Econ Exam 2
The government can use subsidies or tax breaks to encourage activities with positive externalities. A. True B. False
A
A command-and-control regulation is subject to political considerations. A. True B. False
A
A factory emits pollution into the atmosphere as a by-product of production A. Negative externality B. Not a negative externality
A
A good with an absolute value of the price elasticity of demand of 0.5 has: A. an inelastic demand. B. an elastic demand. C. unit elastic demand. D. perfectly inelastic demand.
A
A limitation of a command-and-control regulation is that firms have no incentive to remove additional pollution once they are within the legal pollution limits. A. True B. False
A
A neighbor plays loud music that annoys the surrounding community A. Negative externality B. Not a negative externality
A
A new law requiring plumbers to pass strict certification tests that reduce the number of plumbers would A. increase the wage rate of plumbers. B. cause no change in the labor market for plumbers C. decrease the wage rate of plumbers. D. increase the employment of plumbers.
A
The elasticity of supply measures: A. how responsive the quantity supplied is to a change in the price of a good or service. B. how responsive price is to a change in the quantity supplied of a good or service. C. how much value suppliers place on each unit of the good or service. D. the rate of change of supply in relation to demand.
A
A price ceiling set below an equilibrium price tends to cause persistent imbalances in the market because A. Quantity demanded exceeds quantity supplied but price cannot rise to remove the shortage. B. Quantity supplied exceeds quantity demanded but price cannot rise to remove the shortage. C. Quantity demanded exceeds quantity supplied but price cannot fall to remove the surplus. D. Quantity supplied exceeds quantity demanded but price cannot fall to remove the surplus.
A
A toll road in normal traffic A. nonrivalrous and excludable B. rivalrous and excludable C. nonrivalrous and nonexcludable D. rivalrous and nonexcludable
A
All of the following would cause the supply curve to be more elastic EXCEPT: A. there is potential difficulty to increasing the production of the good at constant unit cost. B. the good is a manufactured good. C. production of the good requires only a small share of the market for inputs. D. the good is primarily for local supply.
A
An efficient solution to a negative externality such as noise pollution is to avoid it, provided that there is enough incentive to do so. A. True B. False
A
At the consumer's optimal consumption bundle, the MRSXY is 4, and the marginal utility of good X is 8. What is the marginal utility of good Y? A. 2 B. 1/2 C. 16 D. 24
A
Economists say that voters are rationally ignorant about politics because: A. the incentives to be fully informed are low. B. politics is too complicated. C. the opportunity cost of studying politics is too high. D. the procedure of learning politics is too cumbersome.
A
Forbidding the use of asbestos, a cancer-causing material, in construction through the use of legislation is an example of directly regulating a negative externality. A. True B. False
A
Good X and Good Y are related goods. When the price of Good X rises by 5%, the quantity demanded for Good Y rises by 15%. Calculate the cross-price elasticity. A. 3 B. -0.30 C. 0.3 D. -3
A
Government sometimes intervenes when market failure occurs. A. True B. False
A
If the budget constraint shifts northeast or away from the origin, the consumer can afford: A. more bundles. B. fewer bundles. C. sometimes fewer bundles, sometimes more bundles, and sometimes the same number of bundles. D. the same set of bundles.
A
If the elasticity of demand for a good is estimated to be _____, then firms producing the good will experience an increase in total revenue if prices fall. A. 2.5 B. 0.75 C. 1 D. 0.05
A
If the price of cantaloupe increases, the marginal utility per dollar of cantaloupe: A. decreases, so the consumer buys fewer cantaloupes, and the demand curve for cantaloupes slopes downward. B. increases, so the consumer buys more cantaloupes, and the demand curve for cantaloupes slopes downward. C. decreases, so the consumer buys fewer cantaloupes, and the demand curve for cantaloupes slopes upward. D. increases, so the consumer buys fewer cantaloupes, and the demand curve for cantaloupes slopes downward.
