Test 3

when the demand curve is unknown, should permits or corrective taxes be used

permits

when a tarriff is implimented, the good is decreased by

the equilibrium quantity - world price without tarriff quantity

the ideal corrective tax is equal to

the external cost of negative externalities

if a country were to abandon its no trade policy in favor of a free trade policy,

total surplus would increase in that country's economy

the elasticity of demand for something inelastic is

more elastic in the long run

examples of command and control policies

prohibiting, requiring, and caps

what are market based strategies

taxes and subsidies

the tax payed by buyers is

the are above the equilibrium price and below the point where the tax wedge hits the demand curve

when the surplus increases on a graph, the increase is

the pre-existing surplus with the new surplus area(s)

transactions costs a) can keep private parties from solving externality problems b) are incurred in the production process due to externalities c) increase when taxes are imposed to correct negative externalities d) are eliminated when the government intervenes in a market with externalities

a) can keep private parties from solving externality problems

Which of the following would likely cause the greatest deadweight loss? a. a tax on cruise line tickets b. a tax on cigarettes c. a tax on gasoline d. a tax on salt

a. a tax on cruise line tickets

Tradable pollution permits a. set the quantity of pollution. b. set the price of pollution. c. reduce the incentive for technological innovations to further reduce pollution. d. determine the demand for pollution rights.

a. set the quantity of pollution.

The graph that shows the relationship between the size of a tax and the tax revenue collected by the government is known as a a. deadweight curve. b. tax revenue curve. c. Laffer curve. d. Reagan curve. e. None of the above is correct.

c. Laffer curve.

luxury items are

elastic

with a tax placed on a market, the total surplus is

everything but the deadweight

define command and control policies

regulate behavior directly

marginal buyer

the buyer who would leave the market first if the price were any higher

corrective taxes differ from most taxes since

they do not create deadweight loss

Oil is used to produce gasoline. If the price of oil increases, consumer surplus in the gasoline market a.decreases. b. is unchanged. c. increases d. may increase, decrease, or remain unchanged.

a) decreases

Which of the following is not employed as an argument in support of trade restrictions? a. Free trade harms both domestic producers and domestic consumers and therefore reduces total surplus. b. Free trade is harmful to importing countries if foreign countries subsidize their exporting industries. c. Free trade harms infant industries in an importing country. d. Free trade harms the national security if vital products are imported. e. Free trade destroys domestic jobs.

a. Free trade harms both domestic producers and domestic consumers and therefore reduces total surplus.

A negative externality generates a. a social cost curve that is above the supply curve (private cost curve) for a good. b. a social cost curve that is below the supply curve (private cost curve) for a good. c. a social value curve that is above the demand curve (private value curve) for a good. d. none of the above.

a. a social cost curve that is above the supply curve (private cost curve) for a good.

Suppose the world price is below the before-trade domestic price for a good. If a country allows free trade in this good, a. consumers will gain and producers will lose. b. producers will gain and consumers will lose. c. both producers and consumers will gain. d. both producers and consumers will lose.

a. consumers will gain and producers will lose.

If free trade is allowed, a country will export a good if the world price is a. below the before-trade domestic price of the good. b. above the before-trade domestic price of the good. c. equal to the before-trade domestic price of the good. d. none of the above.

b. above the before-trade domestic price of the good.

When a tax on a good starts small and is gradually increased, tax revenue will a. rise. b. fall. c. first rise and then fall. d. first fall and then rise. e. do none of the above.

c. first rise and then fall.

If a tax on a good is doubled, the deadweight loss from the tax a. doubles. b. could rise or fall. c. increases by a factor of four. d. stays the same.

c. increases by a factor of four.

An externality is a. the benefit that accrues to the buyer in a market. b. the cost that accrues to the seller in a market. c. the uncompensated impact of one person's actions on the well-being of a bystander. d. the compensation paid to a firm's external consultants. e. none of the above.

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

When a tax distorts incentives to buyers and sellers so that fewer goods are produced and sold, the tax has a. reduced the price buyers pay. b. increased efficiency. c. generated no tax revenue. d. caused a deadweight loss.

d. caused a deadweight loss.

A corrective tax on pollution a. determines the demand for pollution rights. b. sets the quantity of pollution. c. reduces the incentive for technological innovations to further reduce pollution. d. sets the price of pollution.

d. sets the price of pollution.

Medical care clearly enhances people's lives. Therefore, we should consume medical care until a. everyone has as much as they would like. b. we must cut back on the consumption of other goods. c. buyers receive no benefit from another unit of medical care. d. the benefit buyers place on medical care is equal to the cost of producing it.

d. the benefit buyers place on medical care is equal to the cost of producing it.

