ECON 201 Midterm 2

Positive analysis: A. examines if the outcome is desirable. B. weighs the fairness of a policy. C. involves the formulation and testing of hypotheses. D. involves value judgments concerning the desirability of alternative outcomes

C

Social costs are: A. external costs minus private costs. B. those costs imposed without compensation on someone other than the person who caused them. C. private costs plus external costs. D. network costs minus private costs.

C

Suppose S is the private supply curve and S1 is the social supply curve. The reason the invisible hand does not allocate resources efficiently in the market is because: A. S includes the external cost of production B. there is too much demand C. S does not include the external cost of production D. S1 does not include the external cost of production

C

Social costs are: A. external costs minus private costs. B. those costs imposed without compensation on someone other than the person who caused them. C. network costs minus private costs. D. private costs plus external costs.

D

Suppose a market is in equilibrium. The area between the market price and the supply curve is : A. consumer surplus B. the value of trades not made C. total economic surplus D. producer surplus E. the deadweight loss

D

Suppose a perfectly competitive industry has an external cost (e.g. noise pollution). The market outcome will be ____________ because the equilibrium price is ______________. A. inefficient; too high B. efficient; too low C. inefficient; greater than the true cost D. inefficient; less than the true cost

D

"Market failure" refers to situations in which the: A. actions of private individuals and firms are insufficient to ensure efficient markets. B. equilibrium in a market cannot be reached. C. equilibrium in a market is harmful to either the buyer or seller. D. actions of private individuals and firms are based on insufficient information

A

A Pigovian tax: A. counters the effect of a negative externality. B. decreases total surplus in a market. C. decreases efficiency in a market. D. All of these statements are true.

A

A seller's willingness to sell: A. is the minimum price that a seller is willing to accept in exchange for a good or service. B. must always equal the buyer's willingness to buy. C. is the maximum price that a seller is willing to accept in exchange for a good or service. D. is their reserved minimum bid-price.

A

An external benefit implies that private markets will provide ____ and an external cost implies that private markets will provide _____ of the good (relative to the social optimum). A. too little; too much B. too much; too little C. too little; too little D. too much; too much

A

An externality is A) a benefit or cost experienced by someone who is not a producer or consumer of a good or service. B) a cost paid for by the producer of a good or service. C) anything that is external or not relevant to the production of a good or service. D) a benefit realized by the purchaser of a good or service.

A

An optimal corrective tax levied on polluters will: A. be equal to the marginal cost of their actions imposed on third parties B. not generate enough revenue to pay for the cost of the damage resulting from pollution that occurs at the efficient output of the good C. decrease pollution to zero D. increase the supply of polluting goods

A

At prices below a consumer's maximum willingness to pay: A. the buyer will participate in the market because the opportunity cost is less than the benefit from having the good. B. the buyer will not participate in the market because the opportunity cost is more than the benefit from having the good. C. the buyer will participate in the market because the opportunity cost is more than the benefit from having the good. D. the buyer will not participate in the market because the opportunity cost is less than the benefit from having the good.

A

College education provides higher income for the individual but also a more productive and more educated person who will contribute to society in many ways. Higher education is an example of: A. a positive externality B. a negative externality C. adverse selection D. a nonexcludable service

A

Consider the market for flu shots ans select the false statement from the following: A. free market without subsidization will over-supply flu shots B. the marginal social benefit of an extra unit of flu shot is greater than the marginal private benefit of an extra unit of flu shot C. the social demand curve for flu shots is higher than the private demand curve for flu shots D. subsidization of flu shots will cover the positive externalities of flu shots

A

Consumers may benefit more than sellers from a subsidy to sellers if: A. the demand curve is relatively less elastic than the supply curve. B. the demand curve is relatively more elastic than the supply curve. C. Consumers can never benefit more than sellers from a subsidy to sellers. D. they deserve the subsidy more.

A

Governments tend to see taxing an action that produces a negative externality as: A. the second best solution possible and often the most attainable. B. the best solution possible, but often unattainable. C. the second best solution possible, but often unattainable. D. the best solution possible and often the most attainable.

A

If Billy's reservation price on a snowboard is $250, how many snowboards would he buy if the market price of snowboards is $500? A. 0 B. The amount of snowboards purchased would depend on Billy's income. C. 2 D. 1

A

If a corrective tax on gasoline results in the efficient output of gasoline by internalizing negative externalities associated with pollution: A. the tax will generate enough revenue to compensate society for the damages resulting from the pollution that still occurs. B. pollution from gasoline will increase because people are also harmed by the tax. C. pollution from gasoline will be zero because environmental cleanliness is priceless. D. there will be no effect on pollution from gasoline because the tax is paid by the supplier.

A

If a negative externality exists in the market for dirt bikes and that market is perfectly competitive: A. the price of dirt bikes is less than the marginal social cost. B. the price of dirt bikes exceeds the marginal social cost C. the price of dirt bikes equals the marginal social cost D. less than the efficient output of dirt bikes will be produced

A

If the demand curve is more elastic than the supply curve, then: A. the buyers will bear a greater tax incidence than sellers. B. the sellers will bear a greater tax incidence than buyers. C. None of these is true. D. tax incidence will be shared equally by buyer and seller.

