Exam 2 Quiz Questions

Producer surplus directly measures a. the well-being of society as a whole. b. the well-being of buyers and sellers. c. the well-being of sellers. d. sellers' willingness to sell.

c. the well-being of sellers.

If a price ceiling is not binding, then Question options: there will be a surplus in the market. there will be a shortage in the market. the market will be less efficient than it would be without the price ceiling. there will be no effect on the market price or quantity sold.

there will be no effect on the market price or quantity sold.

Why are Pigovian taxes preferred to regulatory policies as methods to remedy negative externalities?

It is more preferred because it creates or restores up to the social optimum point and if you have the regulatory policy then it's basically the bare minimum companies could be doing. Corrective taxes reduces the externalities.

Which of the following is correct? Question options: Rent control and the minimum wage are both examples of price ceilings. Rent control is an example of a price ceiling, and the minimum wage is an example of a price floor. Rent control is an example of a price floor, and the minimum wage is an example of a price ceiling. Rent control and the minimum wage are both examples of price floors.

Rent control and the minimum wage are both examples of price ceilings.

If T represents the size of the tax on a good and Q represents the quantity of the good that is sold, total tax revenue received by government can be expressed as Question options: T/Q. T + Q. T × Q. (T × Q)/Q.

T × Q.

Which of the following is NOT a way of internalizing technology spillovers? Question options: Subsidies Patent protection Industrial policy Taxes

Taxes

Which of the following is not correct? Question options: Taxes levied on sellers and taxes levied on buyers are not equivalent. A tax places a wedge between the price that buyers pay and the price that sellers receive. The wedge between the buyers' price and the sellers' price is the same, regardless of whether the tax is levied on buyers or sellers. In the new after-tax equilibrium, buyers and sellers share the burden of the tax.

Taxes levied on sellers and taxes levied on buyers are not equivalent.

Which of the following is an example of a positive externality? Question options: A college student buyers a new car when she graduates. Your neighbor plants a nice garden in front of his house. A person litters in a public park. Your friend pays to get her hair cut and colored at the salon.

Your neighbor plants a nice garden in front of his house.

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? Question options: Hannah offers Zaria $20 not to smoke. Zaria accepts and does not smoke. Zaria pays Hannah $16 so that Zaria can smoke. Zaria pays Hannah $14 so that Zaria can smoke.Hannah offers Zaria $15 not to smoke. Zaria accepts and does not smoke.

Zaria pays Hannah $16 so that Zaria can smoke.

When a good is taxed, a. both buyers and sellers of the good are made worse off. b. only buyers are made worse off, because they ultimately bear the burden of the tax. c. only sellers are made worse off, because they ultimately bear the burden of the tax. d. neither buyers nor sellers are made worse off, since tax revenue is used to provide goods and services that would otherwise not be provided in a market economy.

a. both buyers and sellers of the good are made worse off.

Under rent control, bribery is a potential mechanism to a. bring the total price of an apartment (including the bribe) closer to the equilibrium price. b. allocate housing to the poorest individuals in the market. c. force the total price of an apartment (including the bribe) to be less than the market price. d. allocate housing to the most deserving tenants.

a. bring the total price of an apartment (including the bribe) closer to the equilibrium price.

When a tax is placed on the sellers of cell phones, the size of the cell phone market Question options: and the effective price received by sellers both increase. increases, but the effective price received by sellers decreases. decreases, but the effective price received by sellers increases. and the effective price received by sellers both decrease.

and the effective price received by sellers both decrease.

Taxes on labor encourage which of the following? a. Labor demand to be more inelastic b. Mothers to stay at home rather than work in the labor force c. Workers to work overtime d. Fathers to take on second jobs

b. Mothers to stay at home rather than work in the labor force

Which of the following is correct? a. Rent control and the minimum wage are both examples of price ceilings. b. Rent control is an example of a price ceiling, and the minimum wage is an example of a price floor. c. Rent control is an example of a price floor, and the minimum wage is an example of a price ceiling. d. Rent control and the minimum wage are both examples of price floors.

b. Rent control is an example of a price ceiling, and the minimum wage is an example of a price floor.

