ECO 111 Ch. 11, 12, 14

The very small city of Pleasantville is considering building a public swimming pool that costs $1,000. The table shows the five voters in the city and their marginal benefit of a swimming pool. It takes a 4/5 majority to pass any tax measure and all voters must vote. The total social benefit to a swimming pool in Pleasantville is Select one: a. $1,490. b. $1,000. c. $1,590. d. $1,120.

a. $1,490.

To a prospective employer, Curly's degree from a highly selective educational institution will give ________. Select one: a. a credible signal about Curly's ability to work hard and intelligence. b. a signal about Curly's experience performing tasks needed on the job. c. no signal about Curly's ability to get the job done. d. them the idea that anyone can get a college degree if they work hard.

a. a credible signal about Curly's ability to work hard and intelligence.

A property-rights solution to the problem of the poaching of elephants for their ivory would be to: Select one: a. assign the property rights of the elephant herds to specific tribes. b. increase enforcement efforts against poachers. c. ban the importation of ivory. d. tax ivory products.

a. assign the property rights of the elephant herds to specific tribes.

Refer to the figure above. The dollar value of the external ______ is _____ per vaccine. Select one: a. benefit; $30 b. cost; $20 c. benefit; $20 d. benefit; $75

a. benefit; $30

Suppose the current price for a pack of cigarettes is $3.00. A $1.00 per pack tax on cigarettes has been proposed.The ____ will bear the greatest burden of the tax in the adult market and the ____ will bear the greatest burden of the tax in the teenage market. Select one: a. buyers; sellers b. government; sellers c. buyers; government d. sellers; buyers

a. buyers; sellers

HBO shows movies without commercial interruption to people who pay for their service. This is because HBO Select one: a. can exclude nonpaying viewers. b. executives decided to differentiate themselves from other networks. c. shows only movies that are very inexpensive to rent. d. is subsidized by the government.

a. can exclude nonpaying viewers.

Refer to the figure above. Correcting this externality would impose even higher costs on the purchaser of the product if: Select one: a. demand was less elastic than as shown. b. demand was more elastic than as shown. c. the tax was paid by the purchaser instead of the seller. d. the tax was paid by the seller instead of the purchaser.

a. demand was less elastic than as shown.

The combination of pork barrel spending and logrolling leads to Select one: a. inefficiently large government spending. b. the largest net benefit for society. c. the quick termination of projects that are wasteful of irrelevant. d. under provision of public goods.

a. inefficiently large government spending.

Early settlers in the town of Dry Gulch drilled wells to pump as much water as they wanted from the single aquifer beneath the town. (An aquifer is an underground body of water.) As more people settled in Dry Gulch, the aquifer level fell and new wells had to be drilled deeper at higher cost.Refer to the information given above. Each resident of Dry Gulch has a private incentive to ____ water because _____. Select one: a. over use; external costs aren't considered b. under use; it is a scarce resource c. over use; it is a scarce resource d. under use; it is characterized by increasing marginal costs

a. over use; external costs aren't considered

Supporters of legalizing marijuana usage in the United States Select one: a. remain silent so as not to be considered crazy. b. are funded by those who produce and export drugs. c. have no evidence from other countries to support their view. d. are frequently drug abusers.

a. remain silent so as not to be considered crazy.

When the awarding of a prize is based on a socially unproductive activity, the result is Select one: a. rent-seeking. b. the winner's curse. c. logrolling. d. crowding out.

a. rent-seeking.

Suppose that two types of indistinguishable coffee beans are imported to the U.S.: those grown in the mountains of South America and those grown in greenhouses in Canada. Mountain grown coffee produces a better tasting coffee, but buyers cannot distinguish the beans by sight or smell. Only the importers know the source of the beans. Buyers value mountain grown beans at $10 a pound and greenhouse grown beans at $3 a pound. Assume that 70% of imported beans are mountain grown, and 30% are greenhouse grown.If a buyer offers $7 per pound, and the importer accepts the offer Select one: a. the beans must be from Canada. b. the beans must be mountain grown. c. the beans may or may not be mountain grown. d. both the buyer and the importer will gain surplus.

a. the beans must be from Canada.

When some fraction of the benefit of an activity is received by people not participating in the activity, it is called a(n): Select one: a. winner's curse. b. positive externality. c. external cost. d. efficient allocation.

b. positive externality.

