Micro Exam #2

For which of the following goods is the income elasticity of demand likely lowest? A. clothing B. apples C. diamond earrings D. limousines

A. clothing

Refer to the Figure above. With trade, Uganda will... A. export 11 units of coffee B. export 5 units of coffee C. import 15 units of coffee D. import 6 units of coffee

A. export 11 units of coffee

Refer to the Figure above. This graph represents the tobacco industry. The socially optimal price and quantity are A. $3.00 and 60 units, respectively B. $2.80 and 48 units, respectively C. $2.07 and 76 units, respectively D. $1.50 and 100 units, respectively

B. $2.80 and 48 units, respectively

If the price elasticity of supply is 0.7, and price is increased by 24 percent, quantity supplied would A. increase by 34.29 percent B. increase by 16.80 percent C. decrease by 34.29 percent D. decrease by 16.80 percent

B. increase by 16.80 percent

Refer to the Figure above. The amount of revenue collected by the government from the tariff is... A. $200 B. $400 C. $300 D. $100

A. $200

Refer to the Figure above. Total surplus with trade exceeds total surplus without trade by... A. $1,920 B. $3,840 C. $23,280 D. $7,680

B. $3,840

Refer to the Table above. Using the midpoint method, the income elasticity of demand for good Y is A. 2.33, and good Y is a normal good B. -2.33, and good Y is an inferior good C. -0.43, and good Y is a normal good D. -0.43, and good Y is an inferior good

B. -2.33, and good Y is an inferior good

Refer to the Figure above. A benevolent social planner would prefer... A. a $48 price to any other price B. 140 units to any other quantity of output C. a subsidy of $52 per unit to a subsidy of $54 per unit D. a tax of $54 per unit to a subsidy of $54 per unit

B. 140 units to any other quantity of output

Refer to the Figure above. Taking into account private value and external benefits, the maximum total surplus that can be achieved in this market is... A. $2,880 B. $2,940 C. $8,820 D. $1,620

C. $8,820

If a 16 percent increase in price for a good results in a 7 percent decrease in quantity demanded, the price elasticity of demand is... A. 2.29 B. 0.16 C. 0.44 D. 0.07

C. 0.44

Refer to the Figure above. Between point A and point B, price elasticity of demand is equal to A. 0.33 B. 0.67 C. 1.5 D. 2.67

C. 1.5

If the United States threatens to impose a tariff on Colombian coffee if Columbia does not remove agricultural subsidies, the United States will be... A. better off regardless of how Colombia responds B. better off if Colombia removes the subsidies, and will be no worse off if its doesn't C. worse off if Colombia doesn't remove the subsidies in response to the threat D. worse off regardless of how Colombia responds

C. worse off if Colombia doesn't remove the subsidies in response to the threat

Refer to the Figure above. The size of the tariff on roses in A. $4 B. $3 C. $2 D. $1

D. $1

Which of the following could be the price elasticity of demand for a good for which a decrease in price would increase total revenue? A. 0.3 B. 0.0 C. 1 D. 2.6

D. 2.6

Which of the following goods is rival and excludable? A. an uncongested toll road B. an uncongested non-toll road C. a congested non-toll road D. a congested toll road

D. a congested toll road

Refer to the Table above. Using the midpoint method, if the price falls from $160 to $120, the price elasticity of demand is A. zero B. unit elastic C. inelastic D. elastic

D. elastic

Most economists prefer corrective taxes to regulation as a way to correct the problem of pollution because the market-based solution... A. is less efficient B. can result in a greater increase in pollution C. lowers revenue for the government D. is less costly to society

D. is less costly to society

Although national defense is currently a public good, economists who advocate small government generally agree that the U.S. should privatize national defense to increase the efficiency of the good T/F

False

Although regulation and corrective taxes are both capable of reducing pollution, regulation accomplishes this goal more efficiently T/F

False

An advantage of using the midpoint method to calculate the price elasticity of demand is that it uses the metric system T/F

False

Government intervention cannot improve the allocation of resources for goods that do not have prices attached to them T/F

False

The world price of cotton is the highest price of cotton observed anywhere in the world T/F

False

When markets open up to international trade, we know that consumer surplus will rise T/F

False

A decrease in supply will cause the largest increase in price when... A. both supply and demand are inelastic B. both supply and demand are elastic C. demand is elastic and supply is inelastic D. demand is inelastic and supply is elastic