A

If the government wants to encourage the consumption of a particular good, they should enact: A. a subsidy on either buyers or sellers, since they will both have the same effect on the market. B. a subsidy to sellers, since they want more to be produced and offered for sale. C. a subsidy to buyers, since they deserve the benefit more than the producers. D. a subsidy to buyers, since they want to affect consumption of the good.

A

If the government's provision of a subsidy is too small to counteract the entire effect of a positive externality, the: A. quantity consumed will still be too low. B. total surplus will not be maximized, but the outcome will be efficient. C. total surplus will be maximized, but the outcome will be inefficient. D. quantity consumed will still be too high.

A

If the producers bear a larger portion of tax incidence than the buyers, which of the following must be true? A. Their supply curve must be more inelastic than the buyers demand curve. B. Their supply curve must be more elastic than the buyers demand curve. C. They are not as business savvy as the buyers. D. They face a very inelastic demand.

A

If the social cost is greater than the private cost in a particular market, the private equilibrium will be at a quantity: A. greater than the socially optimal level. B. greater than or less than the socially optimum level, depending on the size of the external costs. C. equal to the socially optimal level. D. less than the socially optimal level.

A

If the social cost is greater than the private cost in a particular market, the private equilibrium will be at a quantity: A. greater than the socially optimal level. B. less than the socially optimal level. C. equal to the socially optimal level. D. greater than or less than the socially optimum level, depending on the size of the external costs.

A

If there is a market outcome in which the marginal benefit to consumers of the last unit produced is equal to its marginal cost of production and consumer surplus plus producer surplus is maximized, then A) economic efficiency is achieved. B) costs are minimized. C) maximum deadweight loss occurs. D) profits are maximized.

A

If, in a competitive market, marginal benefit is less than marginal cost, A) the quantity sold is greater than the equilibrium quantity. B) the net benefit to consumers from participating in the market is less than the net benefit to producers. C) the government must force producers to raise prices in order to achieve economic efficiency. D) the quantity sold is less than the equilibrium quantity

A

In a free-market economy, a product which entails a positive externality will be: A. Underproduced B. Overproduced C. Provided solely by the government D. Produced at the optimal level

A

In order to be binding, a price ceiling A) must lie below the free market equilibrium price. B) must be high enough for firms to earn a profit. C) must lie above the free market equilibrium price. D) must coincide with the free market equilibrium price.

A

Price ceilings are: A. a legal maximum price. B. a legal minimum quantity that can be sold at a particular price. C. a legal minimum price. D. a legal maximum quantity that can be sold at a particular price.

A

Price ceilings below equilibrium price result in: A. shortages B. increased total economic surplus C. the quantity supplied exceeding the quantity demanded D. surpluses E. the same amount of economic surplus, with a reallocation from producers to consumers

A

Situations in which the actions of private individuals and firms are insufficient to ensure efficient markets are referred to as: A. market failures. B. price gouging. C. disequilibrium. D. negative externality.

A

Suppose the demand curve for a product is horizontal and the supply curve is upward sloping. If a unit tax is imposed in the market for this product, A) sellers bear the entire burden of the tax. B) the tax burden will be shared by buyers and sellers. C) buyers bear the entire burden of the tax. D) the tax burden will be shared among the government, buyers and sellers.

A

Suppose the demand curve for a product is vertical and the supply curve is upward sloping. If a unit tax is imposed in the market for this product, A) buyers bear the entire burden of the tax. B) the tax burden will be shared equally between buyers and sellers. C) buyers share the burden of the tax with government. D) sellers bear the entire burden of the tax.

A

Suppose the market for sugar is in equilibrium at $3 per kilogram. This means: A. all remaining producers will require more than $3 to produce sugar B. all remaining consumers value sugar at more than $3 C. the cost of the last kilogram of sugar is less than $3 D. the benefit of the last kilogram of sugar exceeds $3 E. too many trades have occurred

A

The difference in the price the buyer pays and the price the sellers keep in the presence of a tax is called: A. a tax wedge B. the tax burden C. the tax incidence D. a tax differential

A

The difference in the price the buyer pays and the price the sellers keep in the presence of a tax is called: A. a tax wedge. B. the tax burden. C. the tax incidence. D. a tax differential.

A

The government imposing a minimum wage is an example of an attempt to: A. redistribute surplus in a market B. encourage the consumption of inferior goods C. discourage the consumption of inferior goods D. correct a market failure

A

The inefficiency associated with negative externalities is most likely the result of: A. poorly specified property rights B. government intervention C. the fallacy of composition D. special interest groups

A

The more elastic supply is, the __________ the burden of the tax borne by _________. A. smaller; producers B. larger; consumers and producers C. larger; producers D. smaller; consumers

A

Thea buys a new phone for $250. She receives consumer surplus of $35 from the purchase. How much does Thea value her phone? A) $285 B) $215 C) $35 D) $250

A

To affect the market outcome, a price ceiling A) must be set below the equilibrium price. B) must be set below the black market price. C) must be set below the legal price. D) must be set below the price floor.

A

What consumer surplus is received by someone whose willingness to pay is $35 below the market price of a good? A. $0 B. $35 C. ($35 x P*) D. None of these is correct.

