ECON Test 2 Study Notes
decrease, and the consumer surplus in the market for red wine decreases
A drought in California destroys many red grapes causing the prices of both red grapes and red wine to rise. as a result, the consumer surplus in the market for red grapes
price ceiling
A legal maximum on the price at which a good can be sold
price floor
A legal minimum on the price at which a good can be sold
supply curved upward by the size of the tax
A tax levied on the seller of a good shifts the ___
Total surplus
PS+CS
false - the supply curve
T/F Socially optimal quantity for positive externalities can be found by identifying where the social cost curve intersects the demand curve
True
T/F socially optimal quantity for negative externalities can be found by identifying where the social cost curve intersects the demand curve
Buyers bear more of the tax because it is easier for sellers than buyers to leave the market
if the supply is more elastic than demand
the government can set a maximum level of pollution usingg permits
in some cases tradable pollution permits may be better than a corrective tax because
DWL
increase in the size of a tax causes ____ to rise even more
decrease consumer surplus and have ambiguous implications for producer surplus
introducing a binding floor into a market will _____
tax incidence
manner in which the burden of a tax is shared among participants in a market
encourages the firms with the lowest costs of reducing pollution to reduce the most
most economists prefer corrective taxes to regulation as a way to correct the problem of pollution because the market-based solution ___
raise total surplus
moving productions from a high-cost producer to a low cost producer will
greater than efficient out levels and positive externalities lead markets to produce smaller than efficient output levels
negative externalities lead markets to produce
command-and-control policy
policy that regulates behavior directly, limits on quantity of pollution emitted
social cost
private cost + external cost
price paid by buyers and lower the equilibrium quantity
suppose a tax is created that the buyers of a good must pay to the government, this will rase the ____
may increase, decrease, or remain unchanged
suppose televisions are a normal good and buyers of televisions experience a decrease in income. As a result, consumer surplus in the television market
increase producer surplus
suppose that a market is allowed to adjust freely to its equilibrium price and quantity, then an increase in demand will ___
demand is more inelastic than the supply
suppose that a tax is placed on books. if the buyers pay the majority of the tax, then we know that
supply, raising the equilibrium price and lowering the equilibrium quantity in the market for artificially sweetened beverages
suppose the government imposes a 20 cent tax on the sellers of artificially sweetened beverages. The tax would shift
smaller the deadweight loss from the tax
suppose the government places a per-unit tax on a good. The smaller the price elasticities of demand and supply for the good, the ____
buyers will bear most of the burden of the tax
suppose the government puts a tax on a market with inelastic demand and elastic supply, then
they subsidize the production of goods with positive externalities
which of the following is not an advantage of corrective taxes?
a smaller quantity of the good is bought and sold
which of the following observations would be consistent with the imposition of a binding price ceiling on a market? After the price ceiling is established, ____
might increase or decrease
1. Suppose that the equilibrium price in the market for widgets is $5. If a law increased the minimum legal price for widgets to $6, producer surplus
Erin will not clean her own house
Erin would be willing to pay as much as $100 per week to have her house cleaned. Ernesto's opportunity cost of cleaning Erin's house is $70 per week. Suppose Erin is required to pay a tax of $40 when she hires someone to clean her house for a week. Which of the following is correct?
Deadweight Loss (DWL)
Fall in total surplus
higher
Higher elasticities imply ______ DWL
a surplus of video games will develop
If a binding price floor is imposed on the video game market, than
increase, and the quantity sold in the market will increase
If the government removes a binding price ceiling from a market, then the price paid by buyers will
the effective price received by sellers is $0.40 per bottle less than it was before the tax
Suppose sellers of perfume are required to send $1.00 to the government for every bottle of perfume they sell. Further, suppose this tax causes the price paid by buyers of perfume to rise by $0.60 per bottle. Which of the following statements is correct?
the equilibrium quantity is greater than the socially optimal quantity
Suppose that flu shots create a positive externality equal to $8 per shot. Further suppose that the government offers a $11-per-shot subsidy to producers. What is the relationship between the equilibrium quantity and the socially optimal quantity of flu shots produced?