On a graph, the area below a demand curve and above the price measures a. deadweight loss. b. consumer surplus. c. producer surplus. d. willingness to pay.

b. consumer surplus.

A legal minimum on the price at which a good can be sold is called a a. price subsidy. b. price floor. c. tax. d. price ceiling.

b. price floor.

When a tax is placed on a product, the price paid by buyers a. rises, and the price received by sellers rises. b. falls, and the price received by sellers rises. c. falls, and the price received by sellers falls. d. rises, and the price received by sellers falls.

d. rises, and the price received by sellers falls.

Suppose the world price of a television is $300. Before Paraguay allowed trade in televisions, the price of a television there was $350. Once Paraguay began allowing trade in televisions with other countries, Paraguay began Question options: importing televisions and the price of a television in Paraguay decreased to $300. importing televisions and the price of a television in Paraguay remained at $350. exporting televisions and the price of a television in Paraguay decreased to $300. exporting televisions and the price of a television in Paraguay remained at $350.

importing televisions and the price of a television in Paraguay decreased to $300.

The Social Security tax is a tax on Question options: capital. labor. land. savings.

labor.

Suppose televisions are a normal good and buyers of televisions experience a decrease in income. As a result, consumer surplus in the television market Question options: decreases. is unchanged. increases. may increase, decrease, or remain unchanged.

may increase, decrease, or remain unchanged.

As a result of a decrease in price, Question options: new buyers enter the market, increasing consumer surplus. new buyers enter the market, decreasing consumer surplus. existing buyers exit the market, increasing consumer surplus. existing buyers exit the market, decreasing consumer surplus.

new buyers enter the market, increasing consumer surplus.

The size of a tax and the deadweight loss that results from the tax are Question options: positively related. negatively related. independent of each other. equal to each other.

positively related.

If a nonbinding price floor is imposed on a market, then the Question options: quantity sold in the market will decrease. quantity sold in the market will stay the same. price in the market will increase. price in the market will decrease.

quantity sold in the market will stay the same

When a tax is levied on a good, the buyers and sellers of the good share the burden, Question options: provided the tax is levied on the sellers. provided the tax is levied on the buyers. provided a portion of the tax is levied on the buyers, with the remaining portion levied on the sellers. regardless of how the tax is levied.

regardless of how the tax is levied.

Cost is a measure of the Question options: seller's willingness to sell. seller's producer surplus. producer shortage. seller's willingness to buy.

seller's willingness to sell.

Suppose that in a particular market, the supply curve is highly inelastic and the demand curve is highly elastic. If a tax is imposed in this market, then the Question options: sellers will bear a greater burden of the tax than the buyers. buyers will bear a greater burden of the tax than the sellers. buyers and sellers are likely to share the burden of the tax equally. buyers and sellers will not share the burden equally, but it is impossible to determine who will bear the greater burden of the tax without more information.

sellers will bear a greater burden of the tax than the buyers.

When positive externalities are present in a market Question options: private benefits will be greater than social benefits. social benefits will be greater than private benefits. only government regulation will solve the problem. the market will not be able to generate an equilibrium.

social benefits will be greater than private benefits.

In the 1970s, long lines at gas stations in the United States were primarily a result of the fact that Question options: OPEC raised the price of crude oil in world markets. U.S. gasoline producers raised the price of gasoline. the U.S. government maintained a price ceiling on gasoline. Americans typically commuted long distances.

the U.S. government maintained a price ceiling on gasoline.

In the market for apartments, rent control causes the quantity supplied Question options: and quantity demanded to fall. to fall and quantity demanded to rise. to rise and quantity demanded to fall. and quantity demanded to rise.

to fall and quantity demanded to rise.

The maximum price that a buyer will pay for a good is called Question options: consumer surplus. producer surplus. efficiency. willingness to pay.

willingness to pay.