A

What is a "social cost" of production? A) the sum of all costs to individuals in society, regardless of whether the costs are borne by those who produce the products or consume the product B) the total costs of producing a product, both implicit and explicit costs C) the cost of the environmental damage created by production D) the cost of the natural resources used up in production

A

What is a market failure? A) It refers to the inability of the market to allocate resources efficiently up to the point where marginal social benefit equals marginal social cost. B) It refers to the inability of the market to allocate resources efficiently up to the point where marginal social benefit equals marginal private cost. C) It refers to a situation where an entire sector of the economy (for example, the airline industry) collapses because of some unforeseen event. D) It refers to a breakdown in a market economy because of widespread competence in government.

A

When a negative externality exists, the private market produces A) more than the economically efficient output level. B) products at a high opportunity cost. C) less than the economically efficient output level. D) products at a low opportunity cost.

A

When negative externalities are present, it means that: A. All of these statements are true. B. society bears part of the cost borne of private transactions. C. production and consumption is above the socially optimal level. D. individuals don't take into account all the costs associated with their market choice.

A

Which of the follow is not a result of imposing a rent ceiling? A) Some consumer surplus is converted to producer surplus. B) A reduction in the quantity supplied of apartments. C) The marginal benefit of the last apartment rented is greater than the marginal cost of supplying it. D) An increase in the quantity demanded of apartments.

A

Which of the following is not an example of an externality? A. A defective part that causes an automobile to break down three months after purchase B. Acidic by-products of fossil fuel combustion that produce acid rain C. Heat from a factory that makes the neighboring tomato patches more productive D. Carbon dioxide from energy generation that adds to the worldwide long-term greenhouse effect

A

Which of the following prices could represent Eli's willingness to pay for a baseball glove if he observed the market price of $43 and decided not buy one? A. $37 B. $50 C. $45 D. None of these could represent Eli's willingness to pay.

A

Which of the following prices could represent Sally's willingness to pay for a pair of shoes if she bought them for $45? A. $55.00 B. $15.00 C. $25.00 D. $44.99

A

Which of the following represents the true economic cost of production when firms produce goods that cause negative externalities? A) the social cost of production B) the private cost of production C) the explicit cost of production D) the external cost of production

A

Assume that reading economics produces a positive externality. It will be the case that the _______________ than the socially optimal amount. A. demand curve for reading will be greater B. demand curve for reading will be less C. price of reading will be greater D. supply curve for reading will be greater

B

An effective price floor: A. must be set below the equilibrium price, and will likely cause a shortage. B. must be set above the equilibrium price, and will likely cause a surplus. C. must be set below the equilibrium price, and will likely cause a surplus. D. must be set above the equilibrium price, and will likely cause a shortage.

B

A market demand curve reflects the A) external benefits of consuming a product. B) social benefits of consuming a product. C) private benefits of consuming a product. D) the sum of private and social benefits of consuming a product

C

A positive consumption externality causes A) the marginal social benefit to be equal to the marginal private cost of the last unit produced by the private market. B) the marginal social benefit to exceed the marginal private cost of the last unit produced by the private market. C) the marginal social benefit to be less than the marginal private cost of the last unit produced by the private market. D) the marginal private benefit to exceed the marginal social cost of the last unit produced by the private market.

B

An effective price ceiling: A. can lead more goods to be produced in a market. B. must be set below the equilibrium price. C. must be set at the equilibrium price. D. must be set above the equilibrium price.

B

Governments tend to see taxing an action that produces a negative externality as: A. the second best solution possible, but often unattainable. B. the second best solution possible and often the most attainable. C. the best solution possible, but often unattainable. D. the best solution possible and often the most attainable.

B

If a corrective tax on gasoline results in the efficient output of gasoline by internalizing negative externalities associated with pollution: A. there will be no effect on pollution from gasoline because the tax is paid by the supplier. B. the tax will generate enough revenue to compensate society for the damages resulting from the pollution that still occurs C. pollution from gasoline will increase because people are also harmed by the tax D. pollution from gasoline will be zero

B

If a negative externality is associated with burning firewood: A. the marginal social cost of burning firewood falls short of its price. B. the marginal social cost of burning firewood exceeds the price of burning firewood. C. less than the efficient amount of firewood for burning will be used each year. D. the marginal social cost of burning firewood is exactly equal to its price.

B

If a negative externality is associated with burning firewood: A. the marginal social cost of burning firewood is exactly equal to its price. B. the marginal social cost of burning firewood exceeds the price of burning firewood. C. the marginal social cost of burning firewood falls short of its price. D. less than the efficient amount of firewood for burning will be used each year.

B

If a production process involved the creation of a negative externality, then the social cost of production would be: A. zero. B. larger than the private cost of production. C. smaller than the private cost of production. D. the same as the private cost of production.

B

If an individual producer is willing to produce one unit of a good for $5 but finds he can sell it for $7.50, he has a producer surplus of: A. $12.50. B. $2.50. C. $7.50. D. $5.

B

If the demand curve is more elastic than the supply curve, then: A. None of these is true. B. the buyers will bear a greater tax incidence than sellers. C. the sellers will bear a greater tax incidence than buyers. D. tax incidence will be shared equally by buyer and seller.

B

If the government's provision of a subsidy is too small to counteract the entire effect of a positive externality, the: A. total surplus will be maximized, but the outcome will be inefficient. B. quantity consumed will still be too low. C. quantity consumed will still be too high. D. total surplus will not be maximized, but the outcome will be efficient.