A. both supply and demand are inelastic

The price elasticity of demand measures... A. buyers' responsiveness to a change in the price of a good B. the extent to which demand increases as additional buyers enter the market C. how much more of a good consumers will demand when incomes rise D. the movement along a supply curve when there is a change in demand

A. buyers' responsiveness to a change in the price of a good

Refer to the Figure above. If the price increase in the region of the demand curve between points C to B, we can expect total revenue to A. decrease B. stay the same C. increase D. first decrease, then increase until total revenue is maximized

A. decrease

Negative externalities lead markets to produce... A. greater than efficient output levels and positive externalities lead markets to produce smaller than efficient output levels B. smaller than efficient output levels and positive externalities lead markets to produce greater than efficient output levels C. greater than efficient output levels and positive externalities lead markets to produce efficient output levels D. efficient output levels and positive externalities lead markets to produce greater than efficient output levels

A. greater than efficient output levels and positive externalities lead markets to produce smaller than efficient output levels

Refer to the Figure above. If the price decreased from $36 to $12, total revenue would... A. increase by $4,800, and demand is elastic between points X and Z B. increase by $7,200, and demand is elastic between points X and Z C. decrease by $4,800, and demand is inelastic between points X and Z D. decrease by $7,200, and demand is inelastic between points X and Z

A. increase by $4,800, and demand is elastic between points X and Z

If the demand for donuts is elastic, then a decrease in the price of donuts will... A. increase total revenue of donuts sellers B. decrease total revenue of donuts sellers C. not change total revenue of donuts sellers D. change total revenue of donuts sellers but in an unknown way without more information

A. increase total revenue of donuts sellers

When large changes in price lead to no changes in quantity demanded, demand is perfectly... A. inelastic, and the demand curve will be vertical B. inelastic, and the demand curve will be horizontal C. elastic, and the demand curve will be vertical D. elastic, and the demand curve will be horizontal

A. inelastic, and the demand curve will be vertical

The infant-industry argument... A. is based on the belief that protecting industries when they are young will pay off later B. is based on the belief that protecting industries producing goods and services for infants is necessary if a country is to have healthy children C. has the support of most economists D. is an argument that is advanced by advocated of free trade

A. is based on the belief that protecting industries when they are young will pay off later

Which of the following statements is valid when the market supply curve is vertical? A. market quantity supplied does not change when the price changes B. supply is perfectly elastic C. an increase in market demand will increase the equilibrium quantity D. an increase in market demand will not increase the equilibrium price

A. market quantity supplied does not change when the price changes

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

A. property rights are clearly defined

The goal of requiring licenses for hunting and fishing is to... A. reduce the use of a common resource B. ensure that the people hunting and fishing are qualified C. promote hunting and fishing D. monitor compliance with federal gun laws

A. reduce the use of a common resource

Refer to the Figure above. At Q3... A. the marginal consumer values this product less than the social cost of producing it B. every consumer values this product less than the social cost of producing it C. the cost to society is equal to the value to society D. the marginal consumer values this product more than the private cost

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

Income elasticity of demand measures how A. the quantity demanded changes as consumer income changes B. consumer purchasing power is affected by a change in the price of a good C. the price of a good is affected when there is a change in consumer income D. many units of a good consumer can buy given a certain income level

A. the quantity demanded changes as consumer income changes

A good will have a more inelastic demand, the... A. greater the availability of close substitutes B. broader the definition of the market C. longer the period of time D. more it is regarded as a luxury

B. broader the definition of the market

Refer to the Figure above. Each unit of plastics that is produced results in an external... A. cost of $9 B. cost of $12 C. benefit of $9 D. benefit of $12

B. cost of $12

Suppose the cross-price elasticity of demand between peanut butter and jelly is -2.50. This implies that a 20 percent increase in the price of peanut butter will cause the quantity of jelly purchase to... A. fall by 8 percent B. fall by 50 percent C. rise by 8 percent D. rise by 50 percent

B. fall by 50 percent

Elasticity of demand is closely related to the slope of the demand curve. The more responsive buyers are to a change in price, the... A. steeper the demand curve will be B. flatter the demand curve will be C. further to the right the demand curve will sit D. closer to the vertical axis the demand curve will sit

B. flatter the demand curve will be

The provision of a public good generates a... A. positive externality, as does the use of a common resource B. positive externality and the use of a common resource generates a negative externality C. negative externality, as does the use of a common resource D. negative externality and the use of a common resource generates a positive externality