The most efficient pollution control system would ensure that a. each polluter reduce its pollution an equal amount. b. the regulators decide how much each polluter should reduce its pollution. c. no pollution of the environment is tolerated. d. the polluters with the lowest cost of reducing pollution reduce their pollution the greatest amount.

d. the polluters with the lowest cost of reducing pollution reduce their pollution the greatest amount.

what causes the most deadweight

elastic items

Bob and Tom live in a university dorm. Bob values playing loud music at a value of $100. Tom values peace and quiet at a value of $150. Which of the following statements is true? a. It is efficient for Bob to stop playing loud music regardless of who has the property right to the level of sound. b. It is efficient for Bob to continue to play loud music. c. It is efficient for Bob to stop playing loud music only if Bob has the property right to play loud music. d. It is efficient for Bob to stop playing loud music only if Tom has the property right to peace and quiet.

a. It is efficient for Bob to stop playing loud music regardless of who has the property right to the level of sound.

If the world price for a good exceeds the before-trade domestic price for a good, then that country must have a. a comparative advantage in the production of the good. b. an absolute disadvantage in the production of the good. c. an absolute advantage in the production of the good. d. a comparative disadvantage in the production of the good

a. a comparative advantage in the production of the good.

Joe has ten baseball gloves and Sue has none. A baseball glove costs $50 to produce. If Joe values an additional baseball glove at $100 and Sue values a baseball glove at $40, then to maximize a. efficiency, Joe should receive the glove. b. efficiency, Sue should receive the glove. c. consumer surplus, both should receive a glove. d. equality, Joe should receive the glove. Hide Feedback

a. efficiency, Joe should receive the glove.

When politicians argue that outsourcing or offshoring of technical support to India by Dell Computer Corporation is harmful to the U.S. economy, they are employing which of the following arguments for restricting trade? a. the jobs argument b. the infant-industry argument c. the national-security argument d. the deadweight-loss argument

a. the jobs argument

on a graph, the gains from trade are respresented by

above the equilibrium price, to the right of the demand curve and the left of the supply curve below the world price

Producer surplus is a. represented on a graph by the area below the demand curve and above the supply curve. b. the amount a seller is paid minus the cost of production. c .also referred to as excess supply . d .All of the above are correct

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

Which of the following statements about import quotas is true? a. Import quotas are preferred to tariffs because they raise more revenue for the imposing government. b. For every tariff, there is an import quota that could have generated a similar result. c. An import quota reduces the price to the domestic consumers. d. Voluntary quotas established by the exporting country generate no deadweight loss for the importing country.

b. For every tariff, there is an import quota that could have generated a similar result.`

A positive externality generates a. a social cost curve that is above the supply curve (private cost curve) for a good. b. a social value curve that is above the demand curve (private value curve) for a good. c. a social value curve that is below the demand curve (private value curve) for a good. d. none of the above.

b. a social value curve that is above the demand curve (private value curve) for a good.

Deadweight loss is greatest when a. both supply and demand are relatively inelastic. b. both supply and demand are relatively elastic. c. supply is elastic and demand is perfectly inelastic. d. demand is elastic and supply is perfectly inelastic

b. both supply and demand are relatively elastic.

When a country allows trade and exports a good, a. domestic producers are better off, domestic consumers are worse off, and the nation is worse off because the losses of the losers exceed the gains of the winners. b. domestic producers are better off, domestic consumers are worse off, and the nation is better off because the gains of the winners exceed the losses of the losers. c. domestic consumers are better off, domestic producers are worse off, and the nation is worse off because the losses of the losers exceed the gains of the winners. d. domestic consumers are better off, domestic producers are worse off, and the nation is better off because the gains of the winners exceed the losses of the losers.

b. domestic producers are better off, domestic consumers are worse off, and the nation is better off because the gains of the winners exceed the losses of the losers.

Because producers are better able to organize than consumers are, we would expect there to be political pressure to create a. free trade. b. import restrictions. c. export restrictions. d. none of the above.

b. import restrictions.

a rain barrel is a container that captures and stores rainwater for landscape and garden use during dry periods. rain barrels provide an external benefit to the community through water conservation. what can the government do to equate the equilibrium quantity of rain barrels and the socially optimal quantity of rain barrels? a. impose a tax on rainbarrels that is equal to the per-unit externality b. offer a subsidy on rain barrels that is equal to the per-unit externality c.encourage homeowners to bargain with rainbarrel producers d.nothing

b. offer a subsidy on rain barrels that is equal to the per-unit externality

According to the Coase theorem, private parties can solve the problem of externalities if a. there are a large number of affected parties. b. there are no transaction costs. c. the party affected by the externality has the initial property right to be left alone. d. the government requires them to negotiate with each other. e. each affected party has equal power in the negotiations.

b. there are no transaction costs.