B

If the social cost is greater than the private cost in a particular market, the private equilibrium will be at a quantity: A. equal to the socially optimal level. B. greater than the socially optimal level. C. greater than or less than the socially optimum level, depending on the size of the external costs. D. less than the socially optimal level.

B

If there is a market outcome in which the marginal benefit to consumers of the last unit produced is equal to its marginal cost of production and consumer surplus plus producer surplus is maximized, then A) profits are maximized. B) economic efficiency is achieved. C) maximum deadweight loss occurs. D) costs are minimized.

B

If, in a competitive market, marginal benefit is less than marginal cost, A) the quantity sold is less than the equilibrium quantity. B) the quantity sold is greater than the equilibrium quantity. C) the government must force producers to raise prices in order to achieve economic efficiency. D) the net benefit to consumers from participating in the market is less than the net benefit to producers

B

In a competitive market equilibrium A) total consumer surplus equals total producer surplus. B) the marginal benefit equals the marginal cost of the last unit sold. C) marginal benefit and marginal cost are maximized. D) consumers and producers benefit equally.

B

Is it possible for sellers to benefit more than consumers from a subsidy to buyers? A. Yes, if the sellers need it more. B. Yes, if the supply curve is relatively more inelastic than the demand curve. C. Producers can never benefit more than buyers from a subsidy to buyers. D. Yes, if the supply curve is relatively less inelastic than the demand curve

B

Market equilibrium is considered efficient because: A. the price consumers pay equals the amount producers receive B. no more trades remain that benefit some without harming others C. quantity supplied equals quantity demanded. D. excess supply is zero E. excess demand is zero

B

Markets fail to maximize total surplus when: A. society's choices impose costs or benefits on other societies. B. individual choices impose costs or benefits on others. C. when all costs and benefits are received by participants in transactions. D. producer surplus is not exactly equal to consumer surplus.

B

One way to make consumers take a positive externality into account in their demand decision is to: A. place a tax on the item. B. subsidize the purchase of the item. C. tax the producers of the item. D. None of these statements is true

B

Positive analysis: A. involves value judgments concerning the desirability of alternative outcomes. B. involves the formulation and testing of hypotheses. C. examines if the outcome is desirable. D. weighs the fairness of a policy.

B

Refer to the diagram above. Leaving the free market to decide on production, output would be _____ units and price would be ____ per unit. A. 100; $0.90 B. 120; $1.00 C. 100; $1.00 D. 120; $0.90 E. 100; $1.40

B

Situations in which the assumption of efficient, competitive markets fails to hold are called: A. inelastic-response markets. B. market failures. C. missing markets. D. market interventions

B

Situations in which the assumption of efficient, competitive markets fails to hold are called: A. missing markets. B. market failures. C. inelastic-response markets. D. market interventions.

B

Suppose the government sets the price for crayfish and the market for crayfish is always experiencing a surplus. One can infer that the: A. government has established a price ceiling for crayfish B. government has established a price floor for crayfish C. supply of crayfish exceeds the demand for crayfish D. quantity of crayfish demanded exceeds the quantity of crayfish supplied E. government is trying to reduce crayfish consumption as an environmental safeguard

B

The best example of a positive externality is: A. roller coaster rides. B. education. C. pollution. D. alcoholic beverages.

B

The government can both set the efficient level of output in a market and maximize surplus by correcting for a negative externality by using: A. a tariff. B. a tradable allowance. C. a subsidy. D. a quota.

B

The government imposing a minimum wage is an example of an attempt to: A. encourage the consumption of inferior goods. B. redistribute surplus in a market. C. discourage the consumption of inferior goods. D. correct a market failure.

B

The government is deciding where to place a tax of $0.50 because they want to raise revenues. In which market will they likely generate more revenue? A. In markets with elastic supply and demand, since the increase in quantity traded will be smaller than in a market with inelastic supply and demand curves B. In markets with inelastic supply and demand, since the decrease in quantity traded will be smaller than in a market with elastic supply and demand curves C. In markets with inelastic supply and demand, since the increase in quantity traded will be smaller than in a market with elastic supply and demand curves D. In markets with elastic supply and demand, since the decrease in quantity traded will be smaller than in a market with inelastic supply and demand curves

B

The government is deciding where to place a tax of $0.50 because they want to raise revenues. In which market will they likely generate more revenue? A. in markets with elastic supply and demand, since the increase in quantity traded will be smaller than in a market with inelastic supply and demand curves B. in markets with inelastic supply and demand, since the decrease in quantity traded will be smaller than in a market with elastic supply and demand curves C. In markets with elastic supply and demand, since the decrease in quantity traded will be smaller than in a marked with inelastic supply and demand curves D. In markets with inelastic supply and demand, since the increase in quantity traded will be smaller than in a market with elastic supply and demand curves

B

The government is deciding where to put a $1 tax—either in a market with elastic supply and demand curves, or a market with inelastic supply and demand curves. If their aim is to raise the most revenue with the smallest deadweight loss, where should the tax be placed? A. Since the burden is shared, it doesn't matter which market it is placed in B. In the market with inelastic supply and demand curves C. It is impossible to say without more information D. In the market with elastic supply and demand curves

B

The surplus gained by those outside the market due to the reduction in pollution is _______________ the surplus lost by consumers and producers in the market for gasoline when the negative externality is internalized A. often the same as B. always more than C. always less than D. sometimes less than

B

What is a market failure? A) It refers to a situation where an entire sector of the economy (for example, the airline industry) collapses because of some unforeseen event. B) It refers to the inability of the market to allocate resources efficiently up to the point where marginal social benefit equals marginal social cost. C) It refers to the inability of the market to allocate resources efficiently up to the point where marginal social benefit equals marginal private cost. D) It refers to a breakdown in a market economy because of widespread corruption in government.

