Micro chap 8 and 10

Refer to figure 8-2. The amount of tax revenue by the government is

$5

Refer to scenario 8-2. If Stephanie hires Tom to mow her lawn, toms producer surplus is

$5

Refer to figure 8-2. The per-unit burden of the tax on buyers is

$3

Refer to scenario 8-2. If Stephanie hires Tom to mow her lawn, Stephanie's consumer surplus is

$3

Refer to figure 8-6. When the government imposes the tax in this market, tax revenue is

$3,000

Refer to figure 10-2. Suppose that the production of plastic creates a social cost which is depicted in the graph above. Without government regulation, what price will the firm charge per unit of plastic

$3.50

Refer to figure 8-6. When the tax is imposed in this market, sellers effectively pay what amount of the $10 tax

$4

Refer to figure 8-6. When the tax is imposed in this market, buyers effectively pay what amount of the $10 tax

$6

Refer to figure 8-6. When the tax is imposed in this market, the price sellers effectively receive is

$6

Refer to table 10-3. If the government wanted to reduce pollution from 16 units to 6 units, which of the following fees per unit of pollution would achieve that goal

$83

Refer to figure 8-1. Suppose the government imposes a tax of P'-P'''. The area measured by M represents

Producer surplus after the tax

Refer to figure 8-1. Suppose the government does a tax of P'-P'''. The area measured by L+M+Y represents

Producer surplus before the tax

An optimal tax on pollution would result in which of the following?

Producers will internalize the cost of the pollution.

Refer to figure 10-11. This graph shows the market of pollution when permits are issued to firms and traded in the marketplace. The equilibrium price of pollution is

$1,000

Refer to figure 8-6. Without a tax the equilibrium price and quantity are

$10 and 600

All externalities

cause markets to fail to allocate resources efficiently

Refer to figure 10-4. This market is characterized by

A negative externality

Refer to table 10-2. What is the socially optimal level of output in this market

5 units

Refer to figure 10-11. This graph shows the market for pollution when permits are issued to firms and traded in the marketplace. The equilibrium number of permits is

50

Since restored historic buildings convey a positive externality, local governments may choose to

Both A and C are correct (provide tax breaks to owners who restore them, regulate the demolition of them)

The benefit to buyers of participating in a market is measured by

Consumer surplus

Refer to figure 8-1. Suppose the government imposes a tax of P'-P'''. The area measured by J represents

Consumer surplus after the tax

Refer to figure 8-1. Suppose the government imposes a tax of P'-P'''. The area measured by J+K+I represents

Consumer surplus before the tax

The difference between social cost and private cost is a measure of the

Cost of an externality

The supply curve for a product reflects the

Cost to sellers of producing the product

Private markets fail to account for externalities because

Decision makers in the market fail to include the costs of their behavior to third parties

Refer to figure 8-2. The imposition of the tax causes the price received by sellers to

Decrease by $2

Refer to figure 8-2. The imposition of the tax caused the quantity sold to

Decrease by 1 unit

The governments benefit from a tax can be measured by

Tax revenue

Refer to figure 8-6. When the tax is placed on this good, the quantity sold

Is 300, and buyers effectively pay $16

Refer to figure 10-5. Which price and quantity combination represents the social optimum

P2 and Q1

All remedies for externalities share the goal of

moving the allocation of resources toward the socially optimal equilibrium

Refer to figure 10-11. This graph shows the market for pollution when permits are issued to firms and traded in the marketplace. In the absence of a pollution permit system, the quantity of pollution would be

100

Refer to table 10-1. How large would a corrective tax need to be to move this market from the equilibrium outcome to the socially optimal outcome

2

Refer to table 10-1. What is the socially optimal quantity of output in this market

2 units

Refer to table 10-1. What is the equilibrium quantity of output in the market

3 units

Refer to table 10-3. If the government charged a fee of $69 per unit of pollution, how many units of pollution would the firms eliminate altogether

7

Which of the following statements about a well maintained yard best conveys the general nature of the externality

A well maintained yard conveys a positive externality because it increases the value of adjacent properties in the neighborhood

Refer to figure 8-10. If the government changed the per-unit tax from $5.00 to $2.50, then the price paid by buyers would be $7.50, the price received by sellers would be $5, and the quantity sold in the market would be 1.5 units. Compared to the original tax rate, this lower tax rate would

Decrease government revenue and decrease the deadweight loss from the tax

Refer to figure 8-10. If the government changed the per-unit tax from $5.00 to $7.50, then the price paid by buyers would be $10.50, the price received by sellers would be $3 and the quantity sold in the market would be 0.5 units. Compared to the original tax rate, this higher tax rate would

Decrease government revenue and increase the deadweight loss from the tax

Refer to figure 10-4. If this market is currently producing at Q4, then total economic well being would be maximized if output

Decreased to Q2

A tax levied on the buyers of a good shifts the

Demand curve downward ( or to the left)

Refer to figure 10-8. If the government in this market desires to achieve the socially optimal level of output, it should