Under rent control, landlords can cease to be responsive to tenants' concerns about the quality of the housing because Question options: with rent control, the government guarantees landlords a minimum level of profit. they become resigned to the fact that many of their apartments are going to be vacant at any given time. with shortages and waiting lists, they have no incentive to maintain and improve their property. with rent control, it becomes the government's responsibility to maintain rental housing.

with shortages and waiting lists, they have no incentive to maintain and improve their property.

For a small country called Boxland, the equation of the domestic demand curve for cardboard is QD = 380 − 2P, where QD represents the domestic quantity of cardboard demanded, in tons, and P represents the price of a ton of cardboard. For Boxland, the equation of the domestic supply curve for cardboard is QS = -60 + 3P, where QS represents the domestic quantity of cardboard supplied, in tons, and P again represents the price of a ton of cardboard. Refer to Scenario 9-1. Suppose the world price of cardboard is $139 and international trade is allowed. Then Boxland's consumers demand Question options: 102 tons of cardboard and Boxland's producers supply 357 tons of cardboard. 102 tons of cardboard and Boxland's producers supply 204 tons of cardboard. 204 tons of cardboard and Boxland's producers supply 357 tons of cardboard. 204 tons of cardboard and Boxland's producers supply 204 tons of cardboard.

102 tons of cardboard and Boxland's producers supply 357 tons of cardboard.

Which of the following statements is not correct? Question options: A patent is a way for the government to encourage the production of a good with technology spillovers. A tax is a way for the government to reduce the production of a good with a negative externality. A tax that accurately reflects external costs produces the socially optimal outcome. Government policies cannot improve upon private market outcomes.

Government policies cannot improve upon private market outcomes.

When a country allows trade and becomes an exporter of silk, which of the following is not a consequence? Question options: The price paid by domestic consumers of silk increases. The price received by domestic producers of silk increases. The price paid by domestic consumers of silk decreases. The gains of domestic producers of silk exceed the losses of domestic consumers of silk.

The price paid by domestic consumers of silk decreases.

Which of the following causes the price paid by buyers to be different than the price received by sellers? a. Binding price floor b. Binding price ceiling c. Tax on the good d. Nonbinding price control

c. Tax on the good

A surplus results when a a. nonbinding price floor is imposed on a market. b. nonbinding price floor is removed from a market. c. binding price floor is imposed on a market. d. binding price floor is removed from a market

c. binding price floor is imposed on a market.

To fully understand how taxes affect economic well-being, we must compare the a. benefit to buyers with the loss to sellers. b. price paid by buyers to the price received by sellers. c. decrease in total surplus to the increase in revenue raised by the government. d. profits earned by firms to the losses incurred by consumers.

c. decrease in total surplus to the increase in revenue raised by the government.

When a country is on the downward-sloping side of the Laffer curves, a cut in the tax rate will a. decrease tax revenue and decrease the deadweight loss. b. decrease tax revenue and increase the deadweight loss. c. increase tax revenue and decrease the deadweight loss. d. increase tax revenue and increase the deadweight loss

c. increase tax revenue and decrease the deadweight loss.

The term tax incidence refers to a. whether buyers or sellers of a good are required to send tax payments to the government. b. whether the demand curve or the supply curve shifts when the tax is imposed. c. the distribution of the tax burden between buyers and sellers. d. widespread view that taxes (and death) are the only certainties in life.

c. the distribution of the tax burden between buyers and sellers.

If a sawmill creates too much noise for local residents, a. noise restrictions will force residents to move out of the area. b. a sense of social responsibility will cause owners of the mill to reduce noise levels. If a sawmill creates too much noise for local residents, a. noise restrictions will force residents to move out of the area. b. a sense of social responsibility will cause owners of the mill to reduce noise levels. c. the government can raise economic well-being through noise-control regulations. d. the government should avoid intervening because the market will always allocate resources efficiently. d. the government should avoid intervening because the market will always allocate resources efficiently.

c. the government can raise economic well-being through noise-control regulations. d. the government should avoid intervening because the market will always allocate resources efficiently.

Price ceilings and price floors that are binding Question options: are desirable because they make markets more efficient and more fair. cause surpluses and shortages to persist because price cannot adjust to the market equilibrium price. can have the effect of restoring a market to equilibrium. are imposed because they can make the poor in the economy better off without causing adverse effects.

cause surpluses and shortages to persist because price cannot adjust to the market equilibrium price.