B

When a negative externality is internalized in a market, total surplus: A. decreases, because producer and consumer surplus both fall B. increases, but producer and consumer surplus both fall C. decreases, because consumer surplus falls more than producer surplus increases D. increases because producer surplus increases

B

When negative externalities exist in the production of a good, the marginal social cost of producing the good: A. is equal to the marginal benefit received by consumers if competitive markets exist and there is no government intervention. B. equals the marginal cost borne by the firm plus the marginal cost borne by third parties from the production and consumption of the good. C. is less than the marginal cost borne by the firm. D. equals the marginal cost borne by the firm minus marginal cost borne by a third party that results from the production and consumption of the good.

B

When private costs equal social costs, it means that: A. positive externalities are present in the market. B. no externality of any kind is present in the market. C. the external cost must be small relative to the private cost in the market. D. negative externalities are not present in the market.

B

When the market price is set above the equilibrium price: A. total surplus is not maximized. B. All of these are true. C. consumer surplus is decreased. D. efficiency does not occur.

B

Which of the following is not a result of government price controls? A) Some people win and some people lose. B) Price controls benefit poor consumers but harm producers and wealthy consumers. C) A deadweight loss will occur. D) Price controls decrease economic efficiency

B

Who gains surplus when consumers in a market are forced to internalize a negative externality? A. Producers B. All of these groups gain surplus when negative externalities are internalized. C. Consumers D. Others affected by the externality

B

Who gains surplus when consumers in a market internalize a positive externality? A. Others affected by the externality B. Both consumers and producers gain surplus when positive externalities are internalized. C. Consumers D. Producers

B

A Pigovian tax imposed on consumers ___________ the price, and if the same tax were imposed on producers, it would _____________ the price. A. decreases; increase B. decreases; decrease C. increases; increase D. increases; decrease

C

A market failure/inefficiency exists when: A. resources are optimally allocated B. the price established in the market equals the marginal cost of production C. the price established in the market does not equate the marginal social benefit of a good and the marginal social cost of production. D. competitive markets' clearing price equals both the marginal social cost and marginal social benefits

C

A market has four individuals considering buying a grill for his backyard. Further assume that grills come in only one size and model. Abe considers himself a grill-master, and finds a grill a necessity, so he is willing to pay $400 for a grill. Butch is a meat-lover, honing his grilling skills, and is willing to pay $350 for a grill. Collin just met the girl of his dreams, and she loves a good grilled steak, so in his effort to impress her he is willing to pay $320 for a grill. Daniel loves grilled shrimp and thinks it might be cheaper in the long run if he buys a grill instead of eating out every time he wants grilled shrimp, so he is willing to pay $200 for a grill. If the market price of grills is $350, given the scenario described, total consumer surplus would be: A. $870. B. $400. C. $50. D. $750.

C

A positive externality is: A. a benefit that affects the buyer, not the seller. B. an external cost that affects the buyer. C. an external benefit. D. an external cost that affects the seller.

C

A production or consumption quota that can be bought or sold is called: A. a buyers' or sellers' quota. B. a subsidy. C. a tradable allowance. D. a tax.

C

A tax on cigarettes: A. like any tax, will always reduce surplus and efficiency in markets. B. increases efficiency in the market. C. will increase both total surplus and efficiency in the market. D. increases total surplus.

C

Assume a market that has an equilibrium price of $7. If the market price is set at $3, which of the following is true? A. All surplus is transferred from consumers to producers, and total surplus stays the same. B. Some surplus is transferred from consumers to producers, causing total surplus to increase. C. Some surplus is transferred from producers to consumers, but total surplus falls. D. Some surplus is transferred from consumers to producers, but total surplus falls.

C

Assume a market that has an equilibrium price of $7. If the market price is set at $3, which of the following is true? A. Some surplus is transferred from consumers to producers, causing total surplus to increase. B. Some surplus is transferred from consumers to producers, but total surplus falls. C. Some surplus is transferred from producers to consumers, but total surplus falls. D. All surplus is transferred from consumers to producers, and total surplus stays the same.

C

Assume there are three hardware stores in the market for hammers and that all three markets produce a single, standard model hammer. House Depot is an enormous mass producer of hammers and can offer a hammer for sale for a minimum of $7. Lace Hardware is a franchise and can offer the hammer for sale for a minimum of $10. Bob's Hardware store is a family owned and operated, independent hardware store and can offer hammers at a minimum price of $13. Given the scenario described, if the market price of hammers was $13, then total producer surplus would be: A. $30. B. $7. C. $9. D. $17.

C

If companies who internalized an externality want to supply less at any given price compared to the original market supply, it must be a: A. positive externality. B. social externality. C. negative externality. D. network externality.