Enact a subsidy of more than $2

Market failure can be caused by

Externalities

Which of the following statements is correct

Government should tax goods with negative externalities and subsidize goods with positive externalities

Negative externalities lead markets to produce

Greater than efficient output levels and positive externalities lead markets to produce smaller than efficient output levels

Refer to figure 8-1. Suppose the government imposes a tax of P'-P'''. Total surplus before the tax is measured by the area

I+J+K+L+M+Y

Refer to figure 8-1. Suppose the government imposes a tax of P'-P'''. The deadweight loss due to the tax is measured by the area

I+Y

Refer to figure 10-2. Suppose that the production of plastic creates a social cost which is depicted in the graph above. If the government wanted to force the firm to internalize the cost of the externality whah action should it take

Impose a tax of $2 per unit of plastic

Refer to figure 8-2. The imposition of the tax causes the price paid by buyers to

Increase by $3

A deadweight loss is a consequence of a tax on a good because the tax

Induces buyers to consume less, and sellers to produce less

The deadweight loss from a $1 tax will be smallest in a market with

Inelastic supply and inelastic demand

Since externalities tend to keep markets from reaching a socially optimal equilibrium, government action

Is needed when private solutions fail to arise

Refer to figure 8-1. Suppose the government imposes a tax of P'-P'''. The consumer surplus after the tax is measured by the area

J

Refer to figure 8-1. Suppose the government imposes a tax of P'-P'''. The tax revenue is measured by the area

K+L

Refer to figure 8-1. Suppose the government imposes a tax of P'-P'''. The producer surplus before the tax is measured by the area

L+M+Y

Ed is a writer who works from home. Ed lives next door to Ricky, the drummer for a local band. Ricky needs lots of practice to earn his share of the hands profits, $250. Ed gets distracted by Ricky's drumming but needs to get his writing done to earn $500 for his current article. If ed needs to hire a lawyer to help him reach an agreement with Ricky what price is ed willing to pay the lawyer

Less than $500

When the government imposes taxes on buyers or sellers of a good, society

Loses some of the benefits of the market efficiently

Refer to figure 8-1. Suppose the government imposes a tax of P'-P'''. The producer surplus after the tax is measured by the area

M

Refer to table 8-1. Suppose the government is considering levying a tax in one or more of the markets described in the table. Which of the markets will allow the government to minimize the deadweight loss from the tax

Markets A and C only

Refer to table 8-1. Suppose the government is considering levying a tax in one or more of the markets described in the table. Which of the markets will maximize the deadweight loss from the tax

Markets B and D only

Which of the following is an example of a positive externality

Mary not catching the flu from Sue because Sue got the flu vaccine

In the market economy, government intervention

May improve market outcomes in the presence of externalities

A cost imposed on someone who is neither the consumer nor the producer is called a

Negative externalities

Refer to figure 10-5. This graph illustrates a

Negative externality and the socially optimum price is P2

Assume that your roommate is very messy. Suppose she gets a $50 benefit from being messy but imposes a $100 cost on you. The Coase theorem would suggest that an efficient solution would be for you to

Pay your roommate at $50 but no more that $100 to clean up after herself

The benefit to sellers of participating in a market is measured by the

Producer surplus

Since almost all forms of transportation produce some type of pollution

Society has to weigh the cost and benefits when deciding how much pollution to allow

A tax levied on the sellers of a good shifts the

Supply curve upward (or to the left)

The view held by Arthur Laffer and Ronald Reagan that cuts in tax rates would encourage people to increase the quantity of labor they supplied became known as

Supply-side economics

Refer to figure 8-1. Suppose the government imposes a tax of P'-P'''. The area measured by K+L represents

Tax revenue

Suppose that smoking creates a negative externality. If the government imposes a per-cigarette tax equal to the per-cigarette externality then

The after tax equilibrium quantity of cigarettes smoked will equal the socially optimal quantity of cigarettes smoked

If a sawmill creates too much noise for local residents

The government can raise economic well being through noise control regulations

Refer to figure 10-4. At Q3

The marginal consumer values this product less than the social cost of producing it

Honey producers provide a positive externality to orchards because

The orchard owner does not have to purchase bees to pollinate his flowers

Refer to figure 10-4. Externalities in this market could be internalized if

There were a tax on the product

Scenario 8-2

Tom mows Stephanie's lawn for $25. Toms opportunity cost of mowing Stephanie's lawn is $20 and Stephanie's willingness to pay Tom to mow her lawn is $28

Refer to figure 8-1. Suppose the government imposes of tax of P'-P'''. The area measured by J+K+L+M represents

Total surplus after the tax

Refer to figure 8-1. Suppose the government imposes a tax of P'-P'''. The area measured by I+J+K+L+M+Y represents

Total surplus before the tax

What happens to the total surplus in a market when the government imposes a tax

Total surplus decreases

Refer to figure 10-4. This market

Would benefit from a tax on the product