A
Market failure is when market provision of a good results in a inefficient quantity. A. True B. False
A
Market failure occurs when either negative or positive externalities are present. A. True B. False
A
Market permits typically achieve pollution reduction at a lower cost than command-and-control regulation. A. True B. False
A
Marketable permits provide their owners with the right to pollute a specified amount. A. True B. False
A
One option with command-and-control is for the government to decide on a specific amount of pollution that firms can legally emit. A. True B. False
A
Other things constant, how will a decrease in the wages of teenagers affect the market for fast food hamburgers? A. The supply of fast food hamburgers will increase, leading to a reduction in the price of hamburgers. B. The supply of fast food hamburgers will decrease, leading to a reduction in the price of hamburgers. C. The supply of fast food hamburgers will increase, leading to an increase in the price of hamburgers. D. The supply of fast food hamburgers will decrease, leading to an increase in the price of hamburgers.
A
Pollution is an example of an external cost A. True B. False
A
Price controls will tend to cause misallocation of resources because A. production (or opportunity) cost no longer corresponds to market price. B. producers no longer have incentive to be profitable. C. people are unable to determine their preferences at the high or low price. D. consumers no longer have incentive to spend their income efficiently.
A
Public choice theory suggests that larger special interest groups: A. will have more incentives to take into account the social costs of inefficient policies. B. will only consider the benefits of policies but not the costs. C. will have fewer incentives to take into account the social costs of inefficient policies. D. will the same incentives as smaller groups to take into account the social costs of inefficient policies.
A
Since the demand for illegal drugs is quite inelastic, an increase in the price of illegal drugs: A increases seller revenues. B. does not affect seller revenues. C. put an end to the use of illegal drugs. D. decreases seller revenues.
A
Social cost is the sum of private and external costs A. True B. False
A
The Coase theorem posits that externality problems can be solved without government intervention: A. when transaction costs are low and property rights are clearly defined. B. only rarely, that in general, markets cannot maximize social surplus. C. when trading in tradable allowances occurs. D. if markets can reach the efficient quantity and if transaction costs exceed the deadweight loss caused in the market.
A
The Coase theorem suggests that private bargains will ensure the efficiency of markets even when externalities exist: A. if transaction costs are low and property rights are well defined. B. but only in the presence of government regulation. C. if consumers have more information regarding the externality than suppliers. D. if the cost of the negotiations are less than the price of the good.
A
The social cost of driving an SUV is equal to: A. both the cost of the vehicle's pollution and its operation (gas, etc.). B. both the cost of producing and driving the vehicle. C. only the cost of the pollution emitted by the vehicle. D. the cost of producing the vehicle.
A
The term "cap and trade" describes regulation by marketable permits. A. True B. False
A
There are three voters and two representatives in a democracy. Voter 1 supports government spending of $51. Voter 2 supports government spending of $52. Voter 3 supports government spending of $56. According to the median voter theorem, politicians will converge upon a spending bill of: A. $52. B. $56. C. $53. D. $51.
A
Tonya consumes 10 boxes of ramen noodles a year when her yearly income is $40,000. After her income falls to $30,000 a year, she consumes 40 boxes of ramen noodles a year. Calculate her income elasticity of demand for ramen noodles. A. -4.2 B. -2.25 C. 2.25 D. 4.2
A
Under command-and-control regulation, the government has the option to specify the technology that firms must use in production A. True B. False
A
When a policy is highly visible, appears often in the newspapers, and has a major effect on the lives of millions of Americans, very often: A. voters get their way. B. government gets its way. C. politicians get their way. D. special interests get their way.
A
When external benefits are significant: A. market output is too low. B. social surplus is maximized. C. market output is at the efficient level. D. market output is too high.