B. positive externality and the use of a common resource generates a negative externality

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

B. social benefits will be greater than private benefits

If the cross-price elasticity of two goods is positive, then the two goods are... A. complements B. substitutes C. normal goods D. inferior goods

B. substitutes

A tax on an imported good is called a A. quota B. tariff C. supply tax D. trade tax

B. tariff

For a good that is a luxury, demand... A. tends to be inelastic B. tends to be elastic C. has unit elasticity D. cannot be represented by a demand curve in the usual way

B. tends to be elastic

The overuse of a common resource relative to its economically efficient use is called... A. the free-rider problem B. the Tragedy of the Commons C. a public good D. cost-benefit analysis

B. the Tragedy of the Commons

When a country allows trade and becomes an importer of silk, which of the following is not a consequence A. the gains of the winner exceed the losses of the losers B. the price received by domestic producers of silk increases C. the price paid by domestic consumer of silk decreases D. the price received by domestic producer of silk decreases

B. the price received by domestic producers of silk increases

When a country allows trade and becomes an importer of silk, which of the following is not a consequence? A. the gains of the winners exceed the losses of the losers B. the price received by domestic producers of silk increases C. the price paid by domestic consumers of silk decreases D. the price received by domestic producers of silk decreases

B. the price received by domestic producers of silk increases

The price elasticity of supply measures how much... A. the quantity supplied responds to changes in input prices B. the quantity supplied responds to changes in the price of the good C. the price of the good responds to changes in supply D. sellers respond to changes in technology

B. the quantity supplied responds to changes in the price of the good

Suppose that two supply curves pass through the same point. One is steep, and the other is flat. Which of the following statements in correct? A. the flatter supply curve represents a supply that is inelastic relative to the supply represented by the steeper supply curve B. the steeper supply curve represents a supply that is inelastic relative to the supply represented by the flatter supply curve C. given two prices with which to calculate the price elasticity of supply, that elasticity would be the same for both curves D. a decrease in demand will increase total revenue if the steeper supply curve is relevant, while a decrease in demand will decrease total revenue if the flatter supply curve is relevant

B. the steeper supply curve represents a supply that is inelastic relative to the supply represented by the flatter supply curve

Which of the following is not a typical solution to the "Tragedy of the Commons?" A. taxing the use of the common resource B. turning the common resource into a club good C. turning the common resource into a private good D. regulating the use of the common resource

B. turning the common resource into a club good

Which of the following is an example of a positive externality? A. a college student buys a new car when she graduates B. your neighbor plants a nice garden in front of his house C. a person litters in a public park D. your friend pays to get their hair cut and colored at the salon

B. your neighbor plants a nice garden in front of his house

Which of the following is not a common resource? A. lions in the wild B. a small pond in a public park C. an ice cream cone D. trees in a forest

C. an ice cream cone

Governments can improve market outcomes for... A. public goods but not common resources B. common resources but not public goods C. both public goods and common resources D. neither public goods nor common resources

C. both public goods and common resources

Refer to the Figure above. When trade in coffee is allowed, consumer surplus in Uganda... A. increase by the area B+F B. increases by the area A+D C. decreases by the area B+F D. decreases by the area F+H

C. decreases by the area B+F

The problem with the protection-as-a-bargaining-chip argument for trade restriction is... A. if it works, consumer surplus will decline B. if it works, producer surplus falls C. if it fails, the country faces a choice between two bad options D. if it fails, total surplus will increase

C. if it fails, the country faces a choice between two bad options

The problem with the protection-as-a-bargaining-chip argument for trade restrictions is... A. if it works, consumer surplus will decline B. if it works, producer surplus falls C. if it fails, the country faces a choice between two bad options D. if it fails, total surplus will increase

C. if it fails, the country faces a choice between two bad options

The world price of a ton of steel is $650. Before Russia allowed trade in steel, the price of a ton of steel there was $1,000. Once Russia allowed trade in steel with other countries, Russia began... A. exporting steel and the price per ton in Russia decreased to $650 B. exporting steel and the price per ton in Russia remained at $1,000 C. importing steel and the price per ton in Russia decreased to $650 D. importing steel and the price per ton in Russia remained at $1,000

C. importing steel and the price per ton in Russia decreased to $650

Because public goods are... A. excludable, people have an incentive to be free riders B. excludable, people do not have an incentive to be free riders C. not excludable, people have an incentive to be free riders D. not excludable, people do not have an incentive to be free riders

