Eco 211 Exam 3

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National defense is an example of

Public good

National defense and warning systems

Public goods

Poll tax

a fixed amount of tax that tax-payers must pay regardless of income

If a product costs $4, and government fixes the price at $3.50

a shortage in the market will occur

A gallon of milk costs $4 in Bonland. If the government fixes the price at $3.50

a shortage of milk will occur

Coase Theorem

bargaining eliminates inefficiencies

Command economies

centrally planned, government allocates resources and prices don't fluctuate

A government regulation that ban use of a certain polluting technology in production of a good

command and control approach

Paternalism

consumers don't always know what is best for them, the government should encourage or induce them to change their actions

When prices are not allowed to fluctuate there is (price ceiling/floor)

deadweight loss

A price ceiling leads to a

decerase in total surplus

Efficiency in competitive markets is characterized by

every buyer whose willingness to pay is greater than or equal to marginal cost is served in the market

Which of the following is NOT true regarding externalities?

externalities have no effect on market efficiency

What do price controls weaken?

function of the invisible hand

transfer payments

government payment to certain individuals or groups

Club goods

highly excludable but non-rival in consumption

Efficiency

if an output maximizes the total surplus generated

Which is NOT a feature of market economy?

it provides equity of income and consumption for market participants

If a tax is imposed per unit of a good sold the supply curve shifts

left

The reservation of a seller reflects her

marginal cost

Production of a good gives rise to a positive externality

marginal social benefit from each level of output exceeds the consumers willingness to pay

Positive externality

market equilibrium has under production leading to a deadweight loss

If the market supply curve of a commodity is more elastic than its market demand curve, tax indigence is likely to fall

more on consumers than on producers

When sellers in a perfectly competitive market attempt to maximize their own profit they

move scarce resources to highest use

Traffic congestion is an example of

negative externality

Public goods

non-excludable and non-rival

The tragedy of the commons occurs because some goods are

non-excludable but rival

Tragedy of commons

occurs when goods are non-excludable but rival

Furniture is an example of

ordinary private good

Education is an example of

positive externality

The presence of external benefits associated with production implies that

private output is less than the socially optimal output

Federal government relies on ____ to limit inequality

progressive taxes

A poll tax is

regressive

When positive economic profits exist in an industry

resources flow form less productive uses to that particular industry

Common pool resources

rival and non-excludable

underground economy

side steps government regulation, makes it less effective

When buyers and sellers optimize in a perfectly competitive market

social surplus is maximized

Marginal tax rate

tax rate on the last dollar of income earned

Budget surplus occurs when

tax revenue exceeds government spending

A price ceiling does NOT lead to a deadweight loss if

the equilibrium market price lies below the price ceiling

A black market can emerge for a good if

the good is taxed heavily

Which of the following will lead to an efficient private solution if negative externalities are present in a market?

the parties involved negotiating with each other and reaching an agreement

Reservation value

the price at which a trading partner is indifferent between making the trade and not doing so

If a tax is imposed per unit of a good sold

the supply curve for the good shifts to the left

tax structure

under a progressive tax system, higher for higher income

Externality

when an economic activity imposes spillover costs or benefits on a third party

direct regulation

when government directly restricts the amount of economic activity (FDA)

Corrective tax

when negative externalities exist, gov. can improve market outcome by imposing a tax


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