A
When the production of a good results in pollution, private and social costs are different. A. True B. False
A
Which best illustrates the concept of diminishing marginal utility? Group of answer choices A Gladys is hungry and the first piece of pizza she eats tastes wonderful! The fifth piece of pizza she eats makes her sick. B. Thomas likes tomatoes more than Janice, and thus gets more utility from tomatoes than Janice does. C. High Fly is a new low-cost airline. Initially, it is very expensive for High Fly to offer flights to customers because of the high start-up costs, but after covering fixed costs, the additional cost of adding one more consumer falls significantly. D. Sarah likes hamburgers, but the price she is willing to pay for them is low compared with another good she also likes.
A
Which of the following is TRUE about cross-country evidence on the relationship between economic freedom, standard of living, and democracy? A. Economic freedom, the standard of living, and the level of democracy are positively related. B. There is no clear relationship between economic freedom, the standard of living, and the level of democracy. C. Economic freedom is higher in countries that are less democratic, but lower in countries that are more democratic. D. Economic freedom and the standard of living are positively related, but they are not related to the level of democracy.
A
Which of the following statements is TRUE? I. If an activity creates an external cost of $15, the government should subsidize the activity by $15. II. Social surplus is maximized when the private marginal benefit equals the social cost. III. External costs result in markets producing too much output. IV. Someone pays external costs other than the producer or consumer. A. II, III, and IV only B. I and III only C. II and IV only D. III only
A
Which of the following statements is TRUE? I. Taxes may reduce consumption by exactly the same amount as government regulations. II. Taxes typically cost more than government regulations because taxes raise prices whereas regulations simply limit quantity. III. Command and control policies effectively reduce consumption, but they may not be the lowest cost method for doing so. A. I and III only B. I and II only C. II and III only D. II only
A
Which of the following would cause the demand for computer programmers to increase? A. an increase in the productivity of computer programmers B. a decline in the productivity of computer programmers C. a reduction in the price of a competitive input that can be substituted for computer programmers D. an increase in the wages of computer programmers due to legislative action (that is, the establishment of a price floor for computer programmers)
A
Which scenario is the best example of the "tragedy of the commons?" A. Users of a shared shower in a dorm allow the shower to get nasty by failing to clean it often enough. B. Two countries engaged in international trade of a good reach the same equilibrium price, which is higher than it would have been in the absence of trade. C. All artists in a mass-media environment face an incentive to create works that are lower quality in order to appeal to the lowest common denominator. D. A group of farmers forms a collective to coordinate a common pricing strategy.
A
You are considering planting a garden of beautiful flowers in your front yard. It would cost you $45 in time and materials to plant it. You would get $40 worth of benefits from the garden and your neighbor, who walks by your front yard every day, would get $10 worth of benefits from it. Which statement is TRUE? A. The efficient equilibrium is to plant the garden, but you would not do so since your private costs exceed your private benefits. B. Your private benefits exceed your private costs, so you would plant the garden. C. The external benefits are not significant enough to affect the efficiency of this equilibrium. D. The efficient equilibrium is to not plant the garden, but you would do so anyway since the social benefits exceed your private costs.
A
A doughnut shop emits a delicious smell into the air as a by-product of production. A. Negative externality B. Not a negative externality
B
A person gets a flu shot and is therefore less likely to spread illness to others. A. Negative externality B. Not a negative externality
B
A person with no allergies gets a mosquito bites from a disease-free mosquito. A. Negative externality B. Not a negative externality
B
A sports team t-shirt A. nonrivalrous and excludable B. rivalrous and excludable C. nonrivalrous and nonexcludable D. rivalrous and nonexcludable
B
Amy purchased four cantaloupes at $2 each and three watermelons at $4 each. If Amy is following the optimal consumption rule, the marginal utility of the fourth cantaloupe and third watermelon are: A. 40 and 10, respectively. B. 12 and 24, respectively. C. 6 and 8, respectively. D. 4 and 3, respectively.
B
An individual who possesses a specialized skill that is difficult to execute will A. receive a wage determined by the number of other persons possessing this skill. B. receive a high wage only when this skill is in great demand relative to its supply. C. necessarily receive wages considerably higher than those who lack this skill. D. receive a wage rate that is lower than similarly productive individuals who lack this skill.