The 20 residents of the village of Towneburg are considering hosting a fireworks show next summer. The total cost of the show is estimated to be $1,000 + $10 per unit. Each resident's demand for fireworks is identical: P = 50 - 2 * units as shown below: The residents of Towneburg would be willing to pay a total of _____ for the twenty-fifth unit of fireworks and the marginal cost of providing the twenty-fifth unit is ______. Select one: a. $10; $100 b. $0; $10 c. $20; $10 d. $0; $20

b. $0; $10

Refer to the figure above. If the original curves are MB1 and MC1, the equilibrium value of information is ________ and the equilibrium quantity is _______. Select one: a. $10; 8. b. $15; 7. c. $15; 9. d. $20; 8.

b. $15; 7.

The demand curve for new movies shown on TV is plotted in the graph below: If the regulated pay-per-view charge is decreased from $20 to $0 per household, what would be the gain in economic surplus? Select one: a. $4000 million b. $320 million c. $1280 million d. $720 million

b. $320 million

Since the government does not know and cannot discover the voters' true reservation prices, it proposes a head tax of $300 per voter. The result of the referendum is Select one: a. the tax passes and the public good is provided. b. Max votes for the tax but Kris and Taylor vote against it and it fails. c. Max votes for the tax, Kris votes against it but Taylor's vote is uncertain. d. all three voters vote against the tax.

b. Max votes for the tax but Kris and Taylor vote against it and it fails.

If low-income households spend a larger share of their budget on food than do high-income households a tax on food is Select one: a. a progressive tax. b. a regressive tax. c. a proportional tax. d. a way to redistribute from the wealthy to the poor.

b. a regressive tax.

Better information about consumers' reservation prices generally leads to Select one: a. a reduction in consumer surplus. b. acquisition of goods by consumers who are willing to pay the highest price. c. equitable distribution of goods among low income consumers. d. acquisition of goods by consumers with the greatest need.

b. acquisition of goods by consumers who are willing to pay the highest price.

Suppose that the salary range for recent college graduates with a bachelor's degree in economics is $30,000 to $50,000, with 25% of jobs offering $30,000 per year, 50% offering $40,000 per year and 25% offering $50,000 per year and that in all other respects, the jobs are equally satisfying. Assume that in this market, a job offer remains open for only a short time so that continuing to search requires an applicant to reject any current job offer.If this scenario describes job searches in general, the segment of the population that is most risk-averse will tend to earn Select one: a. average salaries. b. below-average salaries. c. above-average salaries. d. stable salaries.

b. below-average salaries.

To properly justify the governmental provision of a public good, it must be the case that the __________ and that __________. Select one: a. good is indeed a public good; the majority of voters want it to be provided b. benefits exceed the costs; no lower cost provider exists c. voters desire the good; no new taxes will be needed d. benefits exceed the costs; a majority of voters value the good equally

b. benefits exceed the costs; no lower cost provider exists

When private firms cancel investment programs because of increases in the interest rate caused by government borrowing it is called Select one: a. the reason for a balanced budget amendment. b. crowding out. c. monetary policy. d. fiscal policy.

b. crowding out.

Private incentives in markets with external benefits lead to _____; private incentives in markets with external costs lead to _____. Select one: a. maximum total economic surplus; deadweight loss b. deadweight loss; deadweight loss c. excess total economic surplus; efficiency d. excess total economic surplus; deadweight loss

b. deadweight loss; deadweight loss

Generally, the Coase Theorem implies that the initial allocation of a property right: Select one: a. determines all aspects of the final outcome of the negotiated agreement. b. does not determine which person will be entitled to engage in the externality generating activity, but does determine which person will receive compensation. c. determines which person will be entitled to engage in the externality generating activity, but does not affect which person will receive compensation. d. must be assigned to the person with the greatest costs.

b. does not determine which person will be entitled to engage in the externality generating activity, but does determine which person will receive compensation.

Refer to the figure above. From this graph, you can infer that paper production: Select one: a. generates no externalities at quantities less than 300 tons per day. b. generates negative externalities equal to between $25 and $50 per ton per day. c. generates negative externalities equal to between $0 and $25 per ton per day. d. should be prohibited.

b. generates negative externalities equal to between $25 and $50 per ton per day.

