Econ 20 Midterm 2
Which of the following is a cost associated with government intervention in an economic system?
Bureaucracies
Which of the following is not one of the common arguments against free trade?
Firms always win at the expense of consumers.
How has the pattern of trade changed in the United States since 1960?
Imports have grown faster than exports, and the United States has become a net importer.
How would you depict the trade-off between equity and efficiency on a graph?
Inequality on one axis and social surplus on the other with a positively-sloped function
Based on market forces only, how will this impact the production levels for a factory if negative externalities are present?
It will produce the good above the socially efficient level
What are the types of goods that are causing the shift in the balance of imports and exports in the United States?
Manufactured goods have played an important role in the shift, even though the number of manufactured goods has increased.
Which of the following is the largest source of revenue for state governments?
Miscellaneous taxes and fees, such as tolls on roads and public transportation tickets.
In your environmental economics study group, a friend argues that using taxes to control pollution is not efficient because, even with taxes, a positive amount of pollution is still produced. Do you agree?
No, because an efficient outcome balances costs with benefits and eliminating all pollution would be cost prohibitive.
Government spending in the United States has grown over time and now accounts for more than 40 percent of U.S. national income. Does this mean that government has been consistently running a budget deficit?
No, government deficits depend upon spending and tax revenue.
Is the entire burden of the tax always borne by those on whom it is imposed?
Not necessarily, since the burden of the tax depends on price elasticity.
The primary types of tax systems are
Proportional tax systems, regressive tax systems, and progressive tax systems
What is the problem with the argument that infant industries need to be protected from foreign competition?
Starting a company in isolation may deprive it of all "tech spillovers" that its competitors, all located near one another, may enjoy
Why are there two different views on the effect of taxation on labor supply in the United States?
The effect of a tax on labor supply depends on the amount of deadweight loss created by the tax. It depends on normative questions such as how much to tax or how much government intervention is necessary. The effect of a tax on labor supply depends on the elasticity of labor supply.
What is the intent of a Pigouvian tax?
To induce producers of a negative externality to reduce production to the socially optimal level.
Which of the following is a factor underlying government taxation and spending decisions?
To raise revenues to pay for operations
The Coase Theorem will breakdown when
Transaction costs become high, there are a large number of agents, and when property rights are not clearly defined.
If there are no "losers" in free trade, does it matter if wages and employment fall when a country engages in free trade?
Yes, it is diffcult to pinpoint who the losers are and how much each lost.
In an attempt to help the poor, India announced a policy to implement price ceilings on several essential drugs in December 2012. Some industry analysts, however, claimed that this would actually end up hurting the poor more than helping them.Do you think this is a possibility?
Yes, it might hurt the poor by creating a shortage.
The curvature of an economy's production possibilities curve represents
an increasing opportunity cost of producing each good.
Why is the market demand curve for public goods calculated as a vertical summation of individual demand curves?
because the public good is non-rival, so you and others can consume every unit of the good at the same time.
Externalities are called market failures because they
cause markets to produce suboptimal social outcomes
A linear PPC would show
constant opportunity costs
The free-rider problem arises when an individual
does not pay for a good because nonpayment does not prevent consumption.
Terms of trade is the
exchange rate of goods for goods
A PPC that is curved away from the origin would show
increasing opportunity costs
The largest source of revenue for the federal government is
individual income taxes.
Terms of trade are determined
on the basis of opportunity costs.
The Coase Theorem states that
private bargaining will result in an efficient allocation of resources.
To reduce inequality and poverty in an economy, the government uses a
progressive tax system to fund transfer payments.
Production Possibilities Curve (PPC)
shows the relationship between the maximum production of one good for a given level of production of another good.
A payroll tax is known as a
social insurance tax
The government runs a budget surplus when
tax revenue exceeds its spending
A price ceiling refers to
the upper limit on the price of a good. Highest price charged for a product
The average tax rate faced by an individual is the
total tax paid by her divided by the total income earned.
Tax incidence refers to
who bears the burden of a tax.
