econ 110 exam 2

Tariffs and quotas are different in the sense that

tariffs raise revenue for the government, while quotas do not raise revenue for the government.

Pat bought a new car for $15,500 but was willing to pay $24,000. The consumer surplus is

$8,500.

Suppose that Company A's railroad cars pass through Farmer B's corn fields. The railroad causes an externality to the farmer because the railroad cars emit sparks that cause $1,500 in damage to the farmer's crops. There is a special soy-based grease that the railroad could purchase that would eliminate the damaging sparks. The grease costs $1,200. Suppose that the railroad is not liable for any damage caused to the crops. Assume that there are no transaction costs. Which of the following characterizes the efficient outcome?

The farmer will pay the railroad $1,200 to purchase the grease so that no crop damage will occur.

In the market for apples in a certain country, consumer surplus increases and total surplus increases when that country

abandons a no-trade policy, adopts a free-trade policy, and becomes an importer of apples.

The impact of one person's actions on the well-being of a bystander is called

an externality.

The price elasticities of supply and demand affect

both the size of the deadweight loss from a tax and the tax incidence.

Which of the following will cause a decrease in producer surplus? a. the price of a complement decreases b. an increase in the number of buyers of the good c. the imposition of a binding price ceiling in the market d. income increases and buyers consider the good to be normal

c. the imposition of a binding price ceiling in the market

Which of the following will cause no change in producer surplus? a. buyers expect the price of a good to be higher next month b. the price of a substitute increases c. the imposition of a nonbinding price ceiling in the market d. income increases and buyers consider the good to be inferior

c. the imposition of a nonbinding price ceiling in the market

Goods that are rival in consumption but not excludable would be considered

common resources.

If a consumer places a value of $15 on a particular good and if the price of the good is $17, then the

consumer does not purchase the good.

When a country that imports a particular good imposes a tariff on that good,

consumer surplus decreases and total surplus decreases in the market for that good.

If the government removes a binding price floor from a market, then the price paid by buyers will

decrease, and the quantity sold in the market will increase.

When a tax is placed on the buyers of tennis racquets, the size of the tennis racquet market

decreases, but the price paid by buyers increases.

In deciding whether a good is a public good, one must determine the

excludability of the good.

The failure of markets to adequately protect the environment can viewed either as a problem of

externalities or as a problem of common resources.

Which of the following is correct? A tax burden

falls more heavily on the side of the market that is less elastic.

If a tax is levied on the sellers of a product, then the demand curve will

not shift.

Assume that your roommate is very messy. Suppose she gets a $25 benefit from being messy but imposes a $50 cost on you. The Coase theorem would suggest that an efficient solution would be for you to

pay your roommate at least $25 but no more than $50 to clean up after herself.

The size of a tax and the deadweight loss that results from the tax are

positively related.

When a certain nation abandoned a policy of prohibiting international trade in automobiles in favor of a free-tree policy, the result was that the country began to import automobiles. The change in policy improved the well-being of that nation in the sense that

the gains to automobile consumers in that nation exceeded the losses of the automobile producers in that nation.

Suppose that a steel factory emits a certain amount of air pollution, which constitutes a negative externality. If the market does not internalize the externality,

the market equilibrium quantity will not be the socially optimal quantity.

One of the least regulated common resources today is

the ocean.

If a country is an exporter of a good, then it must be the case that

the world price is greater than its domestic price.

At the equilibrium price of a good, the good will be purchased by those buyers who

value the good more than price.

The marginal seller is the seller

who would leave the market first if the price were any lower, and the marginal buyer is the buyer who would leave the market first if the price were any higher.

The price of sugar that prevails in international markets is called the

world price of sugar.

Suppose your own demand curve for tomatoes slopes downward. Suppose also that, for the last tomato you bought this week, you paid a price exactly equal to your willingness to pay. Then

your consumer surplus on the last tomato you bought is zero.

Negative externalities lead markets to produce

greater than efficient output levels and positive externalities lead markets to produce smaller than efficient output levels.

Chad is willing to pay $5.00 to get his first cup of morning latté; he is willing to pay $4.50 for a second cup. He buys his first cup from a vendor selling latté for $3.75 per cup. He returns to that vendor later in the morning to find that the vendor has increased her price to $3.90 per cup. Chad buys a second cup. Which of the following statements is correct?

Chad's willingness to pay for his second cup of latté was smaller than his willingness to pay for his first cup of latté.

A streetlight is a

public good.