Lunch in Jamie's dorm is an all-you-can-eat buffet, served from 11 a.m. until 1 p.m. By noon, the buffet is picked over, and by 12:30, there are very few popular items left. The garbage bins, though, are full of food.Refer to the information given above. The reason there is _____ waste with an all-you-can-eat buffet than with a price-per-item cafeteria is that: Select one: a. less; students are able to afford more food at an all-you-can-eat buffet. b. more; students do not bear the cost of waste with an all-you-can-eat buffet. c. less; students face greater incentives to choose wisely with an all-you-can-eat buffet. d. more; students must east faster at an all-you-can-eat buffet.

b. more; students do not bear the cost of waste with an all-you-can-eat buffet.

Gasoline prices tend to be higher at stations that are just off the freeway than they are at stations in the middle of town. One reason for this is that Select one: a. freeway exit stations sell a higher quality product. b. people who buy gas at freeway exit stations tend to have higher search costs. c. freeway exit stations are more likely to have an attached convenience store. d. demand for gas at freeway exits is lower than it is in the middle of town.

b. people who buy gas at freeway exit stations tend to have higher search costs.

This graph illustrates the market for groceries with and without a per unit tax: The deadweight loss of this tax is Select one: a. relatively large because it is a tax on a necessity. b. relatively small because it is a tax on a necessity. c. zero because the tax money is used to benefit citizens of the state. d. the distance between the two supply curves.

b. relatively small because it is a tax on a necessity.

When an individual is judged by the characteristics of the groups he belongs to rather than on his own characteristics, it is called Select one: a. adverse selection. b. statistical discrimination. c. the lemons model. d. illegal.

b. statistical discrimination.

This graph illustrates the marginal costs and marginal benefits of acquiring information before making a major purchase. Suppose this graph describes a town in which the only way to gather any information about the good is through Consumer Reports. If the subscription price of Consumer Reports increases Select one: a. the marginal benefit curve will shift from MB to MB1. b. the marginal cost curve will shift from MC2 to MC. c. the marginal benefit curve will shift from MB1 to MB. d. the marginal cost curve will shift from MC to MC2.

b. the marginal cost curve will shift from MC2 to MC.

According to the textbook, social norms can be viewed as: Select one: a. a way to establish property rights. b. a tool of the government. c. an informal solution to a positional arms race. d. a useful way to organize marketing campaigns.

c. an informal solution to a positional arms race.

Suppose that in most car collisions between cars of unequal size, the smaller car sustains the most damage and its occupants suffer the most injury. In answering the following question, assume that, on average, smaller cars generate less air pollution and that every person in the economy drives at least one car.Refer to the information above. Individuals have a private incentive to: Select one: a. buy smaller cars so that all collisions will be between owners of smaller vehicles. b. buy smaller cars because they pollute less. c. buy larger cars so that they are safer in the event of a collision. d. not change the size of their cars because their original choice reflected an optimal choice.

c. buy larger cars so that they are safer in the event of a collision.

A good or service that is rival but is to some extent nonexcludable is called a _____, and a good or service that is nonrival but is excludable is referred to as a _______ Select one: a. public good; private good. b. commons good; public good. c. commons good; collective good. d. public good; collective good.

c. commons good; collective good.

To say that a particular good is nonrival means that Select one: a. it has no substitutes. b. consumers can enjoy it without paying for it. c. consumption of the good by one person does not diminish the availability of the good to others. d. consumption of the good by one person reduces the availability of the good to others.

c. consumption of the good by one person does not diminish the availability of the good to others.

Pat goes to the local stereo store to learn about high-end equipment. The salesperson spends an hour talking with Pat and demonstrating equipment. Pat then leaves and orders a system from an Internet store and saves $250. Pat's behavior is Select one: a. illegal. b. statistical discrimination. c. free riding. d. adverse selection.

c. free riding.

The current U.S. income tax system requires taxpayers to pay a higher marginal tax rate on higher levels of taxable income. Suppose that the tax rate is 10% on the first $15,000 of taxable income, 15% on the next $45,000 of taxable income, 30% on the next $60,000 of taxable income, and 35% on taxable income above $120,000.Suppose that the tax code also includes provisions that allow taxpayers to reduce the income on which they are taxed, and that those provisions most often apply only to the wealthiest taxpayers. These provisions tend to make the tax code Select one: a. more regressive. b. more efficient. c. less progressive. d. less regressive.

c. less progressive.

