Principles of Microeconomics (Eco101) Exam II Review

A tax raises the price received by sellers and lowers the price paid by buyers. T/F

False

If a country allows free trade and its domestic price for a given good is lower than the world price, then it will import that good. T/F

False

According to the Coase theorem, if private parties can bargain without cost, then the private market will solve the problem of externalities. T/F

True

In principle, trade can make a nation better off, because the gains to the winners exceed the losses to the losers. T/F

True

One solution to the "Tragedy of the Commons" is to turn the common resource into a private good. T/F

True

When a country that imports shoes imposes a tariff on shoes, buyers of shoes in that country become worse off. T/F

True

When externalities are present, reaching an efficient outcome is especially difficult when the number of interested parties is large. T/F

True

graph: https://prnt.sc/uh4reNyYl5zx The size of the tariff on roses is a. $1. b. $3. c. $4. d. $2.

a. $1.

graph: https://prnt.sc/82hE8YNjcZYe What is the equilibrium price in this market? a. $8 b. More than $10 c. Between $8 and $10 d. $10

a. $8

graph: https://prnt.sc/n1uKKEtgRga7 In the absence of trade, the equilibrium price of coffee in Guatemala is a. $90. b. $110. c. $30. d. $140.

a. $90.

Miguel, Maria, and Marcos all would like a place to sit while waiting at their children's bus stop. The neighborhood association is considering installing several park benches at the bus stop. Miguel values the benches at $20, Maria at $30, and Marcos at $40. The park benches and labor for installation cost $100. If Miguel, Maria, and Marcos are the only residents who value the benches, what should the neighborhood association do? a. Do not install the park benches because the costs outweigh the benefits. b. Install the park benches because people like places to sit. c. Do not install the park benches to prevent the Tragedy of the Commons problem of overuse. d. Install the park benches because the benefits outweigh the costs.

a. Do not install the park benches because the costs outweigh the benefits.

graph: https://prnt.sc/oUQJzeHDdWY4 Suppose the government imposes a tax of P' - P'''. The area measured by J represents a. consumer surplus after the tax. b. consumer surplus before the tax. c. producer surplus before the tax. d. producer surplus after the tax.

a. consumer surplus after the tax.

graph: https://prnt.sc/76PVK17ntkNr Each unit of plastics that is produced results in an external a. cost of $8. b. benefit of $8. c. cost of $6. d. benefit of $6.

a. cost of $8.

graph: https://prnt.sc/T-4mAN9Ngf-b When trade in coffee is allowed, consumer surplus in Guatemala a. decreases by the area B + D. b. increases by the area C + F. c. decreases by the area D + G. d. increases by the area B + D.

a. decreases by the area B + D.

When an externality is present, the market equilibrium is a. inefficient, and the equilibrium does not maximize the total benefit to society as a whole. b. efficient, and the equilibrium maximizes the total benefit to society as a whole. c. inefficient, but the equilibrium maximizes the total benefit to society as a whole. d. efficient, but the equilibrium does not maximize the total benefit to society as a whole.

a. inefficient, and the equilibrium does not maximize the total benefit to society as a whole.

graph: https://prnt.sc/m7tvEsY-icFQ If the government wanted to tax or subsidize this good to achieve the socially optimal level of output, it would a. introduce a subsidy of $4 per unit. b. impose a tax of $4 per unit. c. introduce a subsidy of $2 per unit. d. impose a tax of $2 per unit.

a. introduce a subsidy of $4 per unit.

A television broadcast is an example of a good that is a. not rival in consumption. b. excludable. c. social. d. private.

a. not rival in consumption.

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

b. Total surplus decreases.

graph: https://prnt.sc/jWxD82UkSctn Suppose the government imposes a tax of P' - P'''. The area measured by J + K + I represents a. producer surplus after the tax. b. consumer surplus before the tax c. producer surplus before the tax. d. consumer surplus after the tax.

b. consumer surplus before the tax

graph: https://prnt.sc/bUmxp9f3UglF When a tariff is imposed in the market, domestic producers a. gain $300 of producer surplus. b. gain $150 of producer surplus. c. gain $100 of producer surplus. d. gain $200 of producer surplus.

b. gain $150 of producer surplus.

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. inelastic supply and elastic demand. d. elastic supply and elastic demand.

b. inelastic supply and inelastic demand.

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

b. not rival and not excludable in consumption.

graph: https://prnt.sc/8goYf7lMuUMP With trade and without a tariff, a. this country imports 200 roses. b. the domestic price is equal to the world price. c. there is a shortage of 400 roses in this market. d. roses are sold at $4 in this market.

b. the domestic price is equal to the world price.

graph: https://prnt.sc/R6StYoJxT5K4 What is the socially optimal quantity of output in this market? a. More than 10 units b. Between 8 and 10 units c. 10 units d. 8 units

c. 10 units

What causes the Tragedy of the Commons? a. Social and private incentives differ, and common resources are not rival in consumption and are not excludable. b. Common resources are not rival in consumption and are not excludable. c. Social and private incentives differ, and common resources are not excludable but are rival in consumption. d. Social and private incentives are the same.

c. Social and private incentives differ, and common resources are not excludable but are rival in consumption.

If T represents the size of the tax on a good and Q represents the quantity of the good that is sold, total tax revenue received by government can be expressed as a. (T × Q)/Q. b. T/Q. c. T × Q d. T + Q.

c. T × Q

graph: https://prnt.sc/jSD_XaRfOH1V With trade, Guatemala will a. import 30 units of coffee. b. export 10 units of coffee. c. export 22 units of coffee. d. import 12 units of coffee.

c. export 22 units of coffee.

A good is excludable if a. it is not a normal good. b. one person's use of the good diminishes another person's enjoyment of it. c. people can be prevented from using it. d. the government can regulate its availability.

c. people can be prevented from using it.

Market failure associated with the free-rider problem is a result of a. benefits that accrue to providers of the product. b. market power. c. a problem associated with pollution. d. benefits that accrue to those who don't pay.

d. benefits that accrue to those who don't pay.

The decrease in total surplus that results from a market distortion, such as a tax, is called a a. consumer surplus loss. b. wedge loss. c. revenue loss. d. deadweight loss.

d. deadweight loss.

graph: https://prnt.sc/oh3MUZ-E0r_u If 325 units of plastics are produced and consumed, then the a. government must have imposed a corrective tax to guide the market to this outcome. b. social optimum has been reached. c. government must have offered a corrective subsidy to guide the market to this outcome. d. market equilibrium has been reached.

d. market equilibrium has been reached.

When negative externalities are present in a market a. the market will not be able to generate an equilibrium. b. only government regulation will solve the problem. c. private costs will be greater than social costs. d. social costs will be greater than private costs

d. social costs will be greater than private costs