B
As one moves down along an indifference curve, the slope of the indifference curve typically: A. changes in an indeterminate direction. B. decreases. C. remains constant. D. increases.
B
Because there are external benefits from higher education: A. private markets will oversupply college classes. B. private markets will undersupply college classes. C. government intervention cannot improve the market for college classes. D. the government should impose a tax on college students.
B
By assuming diminishing marginal utility, we mean that: A. consumers value some goods more than others. B. consumers value additional units of a good less than the previous unit. C. consumers get less overall value from goods as their income rises. D. the cost of producing goods declines as output increases.
B
Command-and-control is more flexible than market-based regulation. A. True B. False
B
Command-and-control situations are always the best option when it comes to reducing the amount of pollution. A. True B. False
B
Compared with no regulation, regulation with marketable permits decreases firms' costs. A. True B. False
B
Consumers maximize their utility when: A. they diversify their consumption across goods. B. the marginal utility per dollar is equal across all goods consumed and all income is spent. C. they consume the good on which they place the highest overall value. D. the total benefits are greater than total costs.
B
Economists have argued that rent control is "the best way to destroy a city, other than bombing." Why would economists say this? A. They anticipate that rent controls will cause a construction boom, which will make the city crowded and more polluted. B. They anticipate that rent control will eliminate the incentive to maintain buildings, leading to a deterioration of the city. C. They anticipate that low rents will cause low-income people to move into the city, reducing the quality of life for other people. D. They anticipate that rent control will benefit landlords at the expense of tenants, increasing inequality in the city.
B
Externalities are the only example of market failure A. True B. False
B
If a 4% increase in the price of pepper results in a 1% decrease in pepper sales, what is the absolute value of the price elasticity of demand for pepper? Is it elastic or inelastic? A .0.25; elastic B. 0.25; inelastic C. 4; elastic D. 4; inelastic
B
If a company incurs a tax because it generates pollution, the tax will force the company to stop polluting. A. True B. False
B
If the price of Good X rises from $4 to $5, and the quantity demanded of it falls from 200 units to 180 units, the absolute value of the price elasticity of demand is: A. 0.4. B. 0.47. C. 1.4. D. 2.1.
B
If you are a government official, under which of the following situations would you opt for a command and control solution to an externality problem? I. Lack of running water in part of the country is exacerbating the spread of cholera in the population. II. Foreign ships are dumping toxic wastes in the waters off your country's shores. III. A large number of banks fail due to excessive risk taking. A. I, II, and III B. I only C. I and II only D. II and III only
B
Low-skill workers earn a lower wage than more experienced, higher skilled workers because the A. low-skill workers are too lazy to search for other employment opportunities. B. supply of low-skill workers is large relative to the demand for workers in this skill category. C. low-skill workers were never given the opportunity to invest in human capital. D. low-skill workers lack the intelligence necessary to do any other form of work.
B
Market failure occurs when negative externalities are present but not when positive externalities are present. A. True B. False
B
Market failure occurs when positive externalities are present but not when negative externalities are present. A. True B. False
B
Pollution taxes are more effective at reducing pollution than marketable permits. A. True B. False
B
Private costs are costs that the firm is not obligated to disclose to the public. A. True B. False
B
Public choice is a field of study that: A. analyzes trends in population growth and other structural changes in the population. B. uses economic tools to examine political behavior. C. looks at the consumption choices made by people who are near retirement. D. uses mathematics and statistics to infer relationships between two or more variables of public interest.
B
Rent controls tend to cause persistent imbalances in the market for housing because A. Quantity supplied exceeds quantity demanded but price cannot fall to remove the surplus. B. Quantity demanded exceeds quantity supplied but price cannot rise to remove the shortage. C. Quantity supplied exceeds quantity demanded but price cannot rise to remove the shortage. D. Quantity demanded exceeds quantity supplied but price cannot fall to remove the surplus.