Which of the following statements is not correct? a. A patent is a way for the government to encourage the production of a good with technology spillovers. b. A tax is a way for the government to reduce the production of a good with a negative externality. c. A tax that accurately reflects external costs produces the socially optimal outcome. d. Government policies cannot improve upon private market outcomes.

d. Government policies cannot improve upon private market outcomes.

When a tax is imposed on a good, the a. supply curve for the good always shifts. b. demand curve for the good always shifts. c. amount of the good that buyers are willing to buy at each price always remains unchanged. d. equilibrium quantity of the good always decreases.

d. equilibrium quantity of the good always decreases.

The goal of rent control is to a. facilitate controlled economic experiments in urban areas. b. help landlords by assuring them a low vacancy rate for their apartments. c. help the poor by assuring them an adequate supply of apartments. d. help the poor by making housing more affordable.

d. help the poor by making housing more affordable.

If the size of a tax increases, tax revenue a. increases. b. decreases. c. remains the same. d. may increase, decrease, or remain the same.

d. may increase, decrease, or remain the same.

Suppose the government imposes a tax on cheese. The deadweight loss from this tax will likely be greater in the Question options: first year after it is imposed than in the eighth year after it is imposed because demand and supply will be more elastic in the first year than in the eighth year. first year after it is imposed than in the eighth year after it is imposed because demand and supply will be less elastic in the first year than in the eighth year. eighth year after it is imposed than in the first year after it is imposed because demand and supply will be more elastic in the first year than in the eighth year. eighth year after it is imposed than in the first year after it is imposed because demand and supply will be less elastic in the first year than in the eighth year.

eighth year after it is imposed than in the first year after it is imposed because demand and supply will be less elastic in the first year than in the eighth year.

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 Question options: $150. $425. $500. $850.

$500.

Which of the following is not an advantage of a multilateral approach to free trade over a unilateral approach? Question options: A multilateral approach can reduce trade restrictions abroad as well as at home. A multilateral approach has the potential to result in freer trade. A multilateral approach requires the agreement of two or more nations. A multilateral approach may have political advantages.

A multilateral approach requires the agreement of two or more nations.

In which of the following cases is the Coase theorem most likely to solve the externality? Question options: Ed is allergic to his roommate's cat. Chemicals from manufacturing plants in the Midwest are causing acid rain in Canada. Polluted water runoff from farms is making residents of a nearby town sick. Industrialization around the world is causing global warming.

Ed is allergic to his roommate's cat.

Assume, for India, that the domestic price of copper without international trade is lower than the world price of copper. This suggests that, in the production of copper, Question options: India has a comparative advantage over other countries and India will import copper. India has a comparative advantage over other countries and India will export copper. other countries have a comparative advantage over India and India will import copper. other countries have a comparative advantage over India and India will export copper.

India has a comparative advantage over other countries and India will export copper.

Which of the following is not an advantage of corrective taxes? Question options: They raise revenues for the government. They enhance economic efficiency. They subsidize the production of goods with positive externalities. They move the allocation of resources closer to the social optimum.

They subsidize the production of goods with positive externalities.

Which of the following is not a characteristic of pollution permits? a. Prices are set by supply and demand. b. Allowing firms to trade their permits reduces the total quantity of pollution beyond the initial allocation. c. Real-world markets for pollution permits include sulfur dioxide and carbon. d. Firms for whom pollution reduction is very expensive are willing to pay more for permits than firms for whom pollution reduction is less expensive.

b. Allowing firms to trade their permits reduces the total quantity of pollution beyond the initial allocation.

What is the fundamental basis for trade among nations? a. Shortages or surpluses in nations that do not trade b. Misguided economic policies c. Absolute advantage d. Comparative advantage

d. Comparative advantage

If the government levies a $800 tax per motorcycle on sellers of motorcycles, then the price paid by buyers of motorcycles would Question options: increase by more than $800. increase by less than $800. decrease by an indeterminate amount. increase by exactly $800.

increase by less than $800.

