Missed practice questions

After a hurricane knocks out power to thousands of households, the price of electric generators increases threefold. According to economists: this discourages the use of electric generators in low-valued uses, making them more readily available for high-valued uses. the increase in demand for electric generators should technically cause the price to fall after a hurricane. this is a vivid example of market and class exploitation by capitalists. the rising price will give an incentive for firms to ship fewer electric generators to the disaster area.

A

Each year, around Christmas, you decorate your home so elaborately that news crews come to film stories about your Christmas spirit. As a result, hundreds of people from all over the city drive by your house to see the "Christmas" home, creating noise and congestion that is a nuisance to your neighbors. As they have a right to not be bothered, you agree to pay your neighbors a modest sum to compensate them for the disturbance. This illustrates: the Coase theorem. a corrective tax. a corrective subsidy. the expendable argument theorem.

A

Harrison is willing to buy the last ticket to the Billy Elliot play for $15, while Stefania is willing to pay $25. Harrison is first in line and buys a ticket for $15. He then resells his ticket to Stefania for $20. By reselling the ticket instead of going to the play himself, Harrison caused: the sum of the consumer and producer surplus to increase. the sum of the consumer and producer surplus to decrease. a deadweight loss of $5. the consumer surplus to decrease and the producer surplus to increase.

A

If the marginal social benefit received from pollution is greater than its marginal social cost in a market: an increase in the quantity of pollution will be in society's best interest. a decrease in the quantity of pollution will be in society's best interest. the socially optimal level of pollution has been attained. the market is producing too little pollution.

A

Most neighborhood streets have traffic lights to help control the flow of traffic. Traffic lights are _____ and _____. Therefore, they will be _____ by the competitive market. nonrival; nonexcludable; underprovided nonrival; nonexcludable; overprovided rival; excludable; efficiently provided nonrival; excludable; underprovided

A

If the market for concert tickets is in equilibrium and the fire marshal tries to reduce the number of tickets sold, all other things equal, economic surplus will: increase. decrease. stay the same. change, but we do not know the overall effect.

B

Nicholas and Carolina are working on a group project for a course. They will receive the same grade for the project. They have done a great job, but they have not kept track of their bibliographical sources very well, although they both have all of the information. Carolina knows that Nicholas will eventually do the bibliography, since Nicholas does not like to turn in incomplete work. As a result: Carolina will free-ride on Nicholas's labor. Nicholas will free-ride on Carolina's labor. neither will free-ride, since they both earn the same grade. neither will free-ride, since no money is involved.

A

One of the main problems with the Coase theorem is that: bargaining costs are generally not low (or zero). individuals only act in their own self-interest. the consumer evaluation theorem implies that bargaining costs are not sufficiently high. a corrective tax or subsidy is needed to ensure that a social optimum is reached.

A

Sookie advertises her bicycle for sale on Craigslist for $1,000 but is willing to accept $700. The best offer she receives is $500. Why does she not sell her bicycle? Her marginal cost is more than the best offer she received. The opportunity cost is too high. Her consumer surplus is $200, which is not close enough to her reservation price. She would be paying $200 for someone to take the bicycle.

A

Suppose that education were not financed by the state and that each individual had to pay for his or her own education from kindergarten through high school. One would expect that: less education would be acquired than at present, since an individual may not consider the positive external benefits of education to society. more education would be acquired than at present, since an individual may not consider the positive external benefits of education to society. the optimal amount of education would be acquired by community members, since they would each pay for the amount of education they want. a corrective tax would ensure the optimal amount of education.

A

Suppose that the city of Cleveland has set an emissions tax to reduce the amount of pollution going into the Cuyahoga River. Assume that the optimal tax would be $2,500 but that city officials have set the tax at $1,000. At the equilibrium with the $1,000 tax: there will be too much pollution. the marginal social cost of pollution will be less than $1,000. the marginal social benefit of pollution will be less than $1,000. the marginal social benefit of pollution will be more than $1,000.

A

The high price for ice in hurricane-devastated areas: makes it difficult for consumers to find ice to buy. is not justified by the laws of supply and demand. provides an example of self-interested behavior in direct conflict with public interest. signals entrepreneurs around the country that it is profitable to supply ice to these devastated areas.

A

Which of the following best explains why special interest groups maintain so much power in the U.S. political process? Special interest groups stand to gain millions if particular laws are passed and lobby very hard for them, whereas voters stand to lose only a little and don't find opposing them worth their effort. Special interest groups typically represent the largest U.S. companies, so they get a lot of media attention. Both special interest groups and voters lobby politicians hard regarding certain legislation; however, special interest groups typically win out because they have more money. Special interest groups have been powerful in the past because of their ties to wealth; however, their power has been dwindling in recent years.