C. not excludable, people have an incentive to be free riders

For which pairs of goods is the cross-price elasticity most likely to be positive? A. peanut butter and jelly B. bicycle frames and bicycle tires C. pens and pencils D. digital college textbooks and iPhones

C. pens and pencils

The North American Free Trade Agreement... A. is an example of the unilateral approach to free trade B. eliminated tariffs on imports to North American from the rest of the world C. reduced trade restrictions among Canada, Mexico, and the United States D. eliminated quotas between North American and China

C. reduced trade restrictions among Canada, Mexico, and the United States

Dioxin emission that results from the production of paper is a good example of a negative externality because... A. self-interested paper firms are generally unaware of environmental regulations B. there are fines for producing too much dioxin C. self-interested paper producers will not consider the full cost of the dioxin p pollution they create D. toxic emission cause firms to produce less than the socially optimal amount of paper

C. self-interested paper producer will not consider the full cost of the dioxin p pollution they create

Suppose that cookie producer create a positive externality equal to $2 per doze. What is the relationship between the equilibrium quantity and the socially optimal quantity of cookies to be produced? A. they are equal B. the equilibrium quantity is greater than the socially optimal quantity C. the equilibrium quantity is less than the socially optimal quantity D. there is not enough information to answer the question

C. the equilibrium quantity is less than the socially optimal quantity

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

C. the government can raise economic well-being through noise-control regulations

Demand is said to be inelastic if... A. buyers respond substantially to changes in the price of the good B. demand shifts only slightly when the price of the good changes C. the quantity demanded changes only slightly when the price of the good changes D. the price of the good responds only slightly to changes in demand

C. the quantity demanded changes only slightly when the price of the good changes

In analyzing the gains and losses from international trade, to say that Moldova is a small country is to say that... A. Moldova can only import goods; it cannot export goods B. Moldova's choice of which goods to export and which goods to import is not based on the principle of comparative advantage C. only the domestic price of a good is relevant for Moldova; the world price of a good is irrelevant D. Moldova is a price taker

D. Moldova is a price taker

Employing a lawyer to draft and enforce a private contract between parties wishing to solve an externality problem is an example of... A. an opportunity cost B. an implicit cost C. a sunk cost D. a transaction cost

D. a transaction cost

A lighthouse is typically considered to be a public good because... A. the owner of the lighthouse is able to exclude beneficiaries from enjoying the lighthouse B. there is rarely another lighthouse nearby to provide competition C. a nearby port authority cannot avoid paying fees to the lighthouse owner D. all passing ships are able to enjoy the benefits of the lighthouse without paying

D. all passing ships are able to enjoy the benefits of the lighthouse without paying

Flu shots provide a positive externality. Suppose that the market for vaccinations is perfectly competitive. Without government intervention in the vaccination market, which of the following statements is correct? A. at the current output level, the marginal social cost exceeds the marginal private cost B. the current output level is inefficiently high C. a per-shot tax could turn an inefficient situation into an efficient one D. at the current output level, the marginal social benefit exceeds the marginal private benefit

D. at the current output level, the marginal social benefit exceeds the marginal private benefit

Knowledge that is patented is a... A. public good, whereas knowledge that is not patented is a common resource B. private good, whereas knowledge that is not patented is a club good C. common resource, whereas knowledge that is not patented is a private good D. club good, whereas knowledge that is not patented is a public good

D. club good, whereas knowledge that is not patented is a public good

When a country that imported a particular good abandons a free-trade policy and adopts a no-trade policy, A. consumer surplus increases and total surplus increases in the market for that good B. consumer surplus increases and total surplus decreases in the market for that good C. consumer surplus decreases and total surplus increases in the market for that good D. consumer surplus decreases and total surplus decreases in the market for that good

D. consumer surplus decreases and total surplus decreases in the market for that good

If the government decides to build a new community center, the first step would be to conduct a study to determine the value of the project. The study is called a... A. budget analysis B. project analysis C. reimbursement analysis D. cost-benefit analysis

D. cost-benefit analysis

When a country that imports a particular good imposes an import quota on that good, A. producer surplus decreases and total surplus decreases in the market for that good B. domestic sellers and domestic buyers become better off C. the domestic quantity supplied decreases D. domestic sellers become better off and domestic buyers become worse off