C

If the government's provision of a subsidy is too small to counteract the entire effect of a positive externality, the: A. total surplus will be maximized, but the outcome will be inefficient B. quantity consumed will still be too high C. quantity consumed will still be too low D. total surplus will not be maximized, but the outcome will be efficient

C

If the producers bear a larger portion of tax incidence than the buyers, which of the following must be true? A. Their supply curve must be more elastic than the buyers demand curve. B. They face a very inelastic demand. C. Their supply curve must be more inelastic than the buyers demand curve. D. They are not as business savvy as the buyers.

C

If the supply curve is more inelastic than the demand curve, then: A. the sellers will bear a smaller tax incidence than the buyers. B. Any of these could be true. C. the sellers will bear a greater tax incidence than the buyers. D. the sellers will bear an equal tax incidence as the buyers

C

In a competitive market, a $2 per unit tax is imposed, of which consumers pay $1.80 and producers pay $0.20. This means that: A. the tax does not create any deadweight loss B. demand is more elastic than supply C. demand is more inelastic relative to supply D. supply is more inelastic than demand

C

In general, price controls have a: A. smaller effect in the long run since demand and supply become less elastic over time. B. larger effect in the short run since demand and supply become more elastic over time. C. larger effect in the long run because demand and supply become more elastic over time. D. smaller effect in the short run because demand and supply become less elastic over time.

C

In order to support the sugar cane producers, the government fixed a price above the market equilibrium price. This policy: A. is an example of a price ceiling. B. will not change the quantity traded. C. will reduce efficiency in the sugar cane market. D. will only benefit marginal producers. E. will benefit the sugar cane consumers.

C

Is it possible for sellers to benefit more than consumers from a subsidy to buyers? A. yes, if the supply curve is relatively less inelastic than the demand curve B. producers can never benefit more than buyers from a subsidy to buyers C. yes, if the supply curve is relatively more inelastic than the demand curve D. yes, if the sellers need it more

C

Lucinda buys a new GPS system for $250. She receives consumer surplus of $75 from the purchase. How much does Lucinda value her GPS system? A) $75 B) $175 C) $325 D) $250

C

Market failures are: A. situations in which the assumption of inefficient, noncompetitive markets hold B. situations in which the assumption of inefficient, competitive markets fail to hold C. situations in which the assumption of efficient, competitive markets fail to hold D. situations in which the assumption of efficient, competitive markets holds

C

Suppose a price floor on sparkling wine is proposed by the Health Minister of the country of Vinyardia. What will be the likely effect on the market for sparkling wine in Vinyardia? A) Quantity demanded will increase, quantity supplied will decrease, and a shortage will result. B) Quantity demanded will decrease, quantity supplied will increase, and a shortage will result. C) Quantity demanded will decrease, quantity supplied will increase, and a surplus will result. D) Quantity demanded will increase, quantity supplied will decrease, and a surplus will result.

C

Suppose the King of Fooldland decided that everyone should be able to have a piece of cheese with their meal. Therefore, the king subsidised the price of cheese by 50 per cent. The most likely result of king's action would be: A. no effect on economic surplus B. an efficient economy C. a decrease in total economic surplus D. an increase in total economic surplus

C

The Coase theorem reminds us that efficiency is all about ____________________ and says nothing about ______________________. A. equitably distributing surplus; maximizing that surplus B. who gets the most surplus; whether that's a fair outcome C. maximizing total surplus; the distribution of that surplus D. None of these statements is true.

C

The Coase theorem reminds us that efficiency is all about ____________________ and says nothing about ______________________. A. who gets the most surplus; whether that's a fair outcome B. None of these statements is true. C. maximizing total surplus; the distribution of that surplus D. equitably distributing surplus; maximizing that surplus

C

The Coase theorem will hold only if: A. there are no transactions costs. B. people can make enforceable agreements. C. Both of these must hold true. D. Neither of these must hold true

C

The actual division of the burden of a tax between buyers and sellers in a market is called A) tax liability. B) tax parity. C) tax incidence. D) tax bearer

C

The area ________ the market supply curve and ________ the market price is equal to the total amount of producer surplus in a market. A) above; above B) below; below C) above; below D) below; above

C

The area ________ the market supply curve and ________ the market price is equal to the total amount of producer surplus in a market. A) below; below B) below; above C) above; below D) above; above

C

The difference in the price the buyer pays and the price the sellers keep in the presence of a tax is called: A. the tax incidence. B. the tax burden. C. a tax wedge. D. a tax differential.

C

The distance between the supply curve and the price the producer receives for a product for a given quantity supplied is referred to as: A. market shortage. B. market surplus. C. producer surplus. D. consumer surplus.

C

The effect of a pigovian tax on a market is : A. increased price and quantity to the efficient level B. decreased price and increased quantity to the efficient level C. increased price and reduced quantity to the efficient level D. decreased price and quantity to the efficient level

C

The government is deciding where to place a tax of $0.50 because they want to raise revenues. In which market will they likely generate more revenue? A. In markets with inelastic supply and demand, since the increase in quantity traded will be smaller than in a market with elastic supply and demand curves B. In markets with elastic supply and demand, since the decrease in quantity traded will be smaller than in a market with inelastic supply and demand curves C. In markets with inelastic supply and demand, since the decrease in quantity traded will be smaller than in a market with elastic supply and demand curves D. In markets with elastic supply and demand, since the increase in quantity traded will be smaller than in a market with inelastic supply and demand curves

C

The government proposes a tax on imported champagne. Buyers will bear the entire burden of the tax if the A) supply curve for imported champagne is vertical. B) demand curve is downward sloping and the supply curve is upward sloping. C) demand curve for imported champagne is vertical. D) demand curve for imported champagne is horizontal.

