Econ Exam 2 other

Adrian produces nails at a cost of $200 per ton. If he sells the nails for $350 per ton, his producer surplus per ton is a. $150. b. $200. c. $350. d. $550.

A. $150

Sophie values a stainless steel refrigerator for her new house at $3,500, but she succeeds in buying one for $3,000. Sophie's consumer surplus is a. $500. b. $3,000. c. $3,500. d. $6,500.

A. $500.

Ryan owns a dog whose barking annoys Ryan's neighbor Jane. Suppose that the benefit of owning the dog is worth $700 to Ryan and that Jane bears a cost of $500 from the barking. Assuming Jane has the legal right to peace and quiet, which of the following statements is correct? a. Ryan pays Jane $600 for her inconvenience. b. Jane pays Ryan $400 to give the dog to his parents who live on an isolated farm. c. Jane pays Ryan $550 to give the dog to his parents who live on an isolated farm. d. The current situation is efficient.

A. Ryan pays Jane $600 for her inconvenience.

Consumer surplus in a market can be represented by the a. area below the demand curve and above the price. b. distance from the demand curve to the horizontal axis. c. distance from the demand curve to the vertical axis. d. area below the demand curve and above the horizontal axis.

A. area below the demand curve and above the price.

When producers operate in a market characterized by negative externalities, a tax that forces them to internalize the externality will a. give sellers the incentive to account for the external effects of their actions. b. increase demand. c. increase the amount of the commodity exchanged in market equilibrium. d. restrict the producers' ability to take the costs of the externality into account when deciding how much to supply.

A. give sellers the incentive to account for the external effects of their actions.

Externalities tend to cause markets to be a. inefficient. b. unequal. c. unnecessary. d. overwhelmed.

A. inefficient

Private solutions may not be possible due to the costs of negotiating and enforcing these solutions. Such costs are called a. transaction costs. b. corrective costs. c. input costs. d. private costs.

A. transaction costs

Mary and Cathy are roommates. Mary assigns a $30 value to smoking cigarettes. Cathy values smoke-free air at $15. Which of the following scenarios is a successful example of the Coase theorem? a. Cathy offers Mary $20 not to smoke. Mary accepts and does not smoke. b. Mary pays Cathy $16 so that Mary can smoke. c. Mary pays Cathy $14 so that Mary can smoke. d. Cathy offers Mary $15 not to smoke. Mary accepts and does not smoke.

B. Mary pays Cathy $16 so that Mary can smoke.

Nick owns a dog whose barking annoys Nick's neighbor Jane. Nick receives personal benefit from owning the dog, and Jane bears a cost of Nick's ownership of the dog. Assuming Jane has the legal right to peace and quiet, which of the following statements is correct? a. If Nick's benefit exceeds Jane's cost, government intervention is necessary. b. Nick will pay to keep his dog if his benefit exceeds Jane's cost. c. If Jane's cost exceeds Nick's benefit, Nick will pay Jane to keep his dog. d. If Jane has the legal right to peace and quiet, no further transactions will be mutually beneficial.

B. Nick will pay to keep his dog if his benefit exceeds Jane's cost.

Which of the following is true when the price of a good or service rises? a. Buyers who were already buying the good or service are better off. b. Some buyers exit the market. c. The total consumer surplus in the market increases. d. The total value of purchases before and after the price change is the same.

B. Some buyers exit the market.

Which of the following statements is correct? a. Taxes are more difficult to administer than regulations. b. Taxes provide incentives for firms to adopt new methods to reduce negative externalities. c. Command-and-control policies provide incentives for private decisionmakers to solve their problems on their own. d. Corrective taxes distort incentives.

B. Taxes provide incentives for firms to adopt new methods to reduce negative externalities.

On a graph, consumer surplus is represented by the area a. between the demand and supply curves. b. below the demand curve and above price. c. below the price and above the supply curve. d. below the demand curve and to the right of equilibrium price

B. below the demand curve and above price.

Which of the following require firms to pay to pollute? (i) corrective taxes (ii) tradable pollution permits (iii) pollution regulations a. (i) only b. both (i) and (ii) c. (iii) only d. both (ii) and (iii)

B. both (i) and (ii)

Positive externalities a. result in a larger than efficient equilibrium quantity. b. result in smaller than efficient equilibrium quantity. c. result in an efficient equilibrium quantity. d. can be internalized with a corrective tax

B. result in smaller than efficient equilibrium quantity.

A seller is willing to sell a product only if the seller receives a price that is at least as great as the a. seller's producer surplus. b. seller's cost of production. c. seller's profit. d. average willingness to pay of buyers of the product.

B. seller's cost of production.

The Coase theorem suggests that private markets may not be able to solve the problem of externalities a. if the government does not become involved in the process. b. when the number of interested parties is large and bargaining costs are high. c. if the firm in the market is a monopoly. d. if some people benefit from the externality

B. when the number of interested parties is large and bargaining costs are high

Billie Jo values a stainless steel dishwasher for her new house at $500, but she succeeds in buying one for $425. Billie Jo's willingness to pay for the dishwasher is a. $150. b. $425. c. $500. d. $850.

