Quiz 2

Subsidy

A payment the government makes to either the buyer or the seller when a good is sold

Public good

Goods for which rivalry among consumers is absent and exclusion of nonpaying customers is difficult.

Deadweight loss

The loss of gains from trade to buyers and sellers that occurs when a tax is imposed.

A new law requiring plumbers to pass strict certification tests that reduce the number of plumbers would a. increase the wage rate of plumbers. b. decrease the wage rate of plumbers. c. increase the employment of plumbers. d. cause no change in the labor market for plumbers

a. increase the wage rate of plumbers.

If the supply of health care services is highly inelastic, programs that subsidize the cost of purchasing medical services will a. lead to higher prices for medical services. b. lead to lower prices for medical services. c. not affect the price of medical services. d. help the buyers of medical services more than the sellers of those services.

a. lead to higher prices for medical services.

Which of the following is the most fundamental function of government? a. protection of individuals and their property b. imposing progressive taxes to fund income-transfer programs c. regulating prices and wages d. provision of postal services and garbage collection

a. protection of individuals and their property

Substantial agreement exists among scholars that at least two functions of government are legitimate: a. protection of the rights of individuals to their person and property and the provision of goods that cannot easily be provided through markets. b. redistribution of income from some individuals to others and the waging of war to expand the nation's territory. c. production of postal services and cable television. d. taxation of goods that are generally considered immoral or bad and the regulation of large corporations.

a. protection of the rights of individuals to their person and property and the provision of goods that cannot easily be provided through markets.

A 10 percent increase in the price of butter reduces butter consumption by about 5 percent. The increase causes households to a. spend more on butter. b. spend less on butter. c. spend the same amount on butter. d. consume more goods like bread that are complements of butter

a. spend more on butter.

The actual benefit of a government subsidy is determined primarily by a. the elasticities of demand and supply. b. the legal (or statutory) assignment of the subsidy c. the number of exchanges that are made possible as a result of the subsidy. d. whether the subsidy is paid by cash or check.

a. the elasticities of demand and supply.

When a government subsidy is granted to the sellers of a product, buyers can end up capturing some of the benefit because a. the market price of the product will fall in response to the subsidy. b. the market price of the product will rise in response to the subsidy. c. the market price of the product will not change in response to the subsidy. d. producers will reduce the supply of the product.

a. the market price of the product will fall in response to the subsidy.

If a price floor is above equilibrium pricing is a a) shortage b) surplus

b) surplus

Which of the following would be the best example of consumer surplus? a. Shaniqua does not get cell-phone service because she feels that it is worth less than the $30 a month fee. b. Nicolas pays $8 for a haircut that is worth $10 to him. c. Diego buys a house for $104,000, the maximum amount that he would be willing to pay for it. d. Isabella purchases a book for $20 and uses a credit card to pay for it.

b. Nicolas pays $8 for a haircut that is worth $10 to him.

Suppose paper pulp mills are permitted to emit harmful pollutants, free of charge, into the air. How will the price and output of paper in a competitive market compare with their values under conditions of ideal economic efficiency? a. The price will be too high, and the output will be too large. b. The price will be too low, and the output will be too large. c. The price will be too low, and the output will be too small. d. The price will be too high, and the output will be too small.

b. The price will be too low, and the output will be too large.

Suppose the market equilibrium price of wheat is $5 per bushel, and the government sets a price floor of $7 per bushel to aid growers. What is the most likely result of this action? a. There will be a shortage of wheat. b. There will be a surplus of wheat. c. There will be an increase in the quantity of wheat demanded as the result of the price floor. d. There will be a decrease in the quantity of wheat supplied as the result of the price floor.

b. There will be a surplus of wheat.

The more elastic the supply of a product, the more likely it is that the a. burden of a tax on the product will fall on sellers. b. burden of a tax on the product will fall on buyers. c. burden of a tax on the product will fall equally on both buyers and sellers. d. deadweight loss of the tax will be smaller.

b. burden of a tax on the product will fall on buyers.

A college has found that during every home football game, a group of students sits on a hillside next to the stadium and watches the game without purchasing tickets. In economics, the problem that this college is facing is referred to as a a. common good problem. b. free rider problem. c. onlooker problem. d. deadweight loss problem.

b. free rider problem.

A good is considered to be a public good if it a. is a good produced by the government sector. b. is both nonrival-in-consumption and nonexcludable. c. benefits only a small group of consumers but is very costly to produce. d. is a good whose production is financed by tax revenue.

b. is both nonrival-in-consumption and nonexcludable.

Under rent control, tenants can expect a. lower rent and higher quality housing. b. lower rent and lower quality housing. c. higher rent and a shortage of rental housing. d. higher rent and a surplus of rental housing.

b. lower rent and lower quality housing.