B
The basic concept behind the median voter theorem is that: I. the median voter is defined as the voter for which half of the other voters want a policy to the left and half of the voters want a policy to the right. II. when voters vote, regardless of whether they vote closest to their preferences or not, the preference of the median voter is sure to win in a majority win election. III. if voters vote closest to their preferences, then the preference of the median voter is sure to win in a majority win election. A. I and II only B. I and III only C. I only D. III only
B
The fundamental determinant of the elasticity of supply is: A. how many substitute goods exist. B. how quickly the per-unit cost of production increases with an increase in production. C. the price of the good. D. the rate of change of quantity demanded as compared to the quantity supplied.
B
The main reason that government legislation on sugar quotas passes is that: A. a small number of consumers bear its economic costs while a large number of domestic sugar producers receive its benefits. B. a large number of consumers bear small economic costs while a small number of domestic sugar producers receive its benefits. C. its economic benefits totally offset its economic costs. D. both consumers and producers are rationally ignorant.
B
The presence of price controls in a market usually is an indication that A. an insufficient quantity of a good or service was being produced in that market to meet the public's need. B. policymakers believed that the price that prevailed in that market in the absence of price controls was unfair to buyers or sellers. C. policymakers correctly believed that, in that market, price controls would generate no inequities of their own. D. the usual forces of supply and demand were not able to establish an equilibrium price in that market.
B
The terms "social cost" and "external cost" are synonyms A. True B. False
B
Wages are an example of external cost A. True B. False
B
When the production of a good results in pollution, private and social costs are the same. A. True B. False
B
Which of the following is an example of rational ignorance? A. ABC Corporation chooses to hire local workers instead of outsourcing jobs to another country. B. Glenda chooses to purchase a new CD at the store 1 mile from her home instead of driving all over town to see if she can find a lower price. C. Bob chooses not to vote since his vote will never swing the outcome of an election. D. Jane decides not to study for her test tomorrow even though studying could raise her grade significantly.
B
Which of the following is an example of the tragedy of the commons? A. There is an increasing threat to wildlife due to habitat loss in national forests. B. Tuna in the ocean are being over harvested because it is difficult to prevent anyone from fishing for tuna. C. Personal computers have become a commonplace appliance in many homes, causing an expedited tragedy of technology. D. Television's popularity has become a common tragedy in our society.
B
Which of the following is correct? A. A new law allowing nurses to offer patients some of the medical services that are currently only available through doctors would increase the wage rate earned by doctors. B. New licensing requirements that substantially lowered the number of plumbers would likely lead to an increase in the wage rate of plumbers. C. An increase in the demand for newly constructed homes would lead to a reduction in the price of lumber. D. An increase in the number of students choosing to major in marketing would likely lead to an increase in the wage earned by marketing graduates.
B
Which statement is correct under a market with externalities? A. Social surplus is maximized as long as consumer surplus is maximized. B. None of these statements is correct. C. Social surplus is maximized as long as producer surplus is maximized. D. Social surplus is maximized as long as both consumer surplus and producer surplus are maximized.
B
Why do you think voters choose to be rationally ignorant even when it is time to elect a new president? I. Voters are not presented with enough information to make a rational decision. II. Voters often believe that their vote does not make any difference in the political process. III. The process of understanding the electorate system, the candidates' platforms, and critically assessing the candidates' policies takes up more of the voter's time than it is worth. A. I, II, and III B. II and III only C. II only D. I only
B
Why might the demand for massages be more elastic than the demand for chiropractic adjustments? A. People get massages in the short run and chiropractic adjustments in the long run. B. Massages tend to be luxuries, and chiropractic adjustments tend to be necessities. C. Relative to massages, there are more substitutes for chiropractic adjustments. D. Massages are much cheaper than chiropractic adjustments.