C

When a negative externality is internalized in a market, total surplus: A. decreases, because producer and consumer surplus both fall. B. decreases, because consumer surplus falls more than producer surplus increases. C. increases, but producer and consumer surplus both fall. D. increases, because producer surplus increases.

C

When a tax is placed on sellers: A. buyers always bear a higher incidence than sellers. B. None of these is true. C. the effect on buyers and sellers is the same as a tax on buyers would be. D. sellers always bear a higher incidence than buyers.

C

Which of the following prices could represent Sally's willingness to pay for a pair of shoes if she bought them for $45? A. $44.99 B. $15.00 C. $55.00 D. $25.00

C

Which of the following statements best characterizes the inefficiency induced by a price ceiling? A. producers are encouraged to produce too much B. the extra benefit from the last unit consumed is less than the extra cost C. trades that would have occurred in an unregulated market aren't made D. the enforcement of the price ceiling is extremely costly

C

Which of the following statements is true? A) When a market is in equilibrium consumer surplus equals producer surplus. B) Consumer surplus measures the total benefit from participating in a market. C) Consumer surplus measures the net benefit from participating in a market. D) Producer surplus measures the total benefit received by producers from participating in a market.

C

Who loses surplus when consumers in a market are forced to internalize a negative externality? A. Others affected by the externality B. Consumers C. Both producers and consumers lose surplus when negative externalities are internalized. D. Producers

C

A consumer's willingness to pay: A. must always equal the seller's willingness to sell. B. is their reserved maximum bid-price. C. is the minimum price that a buyer would be willing to pay for a good or service. D. is the maximum price that a buyer would be willing to pay for a good or service.

D

A market demand curve reflects the A) external benefits of consuming a product. B) the sum of private and social benefits of consuming a product. C) social benefits of consuming a product. D) private benefits of consuming a product.

D

A policy that directly targets the externality: A. gives firms incentives to find different ways to do things, rather than pay for the right to create the externality. B. encourages innovation, which matches the goal to stop production of the externality. C. is a better long-run solution. D. All of these statements are true

D

A seller's willingness to sell: A. is their reserved minimum bid-price. B. must always equal the buyer's willingness to buy. C. is the maximum price that a seller is willing to accept in exchange for a good or service. D. is the minimum price that a seller is willing to accept in exchange for a good or service.

D

A tax on sellers: A. shifts the demand curve left by the amount of the tax. B. shifts the supply curve left by the amount of the tax. C. shifts the demand curve down by the amount of the tax. D. shifts the supply curve up by the amount of the tax.

D

A tax wedge: A. only occurs in markets when taxes are placed on large corporations. B. only occurs in markets when the tax is placed on sellers. C. only occurs in markets when the tax is placed on buyers. D. refers to the difference in the price the buyer pays and the price the sellers keep.

D

Alex is playing his music at full volume in his dorm room. The other people living on his floor are enjoying his music, but Alex does not know or care. Alex's music playing is an example of a: A. normative externality. B. Pareto externality. C. negative externality. D. positive externality.

D

All externalities: A. are harmful to society and create costs external to the decision maker. B. are addressed by the government through taxation. C. are beneficial to society and create benefits external to the decision maker. D. create either a cost or benefit to a person other than the person who caused it.

D

An external cost of an activity is one that is: A. present only if the activity yields pollution B. transferred from consumers to producers C. borne only by those directly involved D. borne by those not directly involved

D

Consumers are willing to purchase a product up to the point where A) the marginal benefit of consuming the product equals the area below the supply curve and above the market price. B) the consumer surplus is equal to the producer surplus. C) the marginal benefit of consuming the product is equal to the marginal cost of consuming it. D) the marginal benefit of consuming a product is equal to its price.

D

Consumers may benefit more than sellers from a subsidy to sellers if: A. they deserve the subsidy more. B. the demand curve is relatively more elastic than the supply curve. C. Consumers can never benefit more than sellers from a subsidy to sellers. D. the demand curve is relatively less elastic than the supply curve.

D

External costs are those costs: A. that fall directly on an economic decision maker. B. that fall indirectly on an economic decision maker. C. that are both social costs and private costs. D. that are imposed without compensation on someone other than the person who caused them.

D

If the government wants to encourage the consumption of a particular good, they should enact: A. a subsidy to buyers, since they deserve the benefit more than the producers. B. a subsidy to sellers, since they want more to be produced and offered for sale. C. a subsidy to buyers, since they want to affect consumption of the good. D. a subsidy on either buyers or sellers, since they will both have the same effect on the market.

D

If the government's provision of a subsidy is too large to counteract the entire effect of a positive externality, the: A. None of these statements is true. B. total surplus will be maximized. C. quantity consumed will become even lower. D. quantity consumed will become too high.