C. $500

John lives in an apartment building and gets a $700 benefit from playing his stereo. Mary, who lives next door to John and often loses sleep due to the music coming from John's stereo, bears a $1,000 cost from the noise. At which of the following offers from Mary could both Mary and John benefit from the silencing of John's stereo? a. $200 b. $600 c. $900 d. $1,100

C. $900

Sally's cat causes Mike to sneeze. Sally values her cat's companionship at $300 per year. The cost to Mike of tissues and her allergy medication is $350 per year. Based on the Coase theorem, a. Sally should pay Mike $400 so that she may keep her cat. b. Sally should pay Mike $350 for tissues and allergy medication. c. Mike should pay Sally $325 to give away her cat. d. Mike should move

C. Mike should pay Sally $325 to give away her cat.

Suppose that flu shots create a positive externality equal to $12 per shot. What is the relationship between the equilibrium quantity and the socially optimal quantity of flu shots produced? a. They are equal. b. The equilibrium quantity is greater than the socially optimal quantity. c. The equilibrium quantity is less than the socially optimal quantity. d. There is not enough information to answer the question.

C. The equilibrium quantity is less than the socially optimal quantity.

The supply curve for a product reflects the a. willingness to pay of the marginal buyer. b. quantity buyers will ultimately purchase of the product. c. cost to sellers of producing the product. d. seller's profit from producing the product

C. cost to sellers of producing the product.

Private markets fail to reach a socially optimal equilibrium when negative externalities are present because a. social costs equal private costs at the private market solution. b. private costs exceed social costs at the private market solution. c. social costs exceed private costs at the private market solution. d. they internalize externalities.

C. social costs exceed private costs at the private market solution.

Economists typically measure efficiency using a. the price paid by buyers. b. the quantity supplied by sellers. c. total surplus. d. profits to firms.

C. total surplus

We can say that the allocation of resources is efficient if a. producer surplus is maximized. b. consumer surplus is maximized. c. total surplus is maximized

C. total surplus is maximized

5. Chad is willing to pay $5.00 to get his first cup of morning latté. He buys a cup from a vendor selling latté for $3.75 per cup. Chad's consumer surplus is a. $8.75. b. $5.00. c. $3.75. d. $1.25.

D. $1.25

Ryan buys a new tractor for $118,000. He receives consumer surplus of $13,000 on his purchase. Ryan's willingness to pay is a. $13,000. b. $105,000. c. $118,000. d. $131,000.

D. $131,000.

Bill created a new software program he is willing to sell for $200. He sells his first copy and enjoys a producer surplus of $150. What is the price paid for the software? a. $50. b. $150. c. $200. d. $350

D. $350

Sasha created a new software program she is willing to sell for $300. She sells her first copy and enjoys a producer surplus of $250. What is the price paid for the software? a. $50. b. $250. c. $300. d. $550.

D. $550

Total surplus a. can be used to measure a market's efficiency. b. is the sum of consumer and producer surplus. c. is the to value to buyers minus the cost to sellers. d. All of the above are correct.

D. All of the above are correct

In which of the following circumstances would a buyer be indifferent about buying a good? a. The amount of consumer surplus the buyer would experience as a result of buying the good is zero. b. The price of the good is equal to the buyer's willingness to pay for the good. c. The price of the good is equal to the value the buyer places on the good. d. All of the above are correct.

D. All of the above are correct.

An externality exists whenever a. the economy cannot benefit from government intervention. b. markets are not able to reach equilibrium. c. a firm sells its product in a foreign market. d. Bobbi engages in an activity that influences the well-being of Rosa and yet Bobbi neither pays nor receives payment for that influence

D. 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 statements is not correct about a market in equilibrium? a. The price determines which buyers and which sellers participate in the market. b. Those buyers who value the good more than the price choose to buy the good. c. Those sellers whose costs are less than the price choose to produce and sell the good. d. Consumer surplus will be equal to producer surplus.

D. Consumer surplus will be equal to producer surplus.

Which of the following statements is not correct? a. Private markets tend to over-produce products with negative externalities. b. Private markets tend to under-produce products with positive externalities. c. Private parties can bargain to efficient outcomes even in the presence of externalities. d. Private parties are usually more successful in achieving efficient outcomes than government policies

D. Private parties are usually more successful in achieving efficient outcomes than government policies

Negative externalities occur when one person's actions a. cause another person to lose money in a stock market transaction. b. cause his or her employer to lose business. c. reveal his or her preference for foreign-produced goods. d. adversely affect the well-being of a bystander who is not a party to the action.

D. adversely affect the well-being of a bystander who is not a party to the action.

Altering incentives so that people take account of the external effects of their actions a. is called internalizing the externality. b. can be done by imposing a corrective tax. c. is the role of government in markets with externalities. d. all of the above.

D. all of the above.

Consumer surplus a. is the amount a buyer pays for a good minus the amount the buyer is willing to pay for it. b. is represented on a supply-demand graph by the area below the price and above the demand curve. c. measures the benefit sellers receive from participating in a market. d. measures the benefit buyers receive from participating in a market.

D. measures the benefit buyers receive from participating in a market.

Internalizing a positive externality will cause the demand curve to a. shift to the right. b. shift to the left. c. become more elastic. d. remain unchanged.

a. shift to the right.