B
With respect to pollution, it is easy to determine and provide compensation through liability rules. A. True B. False
B
Which of the following statements is TRUE? I. A rising standard of living increases the demand for democracy. II. Democracy is associated with better institutions that lead to economic growth and high standard of living. III. The public is usually better informed about policies in nondemocracies. A. II and III only B. II only C. I and II only D. I only
C
Which statement correctly describes what a Pigouvian subsidy is? A. Subsidies received by the producers are called Pigouvian subsidies. B. Lower corporate tax rates are also known as Pigouvian subsidies. C. Pigouvian subsidies are awarded to producers whose goods have external benefits. D. Taxes on producers creating negative externalities are called Pigouvian subsidies.
C
A chemical bathroom cleaner has an ingredient X that allows the cleaner to lather well and remove stains. The cost of producing a bottle of this bathroom cleaner is $3.60, but the bottle retails for $5.50. When consumers use the bathroom cleaner, the lather that gets washed down the drain escapes into the environment and releases allergens that cause respiratory problems for people. What is the social cost of a bottle of this cleaner? A. the cost paid by other people as a result of the use of such a bottle of bathroom cleaner B. $3.60 C. $5.50 plus the external cost of such a bottle of bathroom cleaner D. $5.50 less the external cost of such a bottle of bathroom cleaner
C
A tragedy of the commons often results from ______ and ______. A. rivalry; excludability B. nonrivalry; nonexcludability C. rivalry; nonexcludability D. nonrivalry; excludability
C
According to public choice theory, the main reason for some politicians' ability to build support for policies that generate more costs than benefits is that A. the public is always ignorant about the costs and benefits of any policy. B. the political process has flaws so that the public is always misinformed. C. rational ignorance is higher in the situation of concentrated benefits and diffuse costs. D. the government always misleads the public with biased information.
C
An increase in the price of a good leads to a(n) ______ in the marginal utility per dollar of that good, and thus a(n) ______ in the quantity purchased. A. decrease; increase B. increase; decrease C. decrease; decrease D. increase; increase
C
Constant marginal utility means that marginal utility ______ as consumption ______. A. remains constant; decreases B. increases; increases C. remains constant; increases D. increases; decreases
C
Government solutions to externality problems include: A. taxing the consumption of goods that cause externalities. B. subsidies. C. All of the answers are correct. D. allowing firms to trade the rights to create pollutants.
C
If the government raises the minimum wage by 6%, the number of people employed falls by 2%. What is the elasticity of employment with respect to the minimum wage? A. -3.0 B. -0.0012 C. -0.33 D. -12
C
Interest is A. the risk of extending a loan. B. the price one must pay when she does not save. C. the price paid for early availability of funds. D. an unnecessary premium charged for the use of money.
C
Political contributions suggest that PACs are rationally: A. ignorant. B. concerned. C. informed. D. cooperative.
C
Ronald Coase's ideas on property rights have helped economists and policymakers better understand environmental problems. Identify the true statement regarding Coase and property rights. A. Property rights refer exclusively to ownership of land. B. Property right allocation is unimportant because the affected parties will contract with one another to find an efficient solution to externality problems regardless of who is assigned the initial property right. C. The assignment of property rights to someone is essential. D. Environmental harms will be greater when property rights are assigned to firms.
C
Suppose the equilibrium price of a physical examination ("physical") by a doctor is $200, and the government imposes a price ceiling of $150 per physical. As a result of the price ceiling, A. the supply curve for physicals shifts to the left. B. the demand curve for physicals shifts to the right. C. the quantity demanded of physicals increases and the quantity supplied of physicals decreases. D. the number of physicals performed will increase.
C
The ______ is the change in consumption caused by a change in purchasing power from a price change. A. substitution effect B. budget constraint C. income effect D. indifference curve
C
The ______ is the change in consumption caused by a change in relative prices holding the consumer's utility level constant. A. budget constraint B. income effect C. substitution effect D. indifference curve
C
The air we breathe A. nonrivalrous and excludable B. rivalrous and excludable C. nonrivalrous and nonexcludable D. rivalrous and nonexcludable
C
The costs of many government projects (such as bridges, roads, and museums) create: A. external benefits because taxpayers around the country benefit from the construction. B. internal benefits because all taxpayers benefit from the construction. C. external costs because taxpayers around the country pay for the construction. D. internal costs because taxpayers around the country pay for the construction.