D

If the social benefit is greater than the private benefit in a particular market, then the socially optimal equilibrium will be at a quantity: A. equal to the private level. B. less than the private level. C. greater than or less than the private level, depending on the size of the external costs. D. greater than the private level.

D

If the social benefit is greater than the private benefit in a particular market, then the socially optimal equilibrium will be at a quantity: A. less than the private level. B. greater than or less than the private level, depending on the size of the external costs. C. equal to the private level. D. greater than the private level.

D

In a competitive market the demand curve shows the ________ received by consumers and the supply curve shows the ________. A) net benefit; net cost B) utility; average cost. C) economic surplus; opportunity cost D) marginal benefit; marginal cost

D

In general, price controls have a: A. smaller effect in the long run since demand and supply become less elastic over time. B. smaller effect in the short run because demand and supply become less elastic over time. C. larger effect in the short run since demand and supply become more elastic over time. D. larger effect in the long run because demand and supply become more elastic over time.

D

Private benefits are those benefits that accrue: A. indirectly to the decision maker of a market exchange. B. without compensation to someone other than the person who caused them. C. to third parties without direct government intervention. D. directly to the decision maker of a market exchange.

D

Tax Incidence: A. depends on the amount of tax revenue generated once administrative burdens are taken into account B. depends on whether the tax revenue is greater than the deadweight loss caused by the tax C. depends on whether it is a buyers tax or sellers tax that is being imposed D. depends on the relative elasticity of the supply and demand curves in a market

D

The distribution of surplus gained from private parties solving an externality problem on their own, as described by the Coase theorem, is dependent on: A. which party has more negotiating power or wealth. B. None of these statements is true. C. who has more power to see to enforcement. D. where the initial rights of the parties lie.

D

The economist's view that complete elimination of pollution is undesirable stems from: A. a belief that pollution is desirable B. the limitation of time faced by individuals every day C. the law of profit maximisation, which is not concerned about polluting the enviornment D. a comparison of the marginal benefits and the marginal costs

D

The effect of a Pigovian tax on a market is: A. decreased price and increased quantity to the efficient level. B. increased price and quantity to the efficient level. C. decreased price and quantity to the efficient level. D. increased price and reduced quantity to the efficient level.

D

The effect of a government subsidy in a market where a positive externality is present is: A. to make consumers internalize the external benefit. B. to increase surplus. C. to increase efficiency. D. All of these statements are true

D

The government imposing a minimum wage is an example of an attempt to: A. correct a market failure. B. encourage the consumption of inferior goods. C. discourage the consumption of inferior goods. D. redistribute surplus in a market.

D

The government is deciding where to put a $1 tax—either in a market with elastic supply and demand curves, or a market with inelastic supply and demand curves. If their aim is to raise the most revenue with the smallest deadweight loss, where should the tax be placed? A. Since the burden is shared, it doesn't matter which market it is placed in B. It is impossible to say without more information C. In the market with elastic supply and demand curves D. In the market with inelastic supply and demand curves

D

The market for child care services is perfectly competitive and has the usual upward-sloping supply and downward-sloping demand curves. In order to help families with young children, the government sets a price ceiling below the market equilibrium price. The most likely outcome of this policy is: A. that it definitely will reduce both producer and consumer surplus. B. that it will definitely benefit all the consumers. C. that it definitely will reduce consumer surplus. D. that it definitely will reduce producer surplus. E. that it will definitely be most efficient.

D

When a negative externality exists, the private market produces A) products at a high opportunity cost. B) less than the economically efficient output level. C) products at a low opportunity cost. D) more than the economically efficient output level.

D

When a positive externality is present in a market, total surplus is: A. higher when buyers only consider private benefits. B. Any of these statements could be true. C. lower when buyers internalize the externality. D. higher when buyers internalize the externality.

D

When positive externalities are present in a market, it means that: A. social benefits are less than external benefits. B. private benefits are less than external benefits. C. external benefits are equal to social benefits. D. private benefits are less than social benefits.

D

Which of the following is a major source of market failure? A) unforeseen circumstances which leads to the bankruptcy of many firms B) an inequitable income distribution C) a lack of government intervention in a market D) incomplete property rights or inability to enforce property rights

D

Which of the following is not a result of imposing a rent ceiling? A) There is a reduction in the quantity supplied of apartments. B) There is an increase in the quantity demanded of apartments. C) The marginal benefit of the last apartment rented is greater than the marginal cost of supplying it. D) Some consumer surplus is converted to producer surplus.

D

You wait in line to buy a ticket for a show and are fortunate to buy the last ticket for $65. The lady behind you offers to buy the ticket for $100 and you agree. We can conclude that your value for the show is: A. less than $65 B. $65 C. $100 D. greater than $65 but no more than $100

D

According to class lecture, which of the following logic chains is likely to occur when a subsidy is placed on corn? A. An increase in corn production will lead to a decrease in other commodity crop production which will lead to an increase in food prices. B. An increase in corn production will lead to an increase in corn syrup usage which will lead to an increase in obesity related illnesses. C. A decrease in corn production will lead to an increase in food prices which will lead to increased world hunger. D. A decrease in corn production will lead to an increase in the price of petroleum based gasoline which will lead to a reduction in carbon emissions. E. More than one of the above is likely to occur.

E