The market pricing system corrects an excess supply by a. raising the product price and increasing producer profits. b. lowering the product price and decreasing producer profits. c. raising the product price and decreasing producer profits. d. lowering the product price and increasing producer profits.

b. lowering the product price and decreasing producer profits.

If a sandwich shop near campus increases its prices by 5 percent, but revenues from its sales are unchanged, the price elasticity of demand for the services offered by the sandwich shop must be a. elastic. b. of unitary elasticity. c. inelastic. d. equal to 0.5.

b. of unitary elasticity.

When goods are produced privately, but the cost of their purchase is paid for by the taxpayer or some other third party, a. consumers have a strong incentive to search out those firms offering them the best deal. b. private producers of such goods will have little incentive to control costs and provide them at low prices. c. goods and services will only be supplied if consumers are willing to pay an amount sufficient to cover their production costs. d. the invisible hand will direct consumers and producers toward an efficient level of output.

b. private producers of such goods will have little incentive to control costs and provide them at low prices.

If the price of gasoline goes up, and Jacob now buys fewer candy bars because he has to spend more on gas, this would best be explained by a. the substitution effect. b. the income effect. c. the highly elastic demand for gasoline. d. all of the above.

b. the income effect.

Economic analysis indicates that a. there is government failure, but not market failure. b. there is market failure, but not government failure. c. there is both government failure and market failure. d. there is neither government failure nor market failure.

b. there is market failure, but not government failure.

If production of a good creates external benefits, a competitive market will likely produce a. less output than would maximize profit. b. more output than would maximize profit. c. less output than is efficient. d. more output than is efficient.

c. less output than is efficient.

Rent control applies to about two-thirds of the private rental housing in New York City. Economic theory suggests that the below-equilibrium prices established by rent controls would a. create a surplus of rental housing. b. promote a rapid increase in the future supply of housing. c. result in poor service and quality deterioration of many rental units. d. lead to a reduction in housing discrimination against minorities.

c. result in poor service and quality deterioration of many rental units.

The rational-ignorance effect is a result of a. externalities that lead to an excess supply of information. b. the limited incentive of the news media to cover political campaigns. c. the expectation of individual voters that their vote will not be decisive. d. the lack of a college education on the part of most voters in the United States.

c. the expectation of individual voters that their vote will not be decisive.

The Laffer curve illustrates the concept that a. an increase in marginal tax rates will always cause tax revenues to increase. b. an increase in marginal tax rates will always cause tax revenues to decrease. c. when marginal tax rates are quite high, a decrease in the tax rate may cause tax revenues to increase. d. when marginal taxes are quite low, an increase in the tax rate will probably cause tax revenues to decline.

c. when marginal tax rates are quite high, a decrease in the tax rate may cause tax revenues to increase.

Which of the following explains why managers of government agencies have little incentive to achieve operational efficiency? a. Public-sector managers need not fear bankruptcy when operational efficiency is not achieved. b. Public-sector managers seldom receive personal benefits if they find ways to improve the efficiency of their operations. c. Public-sector agencies typically do not face competition. d. All of the above explain why government agencies have little incentive to be efficient.

d. All of the above explain why government agencies have little incentive to be efficient.

Studies indicate that the demand for fresh tomatoes is more elastic than the demand for salt, and reflect a. That tomatoes are a necessity while salt is a luxury. b. That it takes longer for consumers to adjust to a change in the price of salt than to a change in the price of tomatoes. c. That salt will not spoil as easily as fresh tomatoes. d. That more good substitutes exist for fresh tomatoes than for salt

d. That more good substitutes exist for fresh tomatoes than for salt

Which of the following is the most likely result of an increase in the minimum wage? a. an increase in the employment of unskilled workers b. a decrease in the number of workers seeking minimum wage jobs c. an increase in the demand for unskilled workers d. a decrease in the employment of unskilled workers

d. a decrease in the employment of unskilled workers

If Santiago thinks the last dollar spent on jeans yields less satisfaction than the last dollar spent on shoes, and Santiago is a utility-maximizing consumer, he should a. decrease his spending on shoes. b. decrease his spending on shoes and increase his spending on jeans. c. increase his spending on jeans. d. increase his spending on shoes and decrease his spending on jeans.

d. increase his spending on shoes and decrease his spending on jeans.

Rent-seeking

efforts to influence public policy to redistribute income to self

Price ceiling

established maximum price sellers can charge for a good or resource.

Price floor

established minimum price buyers must pay for a good or resource.

Transfer payments

payments made that are not linked to supply of good or service

Actual tax incidence

share of tax burden no matter what who remits money to gov't

Regressive tax

the average tax rate falls as income rises

Progressive tax

the average tax rate rises as income rises