In 1990, Congress passed a new luxury tax on items such as yachts, private airplanes, furs, jewelry, and expensive cars. The goal of the tax was to

raise revenue from the wealthy.

Cameron visits a sporting goods store to buy a new set of golf clubs. He is willing to pay $750 for the clubs but buys them on sale for $575. Cameron's consumer surplus from the purchase is

$175.

Roland mows Karla's lawn for $25. Roland's opportunity cost of mowing Karla's lawn is $20, and Karla's willingness to pay Roland to mow her lawn is $28. If Karla hires Roland to mow her lawn, Roland's producer surplus is

$5

The world price of a ton of steel is $650. Before Russia allowed trade in steel, the price of a ton of steel there was $1,000. Once Russia allowed trade in steel with other countries, Russia began

importing steel and the price per ton in Russia decreased to $650.

An externality exists whenever

Bobbi engages in an activity that influences the well-being of Rosa and yet Bobbi neither pays nor receives payment for that influence.

Which of the following is an example of the free-rider problem?

Bruce owns Buster, a large dog who barks whenever anyone walks near his house. Betty lives next to Bruce, and Buster's barking can be heard whenever anyone walks near her house, too. Thus, Betty receives free protection from burglars because of Buster's barking.

Suppose that a small county is considering adding a guard rail to a dangerous curve by a river. The guard rail will cost $70,000. The average damage done to vehicles that slide off the road at the curve is $10,000. It is expected that the guard rail will prevent 5 vehicles from sliding off the road during its usable life. What should the county do?

Do not install the guard rail because the costs exceed the benefits.

Suppose consumer income increases. If grass seed is a normal good, the equilibrium price of grass seed will

increase, and producer surplus in the industry will increase.

When a tax is imposed on a good for which both demand and supply are very elastic,

None of the above is correct; further information would be required to determine how the burden of the tax is distributed between buyers and sellers.

A tariff on a product

increases the domestic quantity supplied.

Which of the following statements about private goods and public goods is correct?

Private goods are rival in consumption and public goods are not excludable.

Roland mows Karla's lawn for $25. Roland's opportunity cost of mowing Karla's lawn is $20, and Karla's willingness to pay Roland to mow her lawn is $28. Assume Roland is required to pay a tax of $3 each time he mows a lawn. Which of the following results is most likely?

Roland and Karla still can engage in a mutually-agreeable trade.

Which of the following is true of markets characterized by positive externalities?

Social value exceeds private value, and market quantity is less than the socially optimal quantity.

Suppose that large-scale pork production has the potential to create ground water pollution. Why might this type of pollution be considered an externality?

The pollution has the potential for creating a health risk for water users in the region surrounding the pork production facility.

What do clean air in New York City and elephants in Africa have in common?

They are both common resources.

A positive externality

is a benefit to a market bystander.

Altering incentives so that people take account of the external effects of their actions

is called internalizing the externality; can be done by imposing a corrective tax; and is the role of government in markets with externalities.

A positive externality arises when a person engages in an activity that has

a beneficial effect on a bystander who does not pay the person who causes the effect.

A city street is

a common resource when it is congested, but it is a public good when it is not congested.

Which of the following statements is correct regarding the imposition of a tax on gasoline? a. The incidence of the tax depends upon the price elasticities of demand and supply. b. The amount of tax revenue raised by the tax depends upon whether the buyers or the sellers are required to remit tax payments to the government. c. The incidence of the tax depends upon whether the buyers or the sellers are required to remit tax payments to the government. d. The amount of tax revenue raised by the tax does not depend upon the amount of the tax per unit.

a. The incidence of the tax depends upon the price elasticities of demand and supply.

Suppose the government has imposed a price ceiling on laptop computers. Which of the following events could transform the price ceiling from one that is not binding into one that is binding? a. The number of firms selling laptop computers decreases. b. Consumers' income decreases, and laptop computers are a normal good. c. Improvements in production technology reduce the costs of producing laptop computers. d. The number of consumers buying laptop computers decreases.

a. The number of firms selling laptop computers decreases.

Each of the following is likely to be a successful way for the government to solve the problem of overuse of a common resource except

asking individuals to voluntarily reduce their use of the resource.

In the Tragedy of the Commons parable, if the medieval townspeople had foreseen the tragedy, then they could have dealt with the problem in much the same way that modern society deals with

pollution.

Excessive fishing occurs because

each individual fisherman has little incentive to maintain the species for the next year.

By allowing an income-tax deduction for charitable contributions, the government

encourages a private solution to a particular positive-externality problem.