost exceeds the marginal private cost. d. At the current output level, the marginal social benefit exceeds the marginal private benefit.

d. At the current output level, the marginal social benefit exceeds the marginal private benefit.

In analyzing the gains and losses from international trade, to say that Moldova is a small country is to say that a. Moldova can only import goods; it cannot export goods. b. Moldova's choice of which goods to export and which goods to import is not based on the principle of comparative advantage. c. only the domestic price of a good is relevant for Moldova; the world price of a good is irrelevant. d. Moldova is a price taker.

d. Moldova is a price taker.

Which of the following is usually true about government-provided goods? a. These goods are not scarce. b. These goods have a zero opportunity cost. c. The invisible hand is at work to ensure these goods are provided in the market d. People do not have to pay an explicit fee to enjoy these goods.

d. People do not have to pay an explicit fee to enjoy these goods

Which of the following quantities decrease in response to a tax on a good? a. The effective price received by sellers of the good, the wedge between the effective price paid by buyers and the effective price received by sellers, and consumer surplus b. The equilibrium quantity in the market for the good, the effective price of the good paid by buyers, and consumer surplus c. It depends on whether the tax is levied on buyers or on sellers. d. The equilibrium quantity in the market for the good, producer surplus, and the well-being of buyers of the good

d. The equilibrium quantity in the market for the good, producer surplus, and the well-being of buyers of the good

Four friends decide to meet at a Chinese restaurant for dinner. They decide that each person will order an item off the menu, and they will share all dishes. They will split the cost of the final bill evenly among each of the people at the table. A Tragedy of the Commons problem is likely for each of the following reasons except a. each person has an incentive to eat as much as possible since their individual rate of consumption will not affect their individual cost. b. when one person eats, he may not take into account how his choice affects his friends. c. there is an externality associated with eating the food on the table. d. each dish would be both excludable and rival in consumption.

d. each dish would be both excludable and rival in consumption.

The infant-industry argument a. is an argument that is advanced by advocates of free trade. b. has the support of most economists. c. is based on the belief that protecting industries producing goods and services for infants is necessary if a country is to have healthy children. d. is based on the belief that protecting industries when they are young will pay off later.

d. is based on the belief that protecting industries when they are young will pay off later.

The overuse of a common resource relative to its economically efficient use is called a. cost-benefit analysis. b. a public good. c. the free-rider problem. d. the Tragedy of the Commons.

d. the Tragedy of the Commons.

According to the Coase theorem, private parties can solve the problem of externalities if a. the number of parties involved is sufficiently large. b. the initial distribution of legal rights favors the person being adversely affected by the externality. c. property rights aren't clearly defined. d. the cost of bargaining is small.

d. the cost of bargaining is small.

Representative Vazquez cites the "jobs argument" when he argues before Congress in favor of restrictions on trade; he argues that everything can be produced at lower cost in other countries. The likely flaw in Representative Vazquez's reasoning is that he ignores the fact that a. there is no evidence that any worker ever lost their job because of free trade. b. unemployment of labor is not a serious problem relative to other economic problems. c. the gains from trade are based on absolute advantage. d. the gains from trade are based on comparative advantage.

d. the gains from trade are based on comparative advantage

Private companies are most likely to invest in medical research if a. others will benefit from their discoveries. b. there is no government intervention in the market for medical products. c. they will produce general knowledge. d. they will produce a specific product for which they may receive a patent.

d. they will produce a specific product for which they may receive a patent.

Suppose Brazil has an absolute advantage over other countries in producing almonds, but other countries have a comparative advantage over Brazil in producing almonds. If trade in almonds is allowed, Brazil a. will either import almonds or export almonds, but it is not clear from the given information. b. will export almonds. c. would have nothing to gain either from exporting or importing almonds. d. will import almonds.

d. will import almonds.

If the tax on a good is increased from $1 per unit to $4 per unit, the deadweight loss from the tax increases by a factor of: a.9 b.24 c.5 d.16

d.16