C
The median voter theorem does not accurately predict an election outcome if: A. the election is dictated by a simple majority rule. B. voters become rational about their election decisions. C. voters do not vote for the policy that is closest to their ideal point. D. voters always vote for the policy that is closest to their ideal point.
C
The median voter theorem states that: A. the median voter tends to be the most informed voter. B. politicians choose policies that, on average, generate more benefits than costs for the average voter. C. candidates whose policies reflect the preferences of the median voter are more likely to win an election. D. political success depends on candidates taking positions that are either to the right or left of the political center.
C
Wages are likely to be higher, everything else equal, A. the more prestigious the work environment. B. when the work is safer. C. the more skill is required to perform well on the job. D. the more desirable the location of the job.
C
When policymakers impose price controls, they A. usually improve the efficiency of economic activity. B. are usually following the advice of mainstream economists. C. distort the signals that normally guide the allocation of resources. D. demonstrate a willingness to sacrifice equity in order to improve efficiency.
C
When the price of a good changes, ______ influence(s) the change in consumption. A. the substitution effect alone B. neither the income effect nor the substitution effect C. both the income effect and the substitution effect D. the income effect alone
C
A Pigouvian tax: A. is levied on a good that creates a positive externality and should be set equal to the social benefit to eliminate the deadweight loss. B. is levied on a good that creates a positive externality and should be set equal to the external benefit to eliminate the deadweight loss. C. subsidizes a good that creates a negative externality and should be set equal to the external cost to eliminate the deadweight loss. D. is levied on a good that creates a negative externality and should be set equal to the external cost to eliminate the deadweight loss.
D
A substantial revision of the income tax code that made business and personal tax returns much easier to complete would tend to cause which of the following changes in the labor market for accountants? A. an increase in the number of students choosing to major in accounting B. an increase in the employment of accountants C. an increase in the demand for accountants D. a decrease in the wage rate of accountants
D
All of the following conditions would cause the demand curve for a good to be more elastic EXCEPT: A. the good has many substitutes. B. a longer time horizon. C. the good is considered a luxury good. D. the price of the good falls.
D
An efficient equilibrium occurs whenever: A. there is a positive externality in the market. B. quantity demanded equals quantity supplied. C. there is a negative externality in the market. D. social surplus is maximized.
D
An increase in the demand for a product will cause the A. price of the product to decrease. B. demand for and prices of the resources used to produce the product to remain unchanged. C. demand for and prices of the resources used to produce the product to decrease. D. demand for and prices of the resources used to produce the product to increase.
D
Atlantic bluefin tuna in the Mediterranean Sea A. nonrivalrous and excludable B. rivalrous and excludable C. nonrivalrous and nonexcludable D. rivalrous and nonexcludable
D
Constant marginal utility means that one's first apple in a sitting is ______ one's second apple in the same sitting. A. better than B. incomparable with C. worse than D. equally good as
D
Evidence suggests that voters are myopic, meaning they are responsive to economic conditions: A. before the year of an election. B. after the year of an election. C. over the president's entire term. D. in the year of an election.
D
How does the price elasticity of supply for Henri Matisse paintings compare with the price elasticity of supply for Damien Hirst paintings? Note that Matisse is deceased, whereas Hirst still lives. A.Matisse paintings likely have a higher price elasticity of supply. B. Matisse paintings and Hirst paintings likely differ in price elasticity of supply in an indeterminate direction. C. Matisse paintings and Hirst paintings likely have the same price elasticity of supply. D. Matisse paintings likely have a lower price elasticity of supply.
D
If the benefits of informing oneself are greater than the costs, then ignorance is A. rational. B. not beneficial. C. not costly. D. irrational.