1000<Q optimum< Q market
The demand curve for gasoline slopes downward and the supply curve for gasoline slopes upward. The production of the 1000th gallon of gasoline entails the following A private cost of $3.10, a social cost of $3.55; a value to consumers of $3.7 Let QMarket represent the equilibrium quantity of gasoline and let QOptimum represent the socially optimal quantity of gasoline. Which of the following inequalities is correct
B . all of the above are correct
The majority of economist prefer corrective taxes to command-and-control regulation as a way to correct the problem of pollution because a. the market based solution raises revenue for the government b. All of the above are correct c. the market based solution is less costly to society d. the market based solution can result in a greater reduction in pollution
higher the DWL
The more elastic supply the ______
smaller the DWL
The more inelastic supply the ____
decrease, and producer surplus decreases
The surgeon general announces that eating chocolate increases tooth decay. As a result, the equilibrium price of chocolate
breakfast cereal
Which product would have the highest DWL if taxed? a. breakfast cereal b. insulin c. cigarettes d. land
Zaria pays Hannah $16 so that Zaria can smoke
Zaria and hannah are roommates . Zaria assigns a $30 value to smoking cigarettes. Hannah values smoke free air at $15. Which of the following scenarios is a successful example of the Coase theorem?
Willingness to Pay (WTP)
a buyer's willingness to pay for a good
a benefit to someone other than the producer and consumer of the good
a positive externality
cost of bargaining is small
according to the Case theorem, private parties can solve the problem of externalities if
tradeable permits
are permits to pollute, issued by a governing body, which sets a maximum amount of pollution allowable. Firms may trade these permits for money.
command and control
if the government were to limit the release of air pollution produced by a glue factory to 75 parts per million, the policy would be considered a
negative externalities
bad impact on bystanders (costs)
smaller is the price elasticity of supply
consider a good to which a per-unit tax applies. The size of the deadweight that results from the tax is smaller, the ____
South American cocoa bean producers refuse to ship to chocolate producers in the US
consider the US market for chocolate, a market in which the government has imposed a nonbonding price ceiling. Which of the following events could convert the price ceiling from a non binding to a binding price ceiling?
consumer surplus
difference between willingness to pay and price, CS =WTP-P
private costs
direct cost to buyers
positive externalities
good impact on bystander (benefits)
the sellers bear more of the tax because it's easier for buyers to leave the market
if the demand is more elastic than supply
supply curve will shift downward by $20, and the effective price received by sellers will increase by less than $20
suppose there is currently a tax of $50 per ticket on airline tickets. Sellers of airline tickets are required to pay the tax to the government. If the tax is reduced from $50 per ticket to $30 per ticket, then the
corrective taxes
taxing pollution is an effective example; with this tax, company's with lower cost of reducing pollution will reduce pollution at it's max
inelastic supply and inelastic demand
the deadweight loss from a tax per unit of good will be smallest in a market with ____
deadweight loss
the decrease in total surplus that results from a market distortion, such as a tax, is called a
producer surplus
the difference between price and cost P=P-C
efficiency refers to maximizing the size of the pie; equality refers to distributing the pie fairly among members of society
the distinction between efficiency and equality can be described as follows
coase theorem
the proposition that if private parties can bargain without cost over the allocation of resources, they can solve the problem of externalities on their own
economic incidence
the ultimate burden of the tax (determined by supply and demand)
opportunity cost
the value of everything you give up to produce something
total surplus is maximized
we can say that allocation of resources is efficient if
both buyers and sellers are made worse off
when the government places a new tax on a good
anywhere below equilibrium
where is ceiling binding?
anywhere above equilibrium
where is ceiling not binding?
anywhere above equilibrium
where is floor binding ?
anywhere below equilibrium
where is floor not binding?
c. government should tax goods with negative externalities and subsidize goods with positive externalities
which of the following statement is true a. government should tax goods with either positive or negative externalities b. government should tax goods with positive externalities and subsidize goods with negative externalities c. government should tax goods with negative externalities and subsidize goods with positive externalities d. government should subsidize goods with either positive or negative externalities
binding price ceiling is imposed on a market
which of the following would cause a shortage?
legal incidence
who directly pays the tax (determined by politics)
