Micro Econ Unit 2 Exam Multiple Choice

Taxes cause deadweight losses because they... (a) lead to ____ in surplus for consumers and for producers that _____ tax revenue collected by the government (b) distort _____ to both buyers and sellers. (c) prevent buyers and sellers from seeing _______.

(a) losses, exceed (b) incentives (c) the gains from trade

Suppose sellers of liquor are required to send $1.00 to the government for every bottle of liquor they sell. Further, suppose this tax causes the price paid by buyers of liquor to rise by $0.80 per bottle. (a) This causes the supply curve to shift ____ by $1 for each quantity. (b) 80% of the burden of the tax falls on the _____.

(a) upward (b) buyers

In the market for widgets, the supply curve is the typical upward-sloping straight line, and the demand curve is the typical downward-sloping straight line. The equilibrium quantity in the market for widgets is 250 per month when there is no tax. Then a tax of $6 per widget is imposed. As a result, the government is able to raise $750 per month in tax revenue. We can conclude that the after-tax quantity of widgets is...

125 per month

Suppose the government has imposed a price floor on the market for soybeans. Which of the following events could transform the price floor from one that is not binding into one that is binding?

Farmers use improved, draught-resistant seeds, which lowers the cost of growing soybeans.

If a binding price floor is imposed on the video game market, then...

a surplus of video games will develop.

A direct restriction on the quantity of an import is called...

an import quota.

A surplus results when a...

binding price floor is imposed on a market.

If the world price of textiles is higher than Vietnam's domestic price of textiles without trade, then Vietnam has _______ advantage in textiles.

comparative

Patterns of trade among nations are primarily determined by _____ advantage.

comparative

The loss in total surplus resulting from a tax is called...

deadweight loss

If the government wants to reduce smoking, it should impose a tax on...

either buyers or sellers of cigarettes.

Buyers of a good bear the larger share of the tax burden when the supply is more _____ than the demand for the product.

elastic

Corrective taxes differ from most taxes in that corrective taxes...

enhance economic efficiency.

Suppose that cigarette smokers create a negative externality. Further suppose that the government imposes a tax on cigarettes equal to the per-unit externality. The after-tax equilibrium quantity is ______ the socially optimal quantity.

equal to

Suppose that flu shots create a positive externality equal to $12 per shot. Further suppose that the government offers a $12 per-shot subsidy to producers. The equilibrium quantity is ______ the socially optimal quantity.

equal to

If a price floor is not binding, then the ________ is above the _______.

equilibrium price, price floor.

Suppose that electricity producers create a negative externality equal to $5 per unit. The equilibrium quantity is ______ the socially optimal quantity.

greater than

A country has a comparative advantage in a product if the world price is _____ than that country's domestic price w/o trade.

higher

Suppose Guatemala has an absolute advantage over other countries in producing sugar, but other countries have a comparative advantage over Guatemala in producing sugar. If trade in sugar is allowed, Guatemala will _____ sugar.

import

Suppose Haiti has an absolute advantage over other countries in producing oranges, but other countries have a comparative advantage over Haiti in producing oranges. If trade in oranges is allowed, Haiti will _____ oranges.

import

If the government removes a binding price ceiling from a market, then the price received by sellers will ______ and quantity sold in the market will _____.

increase, increase

As the tax on a good increases from $1 per unit to $2 per unit to $3 per unit and so on, the tax revenue _____ at first, but it eventually peaks and then _____.

increases, decreases

If the labor supply curve is very elastic, a tax on labor has a ____ deadweight loss.

large

Suppose a tax of $1 per unit is imposed on a good. The more elastic the supply of the good, other things equal, the ____ is the deadweight loss of the tax.

larger

Suppose that electricity producers create a negative externality equal to $6 per unit. Further suppose that the government imposes a $8 per-unit tax on the producers. Then the after-tax equilibrium quantity is ____ the socially optimal quantity.

less than

Suppose that flu shots create a positive externality equal to $12 per shot. The equilibrium quantity is ______ the socially optimal quantity.

less than

Suppose that flu shots create a positive externality equal to $12 per shot. Further suppose that the government offers a $5 per-shot subsidy to producers. Then the equilibrium quantity is _____ the socially optimal quantity.

less than

A deadweight loss is a consequence of a tax on a good because the tax induces buyers to consume ____ and sellers to produce ____.

less, less

If the labor supply curve is nearly vertical, a tax on labor has _____ impact on the amount of work that workers are willing to do.

little

Rent-control laws dictate a _____ rent that landlords may charge tenants.

maximum

When a tax is placed on the sellers of a product, buyers pay _____ and sellers receive _____.

more, less

University researchers create a positive externality because what they discover in their research labs can easily be learned by others who haven't contributed to the research costs. What could the federal government do to equate the equilibrium quantity of university research and the socially optimal quantity of university research produced?

offer grants to university researchers

The amount of deadweight loss from a tax depends upon the _____ of demand and supply and the amount of _____ per unit.

price elasticity, tax

When the government intervenes in markets with externalities, it does so in order to...

protect the interests of bystanders.

A tariff or quota will _____ prices and _____ the consumption of the protected goods in the importing country.

raise, decrease

Policymakers use taxes to ____ revenue and to _____ market outcomes.

raise, influence

Positive externalities result in _____ than efficient equilibrium quantity.

smaller

All remedies for externalities share the goal of moving the allocation of resources toward the ________.

socially optimal equilibrium.

A positive externality is a benefit to.....

someone other than the producer and consumer of the good.

If a binding price floor is imposed on the video game market, then a ______ of video games will develop.

surplus

The term tax incidence refers to...

the distribution of the tax burden between buyers and sellers.

When producers operate in a market characterized by negative externalities, a tax that forces them to internalize the externality will give sellers...

the incentive to account for the external effects of their actions.

Taxes on labor have the effect of encouraging unscrupulous people to _______________.

to take part in the underground economy.

A $2.00 tax levied on the sellers of birdhouses will shift the supply curve...

upward by $2

Suppose that an MBA degree creates no externality because the benefits of an MBA are internalized by the student in the form of higher wages. If there are no government subsidies for MBAs, then the equilibrium quantity of MBAs will _____.

will equal the socially optimal quantity of MBAs.