D
In 2005, Ireland began taxing residents on how much garbage they threw away in an effort to promote recycling. In response, residents began burning trash (which is environmentally more harmful and resulted in an increase in burn victims as people accidentally set themselves on fire). This story suggests that the elasticity of demand for trash collection was more ______ than lawmakers believed because ______ than previously thought. A. elastic; the tax took up a larger part of residents' budgets B. inelastic; there were fewer substitutes for trash collection C. inelastic; the tax took up a smaller part of residents' budgets D. elastic; there were more substitutes for trash collection
D
Markets are often inefficient when external costs are present because: A. externalities cannot be corrected without government regulation. B. private costs exceed social costs at the private market solution. C. production externalities lead to consumption externalities. D. social costs exceed private costs at the private market solution.
D
One way to achieve political success is to: A. diffuse costs and benefits. B. concentrate benefits and costs. C. concentrate costs and diffuse benefits. D. concentrate benefits and diffuse costs.
D
Over time, the demand for most goods becomes ______ elastic since we are able to ______. A. less; develop more/better substitutes B. more; produce more of the good or service C. less; produce more of the good or service D. more; develop more/better substitutes
D
Public ignorance is generally higher in less democratic countries because: A. there is no incentive for the public to be informed in those countries. B. the public receives too much information about how the country runs. C. the public is mostly irrational in those countries. D. the public is not well-informed as a result of government control or censorship of the media.
D
Suppose that instead of each farmer in an area owning a specific parcel of land, all farmland is pooled together. The profits that remain from all of the pooled farmland is divided among all of the participating farmers equally. Which is the most likely consequence of a property right system like this being used? A. The farmers would develop a sense of altruism and work hard to accomplish as much as possible as a group. B. Farmers will undertake increased investment in human and physical capital. C. Technological innovations will occur that will help the farmers become more productive. D. Free riding would occur from various farmers on the land.
D
The availability of fewer substitutes for a good means its demand curve: A. changes elasticity in an indeterminate direction. B. becomes more elastic. C. maintains the same elasticity. D. becomes less elastic.
D
The elasticity of demand measures how sensitive the: A. price is to a change in the quantity supplied. B. demand is to a change in the number of suppliers. C. price is to a change in quantity demanded. D. quantity demanded is to a change in price.
D
The interest rate is determined by the A. supply for loanable funds. B. demand for loanable funds. C. altruism or greed of bankers. D. supply and demand for loanable funds.
D
The self-interest of politicians ______ with the social interest. A. aligns only under direct democracy B. always aligns C. never aligns D. sometimes aligns
D
The supply of ______ tends to be more elastic. A. luxury goods B. raw materials C. necessary goods D. manufactured goods
D
Under rent control, tenants can expect A. higher rent and a shortage of rental housing. B. higher rent and a surplus of rental housing. C. lower rent and higher quality housing. D. lower rent and lower quality housing.
D
Which of the following is a reason why the demand curve for an item would be more elastic? A. The cost of the item forms a very small part of consumers' budgets. B. The item is a necessity. C. People's incomes are very high relative to the cost of the item. D. The item has many very good substitutes.
D
Which of the following statements is FALSE? A. Products that take a long time to produce, such as decades-aged Scotch whiskey, have supply curves that are less responsive to price changes. B. A perfectly inelastic supply curve is vertical. C. The supply curve is more elastic in the long run than in the short run. D. The supply curve of oil is more inelastic in Texas than it is globally.
D
Which of the following would NOT make elasticity of demand for a good more elastic? A. It has more substitutes. B. It is considered a luxury. C. It takes a large part of the budget. D. It is decided upon in less time.
D
Why is rational ignorance important from an economic standpoint? I. Voters might not make informed choices. II. Voters will make decisions based on incorrect or incomplete information. III. Special interest groups may control economic outcomes if they are the only ones who are not rationally ignorant. A. II and III only B. I and II only C. I only D. I, II, and III
D
Which of the following probably has the least elastic demand? A. McDonald's hamburgers B. eggs C. cable television D. prescription medications
d