A result of welfare economics is that the equilibrium price of a product is considered to be the best price because it Question options: maximizes both the total revenue for firms and the quantity supplied of the product. maximizes the combined welfare of buyers and sellers. minimizes costs and maximizes output. minimizes the level of welfare payments.

maximizes the combined welfare of buyers and sellers.

Scenario 10-1The demand curve for gasoline slopes downward and the supply curve for gasoline slopes upward. The production of the 200th gallon of gasoline entails the following: a private cost of $3.03; a social cost of $3.23; a value to consumers of $3.39. Refer to Scenario 10-1. From the given information, it is apparent that Question options: the production of gasoline involves a negative externality, so the market will produce a smaller quantity of gasoline than is socially desirable. the production of gasoline involves a negative externality, so the market will produce a larger quantity of gasoline than is socially desirable .the production of gasoline involves a positive externality, so the market will produce a smaller quantity of gasoline than is socially desirable. the production of gasoline involves a positive externality, so the market will produce a larger quantity of gasoline than is socially desirable.

the production of gasoline involves a negative externality, so the market will produce a larger quantity of gasoline than is socially desirable

A simultaneous increase in both the demand for tablets and the supply of tablets would imply that Question options: both the value of tablets to consumers and the cost of producing tablets has increased. both the value of tablets to consumers and the cost of producing tablets has decreased. the value of tablets to consumers has decreased, and the cost of producing tablets has increased. the value of tablets to consumers has increased, and the cost of producing tablets has decreased.

the value of tablets to consumers has increased, and the cost of producing tablets has decreased.

What are the arguments in favor of trade restrictions, and what are the counterarguments? According to most economists, do any of these arguments really justify trade restrictions? Explain

Arguments in favor of trade include it increases a variety of goods, makes the economy more competitive and productive. However many argue that trade with other countries destroys domestic jobs or it simultaneously creates and destroys jobs.

Employing a lawyer to draft and enforce a private contract between parties wishing to solve an externality problem is an example of Question options: an opportunity cost. an implicit cost. a sunk cost. a transaction cost.

a transaction cost.

A shortage results when a Question options: nonbinding price ceiling is imposed on a market. nonbinding price ceiling is removed from a market. binding price ceiling is imposed on a market. binding price ceiling is removed from a market.

binding price ceiling is imposed on a market.

Larry purchases a set of pens for $8, and his consumer surplus is $1. How much is Larry willing to pay for the set of pens? a. $8 b. $4.5 c. $9 d. $7

c. $9

Which of the following statements is not correct? a. Tradable pollution permits have an advantage over corrective taxes if the government is uncertain as to the optimal size of the tax necessary to reduce pollution to a specific level. b. Both corrective taxes and tradable pollution permits provide market-based incentives for firms to reduce pollution. c. Corrective taxes set the maximum quantity of pollution, whereas tradable pollution permits fix the price of pollution. d. Both corrective taxes and tradable pollution permits reduce the cost of environmental protection and thus should increase the public's demand for a clean environment.

c. Corrective taxes set the maximum quantity of pollution, whereas tradable pollution permits fix the price of pollution.

The distinction between efficiency and equality can be described as follows: a. Efficiency refers to maximizing the number of trades among buyers and sellers; equality refers to maximizing the gains from trade among buyers and sellers. b. Efficiency refers to minimizing the price paid by buyers; equality refers to maximizing the gains from trade among buyers and sellers. c. Efficiency refers to maximizing the size of the pie; equality refers to producing a pie of a given size at the least possible cost. d. Efficiency refers to maximizing the size of the pie; equality refers to distributing the pie fairly among members of society.

d. Efficiency refers to maximizing the size of the pie; equality refers to distributing the pie fairly among members of society.

According to the Coase theorem, private parties can solve the problem of externalities if Question options: property rights are clearly defined. the cost of bargaining is large. the number of parties involved is sufficiently large. the initial distribution of legal rights favors the person causing the negative externality.

property rights are clearly defined.