A

Which of the following statements is TRUE? Rational ignorance is bad because it leads to uninformed voters making decisions. Rational ignorance exists only in politics. It never makes sense for individuals to be rationally ignorant. Rational ignorance still leads to an efficient outcome.

A

A familiar example of a negative externality is loud music in a busy park on a weekend. In principle, it should be possible to solve this externality by permitting park visitors to negotiate rights to play music in particular locations or at specific times. The most likely reason these negotiations do NOT occur is that: most people are unfamiliar with the Coase theorem. the bargaining costs of identifying and establishing communications between all affected parties would be high. music is an experience, not a good. some park goers do not view loud music as a negative externality.

B

A person that has the _____ opportunity cost of producing a particular good is said to have _____. lowest; an absolute advantage in the production of that good lowest; a comparative advantage in the production of that good highest; a production possibility frontier highest; increasing opportunity costs in the production of that good

B

Demand for Bartlett pears is relatively elastic compared to the supply of Bartlett pears, so if a tax is imposed on consumers of Bartlett pears, the tax incidence: will fall on consumers more than producers. will fall on producers more than consumers. will fall equally on consumers and producers. cannot be determined without more information.

B

Every few months, public television asks viewers to contribute to their local public television station. Although they raise money during this time, it often falls short of the amount they wish to raise because: they do not make the pledge period long enough. viewers know they will be able to watch public television, even if they don't contribute. public television free-rides on the viewers. the marginal social cost equals the marginal social benefit of public television viewing.

B

If Bangladesh removes a tariff on imported shoes, the price of shoes in Bangladesh will likely _____, and the quantity of shoes purchased in the domestic market will likely _____. fall; fall fall; rise rise; fall rise; rise

B

If a product that generates a negative externality is priced so that the polluters bear the cost of the externality, the price of the product will likely: fall, and output will likely rise. rise, and output will likely fall. not change, but output will likely fall. rise, but output will likely stay the same.

B

Nicolás Maduro is the controversial president of Venezuela. Venezuela is also a major producer of petroleum products, which remain a critical component of Venezuela's economy. Suppose President Maduro wanted to increase his popularity with the citizens of Venezuela by enacting a government policy to reduce the price of gasoline sold at state-owned gas stations to 60% of the previous price. Assuming a downward-sloping demand curve for gasoline, this policy should in theory result in a quantity of gasoline demanded that is _____ the quantity of gasoline supplied. equal to greater than less than greater than or equal to

B

Special interest groups tend to be able to influence legislation that is beneficial to them because: special interest groups have rational ignorance. the costs for voters opposing the legislation are higher than the benefits. voters have an incentive to oppose the legislation. special interest groups have an incentive to educate voters.

B

Suppose the market for mini-scooters faces an upward-sloping supply curve. If there is a decrease in price, we would expect producer surplus to: increase. decrease. stay the same. We cannot determine what producer surplus will do without information about the demand curve.

B

The government has adopted an emissions tax if it: transfers the ownership of city traffic to a private firm that charges automobile drivers a profit-maximizing price to enter the city center, based in part on the pollution capacity of the atmosphere. charges drivers $0.20 for each unit of automobile emissions. pays drivers $0.20 for each 10% reduction in automobile emissions. specifies the type of catalytic converter to be installed on motorized vehicles to reduce automobile emissions.

B

The main reason that government legislation on sugar quotas passes is that: its economic benefits totally offset its economic costs. a large number of consumers bear small economic costs, while a small number of domestic sugar producers receive its benefits. both consumers and producers are rationally ignorant. a small number of consumers bear its economic costs, while a large number of domestic sugar producers receive its benefits.

B

Traffic congestion is a common example of a negative externality. In principle, it should be possible for drivers to negotiate the right to drive at particular times, thereby compensating those who would prefer not to drive at peak times and solving the externality. The most likely reason these negotiations do NOT occur is that: individuals are unfamiliar with the Coase theorem. the bargaining costs of such negotiations would be prohibitive, as there are (in large cities) many interested parties. such an agreement could not be enforced, since all individuals have free access to all public roads. the punitive nature of the negotiations for those not involved would ensure it cannot come to pass.

B

What is the function of the markets? Markets sell goods to make use of inputs. Markets reallocate resources, goods, and services to better uses. Markets create demand to earn profits. Markets produce output to cover costs.

B

When benefits are concentrated and costs are diffused: resources get devoted to projects with high benefits and low costs. resources get wasted on projects with low benefits and high costs. fewer projects with low benefits and high costs get developed. more projects with high benefits and low costs get developed.