Sydney sells snow globes from a cart. When the cart is located on the sidewalk near a discount store, Sydney's customers have reservation prices of $5. When Sydney's cart is located on a sidewalk in an upscale mall, wealthier customers with reservation prices of $10 buy snow globes. Assume that Sydney can sell the same volume at either location and that marginal and average costs are $3 per globe at both locations.Maximization of total economic surplus indicates that Sydney should Select one: a. alternate between the two locations and price discriminate. b. sell only near the discount store and charge $5. c. sell only in the upscale mall and charge $10. d. alternate between the two locations and charge $5 at both locations.

c. sell only in the upscale mall and charge $10.

Suppose that a New England state is suffering from acid rain, which is the result of sulfur dioxide emissions from the industries of southern states, Select one: a. the individual states can easily reach a solution to the problem. b. a federal solution is the most appropriate one. c. state courts can provide adequate remedies. d. it ceases to be an externality.

c. state courts can provide adequate remedies.

If an activity generates a positive externality, the government can make provision of that activity more efficient by _____, and if an activity generates a negative externality, the government can make provision of that activity more efficient by _____. Select one: a. taxing it; banning it b. subsidizing it; banning it c. subsidizing it; taxing it d. publicizing it; taxing it

c. subsidizing it; taxing it

Suppose that a vaccine is developed for a highly contagious strain of flu. The likelihood that anyone will get this flu decreases as more people receive the vaccine. One of the demand curves in the diagram reflects private benefits and the other reflects social benefits. Refer to the figure above. This externality could most effectively be corrected by: Select one: a. taxing vaccines. b. encouraging people to negotiate private payments to those who receive the vaccine. c. subsidizing vaccines. d. free provision of 275 vaccines.

c. subsidizing vaccines.

Conspicuous consumption is an effective signal of high ability if Select one: a. observers of the conspicuous consumption do not know what the person does for a living. b. the conspicuous consumer is famous. c. the conspicuous consumer has a job that pays a commission or bonus. d. the conspicuous consumer has a job that pays a flat salary.

c. the conspicuous consumer has a job that pays a commission or bonus.

If the market equilibrium quantity is less than the socially optimal quantity, one can infer that: Select one: a. the private supply curve for the activity is below the socially optimal supply curve. b. the private demand curve for the activity is above the socially optimal demand. c. there is a positive externality associated with this good. d. there is a negative externality associated with this good.

c. there is a positive externality associated with this good.

There are two employers in Bucolic that hire people who do not have a high school degree: a grocery store and a hardware store. The grocery store pays $5.00 per hour and the hardware store pays $6.00 per hour. People who work at either store can work as many hours as they want at those wages. Assume that it takes two hours to interview for a job. Lee works at the grocery store, but would like to work at the hardware store. If Lee interviews at the hardware store, there is a 10% probability of being hired. Assume that Lee is risk-neutral.What does it cost Lee to interview at the hardware store? Select one: a. 0 b. $1 c. $5 d. $10

d. $10

Refer to the information given above. The daily cost (in thousands of dollars) of the filter to Erie Textiles is _______, and the daily net benefit (in thousands of dollars) of the filter to the fishermen and bird watchers is _______. Select one: a. $400; $310 b. $310; $200 c. $200; $75 d. $200; $235

d. $200; $235

For a 2-acre public park, the market reservation price is ___ per acre. Select one: a. $6. b. $8. c. $14. d. $26.

d. $26.

Vinnie is looking for an apartment in Dayton, Ohio. In Dayton, 75% of the two bedroom, one bath apartments are $800 a month and 25% are $600. The marginal cost of his search increases by $15 per search, i.e., the marginal cost of looking at the first apartment is $15, the marginal cost of looking at the second apartment is $30, the marginal cost of looking at the third apartment is $45 and so on.The expected benefit to Vinnie of searching for an apartment is Select one: a. $400. b. $200. c. $100. d. $50.

d. $50.