D. domestic sellers become better off and domestic buyers become worse off

Import quotas and tariffs produce some common results. Which of the following is not one of those common results? A. the domestic price of the good increases B. producer surplus in the domestic country always increases C. a deadweight loss is experienced by the domestic country D. equal revenue is always raised for the domestic government

D. equal revenue is always raised for the domestic government

When an externality is present, the market equilibrium is... A. efficient, and the equilibrium maximizes the total benefit to society as a whole B. efficient, but the equilibrium does not maximize the total benefit to society as a whole C. inefficient, but the equilibrium maximizes the total benefit to society as a whole D. inefficient, and the equilibrium does not maximize the total benefit to society as a whole

D. inefficient, and the equilibrium does not maximize the total benefit to society as a whole

The supply of a good will be more elastic, the... A. more the good is considered a luxury B. broader is the definition of the market for the good C. larger the number of close substitutes for the good D. longer the time period being considered

D. longer the time period being considered

Pollution is a... A. problem that is entirely unrelated to the parable called the Tragedy of the Commons B. problem that cannot be remedied with regulations or corrective taxes C. negative externality that can be viewed as a public-goods problem D. negative externality that can be viewed as a common-resource problem

D. negative externality that can be viewed as a common-resource problem

Both public goods and common resources are... A. rival in consumption B. nonrival in consumption C. excludable D. nonexcludable

D. nonexludable

For most goods in an economy, the primary signal that guides the decisions of buyers and sellers is... A. advertising B. quality C. reputation D. price

D. price

When a country that exported a particular good abandons a free-trade policy and adopts a no-trade policy... A. producer surplus increases and total surplus increases in the market for that good B. producer surplus increases and total surplus decreases in the market for that good C. producer surplus decreases and total surplus increases in market for that good D. producer surplus decreases and total surplus decreases in the market for that good

D. producer surplus decreases and total surplus decreases in the market for that good

When a country that imports a particular good imposes a tariff on that good, A. producer surplus decreases and total surplus increases in the market for that good B. domestic sellers and domestic buyers become better off C. the domestic quantity demanded increases D. producer surplus increases and total surplus decreases in the market for that good

D. producer surplus increases and total surplus decreases in the market for that good

What causes the Tragedy of the Commons? A. social and private incentives are the same B. social and private incentives differ, and common resources are not rival in consumption and are not excludable C. common resources are not rival in consumption and are not excludable D. social and private incentives differ, and common resources are not excludable but are rival in consumption

D. social and private incentives differ, and common resources are not excludable but are rival in consumption

Which of the following is NOT a way of internalizing technology spillovers? A. subsidies B. patent protection C. industrial policy D. taxes

D. taxes

The "unfair-competition" argument might be cited by an American who believes that... A. almost every country has a comparative advantage, relative to the United States, in producing almost all goods B. young industries should be protected against foreign competition until they become profitable C. the American automobile industry should be protected against Japanese firms that are able to produce automobiles at relatively low cost D. the French government's subsidies to French farmers justify restrictions on American imports of French agricultural products

D. the French government's subsidies to French farmers justify restrictions on American imports of French agricultural products

A cost-benefit analysis of a highway is difficult to conduct because analysis... A. cannot estimate the explicit of a project that has not been completed B. are unlikely to have access to costs on similar projects C. are not able to consider the opportunity of resources D. will have difficulty estimating the value of the highway

D. will have difficulty estimating the value of the highway

If the price elasticity of supply is 0.5 and the quantity supplied decreases by 6%, the the price must have decreased by 3% T/F

False

In a market with positive externalities, the market equilibrium quantity maximizes the welfare of society as a whole T/F

False

Deadweight loss measures the decrease in total surplus that results from a tariff or quota T/F

True

If a firm that produces honey is facing elastic demand, then the firm would decrease price to increase revenue T/F

True

Necessities tend to have inelastic demands, whereas luxuries tend to have elastic demands T/F

True

One possible solution to the problem of protecting a common resource is to convert that resource to a private good T/F

True

Policymakers often consider trade restrictions in order to protect domestic producers from foreign competitors T/F

True

Some goods, such as lighthouses, can switch between being public goods and being private goods depending on the circumstances T/F

True

The government can internalize externalities by taxing goods that have negative externalities and subsidizing goods that have positive externalities T/F

True

When a driver enters a crowded highway he increases the travel time of all other driver on the highway. This is an example of a negative externality T/F

True