B

Which of the following is NOT a result of an efficient market? Allocative efficiency is achieved. Economic surplus is minimized to reduce waste. Goods are produced by the firms that can do so at the lowest marginal cost. Goods go to the consumers who will gain the highest marginal benefit from the good.

B

Bae is willing to pay up to $160 for a particular pair of boots. She is able to buy the boots for $120. The marginal cost of producing the boots is $70. How large is the economic surplus associated with her purchase of the boots? $50 $120 $90 $40

C

Beatrice loves to work in her magnolia garden, which provides pleasure to everyone in her neighborhood. To improve social welfare, the government could _____ Beatrice's gardening activities, since the market quantity of magnolias is _____ than the socially optimal quantity. subsidize; greater tax; less subsidize; less tax; greater

C

If a country imposes a tariff on imported designer boots, the domestic price of designer boots will likely _____, and the quantity of designer boots purchased in the domestic market will likely _____. fall; fall fall; rise rise; fall rise; rise

C

If the government imposes a $15 tax on new cell phones, and the price of new cell phones does not change: the government will receive more tax revenue than anticipated. consumers are paying all of the tax. producers are paying all of the tax. both consumers and producers are paying some part of the tax.

C

Marius and Jennifer are going to sell cupcakes and muffins at their third annual fundraiser bake sale. In one day, Marius can make 40 cupcakes or 20 muffins, and Jennifer can make 15 cupcakes or 15 muffins. With specialization, _____ cupcakes and _____ muffins will be made in one day. 15; 20 40; 20 40; 15 55; 35

C

Suppose that a hurricane hits both North Carolina and South Carolina. North Carolina has severe price-gouging laws in place, while South Carolina has none. Both states have a shortage of ice. Which state will recover from its ice shortage more quickly? North Carolina will recover more quickly because prices can adjust to make businesses willing to invest in ice production. North Carolina will recover more quickly because the antigouging laws create incentives to invest in ice production. South Carolina will recover more quickly because prices can adjust to make businesses willing to invest in ice production. South Carolina will recover more quickly because the antigouging laws create incentives to invest in ice production.

C

Which statement is NOT an important function of an efficient market? It allocates consumption of the good to the potential buyers who most value it, as indicated by the fact that they have the highest willingness to pay. It allocates sales to the potential sellers who most value the right to sell the good, as indicated by the fact that they have the lowest cost. It ensures that every consumer who makes a purchase values the good less than every seller who makes a sale, so that all transactions are mutually beneficial. It ensures that every potential buyer who doesn't make a purchase values the good less than every potential seller who doesn't make a sale, so that no mutually beneficial transactions are missed.

C

Which statement would be the LEAST likely result of rent controls? Landlords are more selective with respect to the people they rent apartments to. More people look for apartments for rent than the number of apartments available. More new apartments are available for rent. Landlords provide less maintenance on the apartments.

C

A tax is levied on consumers. The incidence of the tax: falls more on the consumer than on the producer. falls more on the producer than the consumer. is shared between consumers and producers. cannot be determined without more information.

D

City police services and clean water are similar in that both are _____, but they differ in that clean water is _____, while city police services are not. rival in consumption; excludable nonrival in consumption; excludable excludable; rival in consumption nonexcludable; rival in consumption

D

How does price aggregate information? If the purchasing power of currency changes, the price will change in response. Price reflects the preferences of the dominant market. Prices across markets allow for comparisons. The actions of many buyers and sellers impact the price in the market.

D

Raul works at a factory that produces wooden benches. The four main tasks are cutting the wood, constructing, sanding, and staining. Out of all the workers, Raul enjoys cutting the most, is the slowest at constructing, has the lowest opportunity cost for sanding, and is the fastest at staining. If his manager wants to maximize factory output, he will assign Raul to cutting. constructing. staining. sanding.

D

Your college roommate has the right to practice her tuba during the day. You, however, find that studying during the day is most conducive to good grades, and her tuba-playing makes it difficult for you to concentrate. You make a deal with your roommate: you will clean the dorm room once a week if she will practice her tuba at other times or elsewhere. This is an example of emission permits. a corrective tax. a corrective subsidy. the Coase theorem.

D

Your employer, the governor of your state, recently announced his retirement from public service. You and your coworkers decide to buy him a retirement gift to show your appreciation, and you offer to purchase the gift, placing a collection jar in a common area for anonymous donations. After a week, you find very little money in the jar, so you end up largely paying for the gift yourself. You are the victim of the _____ problem. common resource private good club good free-rider

D