The demand curve for boxing programs on TV is plotted in the graph below: If viewing the boxing show was free to any consumer who tuned in, what would be the economic surplus? Select one: a. $25 million b. $50 million c. $225 million d. $625 million

d. $625 million

Suppose that two types of indistinguishable coffee beans are imported to the U.S.: those grown in the mountains of South America and those grown in greenhouses in Canada. Mountain grown coffee produces a better tasting coffee, but buyers cannot distinguish the beans by sight or smell. Only the importers know the source of the beans. Buyers value mountain grown beans at $10 a pound and greenhouse grown beans at $3 a pound. Assume that 70% of imported beans are mountain grown, and 30% are greenhouse grown.For a naïve buyer, the reservation price of a pound of these coffee beans is Select one: a. $9.80 b. $8.70 c. $7.00 d. $7.90

d. $7.90

A village has five residents, each of whom has accumulated savings of $50. Each villager can use the money to buy a government bond that pays 10% interest per year or to buy a year-old goat, send it onto the commons to graze, and sell it after one year. The price of the goat that the villager will get at the end of the year depends on the amount of weight it gains while grazing on the commons, which in turn depends on the number of goats sent onto the commons, as shown in table below. Refer to the information given above. If each villager is purely self-interested, how many goats will be sent onto the commons? Select one: a. 2 b. 3 c. 4 d. 5

d. 5

Which is a more credible signal of integrity? Select one: a. Publicly announcing that you are honest b. Leaving a tip in a local restaurant c. Reporting a fellow student that you observe cheating on an exam d. Returning money to a store clerk who gave you too much change

d. Returning money to a store clerk who gave you too much change

Identically furnished one bedroom apartments can be rented either for one week for $100 or a month for $375. Is the one-month rental option a rational strategy? Select one: a. No, everyone will pick the one week option. b. No, the landlord is not profit maximizing. c. Yes, since it lessens the amount of searching the tenant does. d. Yes, since it lessens the amount of searching for both landlord and tenant.

d. Yes, since it lessens the amount of searching for both landlord and tenant.

A resource that has common property rights is one that: Select one: a. is subject to common law. b. benefits everyone equally. c. has no marginal benefit. d. is treated as though it has a price of zero.

d. is treated as though it has a price of zero.

Since the cost of obtaining more of any resource is __________, viewing any resource's price as zero leads to __________. Select one: a. positive; underutilization b. negative; overutilization c. positive; a surplus d. positive; overutilization

d. positive; overutilization

The following data show the relationship between the number of drivers who leave for work at 8:00 am, their average commute times, and their marginal benefit associated with the commute times. Refer to the information given above. An argument for imposition of a toll rather than using a negotiated solution of the type suggested by the Coase Theorem is that: Select one: a. this is not an externality problem. b. government needs additional revenues. c. the external cost is not well defined. d. private negotiations among 500 drivers is impractical.

d. private negotiations among 500 drivers is impractical.

When a negative externality is present in a market, the government Select one: a. must regulate it. b. should regulate it if the public supports regulation. c. should never regulated it. d. should regulate it if the benefits of regulation exceed the costs.

d. should regulate it if the benefits of regulation exceed the costs.

Summing the product of a gamble's outcome and the probability of its occurrence for all possible outcomes is Select one: a. a fair gamble. b. the variance of the gamble. c. a useless calculation. d. the expected value of the gamble.

d. the expected value of the gamble.

Refer to the figure above. The growth of access to the Internet would cause Select one: a. the marginal benefit curve to shift from MB2 to MB1. b. the marginal benefit curve to shift from MB1 to MB2. c. the marginal cost curve to shift from MC2 to MC1. d. the marginal cost curve to shift from MC1 to MC2.

d. the marginal cost curve to shift from MC1 to MC2.

The optimal quantity of a negative externality is zero if: Select one: a. it kills many people. b. it is costly to negotiate a Coasean solution. c. people vote against it in a democratic election. d. the marginal cost of reducing it is zero.

d. the marginal cost of reducing it is zero.

Suppose there are three kinds of people living in Midtown: people who do not have a lot of money, and so cannot afford to conspicuously consume; people who come from old money, all of whom believe that conspicuous consumption is in exceedingly poor taste; and the newly rich, all of whom engage in conspicuous consumption.One reason that members of families that have been wealthy for many generations do not engage in conspicuous consumption in Midtown is that Select one: a. they want to be mistaken for people who are not wealthy. b. it is too costly a signal to fake. c. they do not care what other people think of them. d. they do not want others to think they are newly rich.

d. they do not want others to think they are newly rich.