The government engages in an industrial policy a. by allocating tradable technology permits to high technology industry. b. to internalize the positive externality associated with technology-enhancing industries. c. to internalize the negative externality associated with industrial pollution. d. to help stimulate private solutions to the technology externality.

b. to internalize the positive externality associated with technology-enhancing industries.

The gasoline tax a) is similiar to most other taxes in that is casuses deadweight losses b) produces the unfortunate side effect of making roads more dangerous c) can be viewed as a corrective tax aimed at multiple negative externalities associated with driving d) can be viewed as a command and control policy aimed at discouraging people from driving

c) can be viewed as a corrective tax aimed at multiple negative externalities associated with driving

corrective taxes differ from most taxes in that corrective taxes a. reduce economic efficiency .b. do not raise revenue for the government. c. do not cause deadweight losses. d. always result in a high burden on sellers of goods to which the corrective tax applies

c) do not cause deadweight losses

Which of the following statements about a tariff is true? a. A tariff increases producer surplus, decreases consumer surplus, increases revenue to the government, and increases total surplus. b. A tariff increases consumer surplus, decreases producer surplus, increases revenue to the government, and reduces total surplus. c. A tariff increases producer surplus, decreases consumer surplus, increases revenue to the government, and reduces total surplus. d. A tariff increases consumer surplus, decreases producer surplus, increases revenue to the government, and increases total surplus.

c. A tariff increases producer surplus, decreases consumer surplus, increases revenue to the government, and reduces total surplus.

The following table shows the amount of output a worker can produce per hour in the United States and Canada. pens pencils us 8 4 canada 8 2 Which of the following statements about free trade between the United States and Canada is true? a. The United States will export both pens and pencils. b. The United States will export pencils, but there will be no trade in pens because neither country has a comparative advantage in the production of pens. c. The United States will export pencils, and Canada will export pens. d. The United States will export pens, and Canada will export pencils.

c. The United States will export pencils, and Canada will export pens.

Total surplus is the area a. above the demand curve and below the price. b. below the demand curve and above the price. c. below the demand curve and above the supply curve. d. above the supply curve and below the price. e. below the supply curve and above the price.

c. below the demand curve and above the supply curve.

Suppose an industry emits a negative externality such as pollution, and the possible methods to internalize the externality are command-and-control policies, corrective taxes, and tradable pollution permits. If economists were to rank these methods for internalizing a negative externality based on efficiency, ease of implementation, and the incentive for the industry to further reduce pollution in the future, they would likely rank them in the following order (from most favored to least favored): a. They would all rank equally high because the same result can be obtained from any one of the policies. b. tradable pollution permits, corrective taxes, command-and-control policies. c. command-and-control policies, tradable pollution permits, corrective taxes. d. corrective taxes, command-and-control policies, tradable pollution permits. e. tradable pollution permits, command-and-control policies, corrective taxes.

c. command-and-control policies, tradable pollution permits, corrective taxes.

The reduction of a tax a. causes a market to become less efficient. b. will always reduce tax revenue regardless of the prior size of the tax. c. could increase tax revenue if the tax had been extremely high. d. will have no impact on tax revenue.

c. could increase tax revenue if the tax had been extremely high.

Suppose the supply of diamonds is relatively inelastic. A tax on diamonds would generate a a. small deadweight loss and the burden of the tax would fall on the buyer of diamonds. b. large deadweight loss and the burden of the tax would fall on the seller of diamonds. c. small deadweight loss and the burden of the tax would fall on the seller of diamonds. d. large deadweight loss and the burden of the tax would fall on the buyer of diamonds.

c. small deadweight loss and the burden of the tax would fall on the seller of diamonds.

fill in the blank: gas taxes cause less __ and make the economy work ____

deadweight better

to understand how taxes affect economic well being, we must compare

decrease in total surplus to the increase in revenue raised by the government

Taxes on labor income tend to encourage a. workers to work fewer hours. b. second earners to stay home. c. the elderly to retire early. d. the unscrupulous to enter the underground economy. e. all of the above.

e. all of the above.

salt is

inelastic

Research into new technologies provides a

positive externality, and too few resources are devoted to research as a result

define market based policies

provide incentives so that private decision makers will choose to solve the problem on their own

what is not necessary in order for corrective taxes and pollution permits to have the same effect?

the amount of pollution emitted by each firm must be the same