Micro Test 2
Refer to Figure 6-14. Suppose D1 represents the demand curve for gasoline in both the short run and long run, S1 represents the supply curve for gasoline in the short run, and S2 represents the supply curve for gasoline in the long run. After the imposition of the $2 tax, the price paid by buyers will be higher in the long run than in the short run. higher in the short run than in the long run. equivalent in the short run and the long run. unable to be determined without additional information.
higher in the long run than in the short run.
If the government levies a $1,000 tax per boat on sellers of boats, then the price paid by buyers of boats would increase by more than $1,000. increase by exactly $1,000. increase by less than $1,000. decrease by an indeterminate amount.
increase by less than $1,000.
If the government removes a binding price ceiling from a market, then the price paid by buyers will increase, and the quantity sold in the market will increase. increase, and the quantity sold in the market will decrease. decrease, and the quantity sold in the market will increase. decrease, and the quantity sold in the market will decrease.
increase, and the quantity sold in the market will increase.
Refer to Figure 6-10. The amount of the tax per unit is $6. $8. $14. $18.
$14.
Refer to Figure 6-10. The price that buyers pay after the tax is imposed is $8. $10. $16. $24.
$24.
Refer to Table 7-3. If you have two (essentially) identical tickets that you sell to the group in an auction, assuming that each person can only buy one ticket, which of the following is closest to the selling price for each ticket? $21 $26 $51 $61
$26
Refer to Table 6-1. Following the imposition of a price floor $2 above the equilibrium price, irate buyers convince Congress to repeal the price floor and to impose a price ceiling $1 below the former price floor. The resulting market price is $2 $3 $4 $5
$3
Refer to Figure 7-2. If the government imposes a price floor of $110 in this market, then consumer surplus will decrease by $200. $400. $600. $800.
$600.
Refer to Figure 7-5. If the supply curve is S and the demand curve shifts from D to D', what is the increase in producer surplus due to new producers entering the market? $625 $2,500 $3,125 $5,625
$625
Refer to Figure 7-5. If the supply curve is S', the demand curve is D, and the equilibrium price is $150, what is the producer surplus? $625 $1,250 $2,500 $5,000
$625
Kristi and Rebecca sell lemonade on the corner for $0.50 per cup. It costs them $0.10 to make each cup. On a certain day, their producer surplus is $20. How many cups did Kristi and Rebecca sell? 40 200 8 50
50
Refer to Figure 6-11. Suppose a tax of $2 per unit is imposed on this market. What will be the new equilibrium quantity in this market? Less than 60 units 60 units Between 60 units and 100 units Greater than 100 units
Between 60 units and 100 units
Suppose that in a particular market, the supply curve is highly elastic and the demand curve is highly inelastic. If a tax is imposed in this market, then the buyers will bear a greater burden of the tax than the sellers. sellers will bear a greater burden of the tax than the buyers. 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.
buyers will bear a greater burden of the tax than the sellers.
If a consumer places a value of $15 on a particular good and if the price of the good is $17, then the consumer has consumer surplus of $2 if he or she buys the good. consumer does not purchase the good. market is not a competitive market. price of the good will fall due to market forces.
consumer does not purchase the good.
The decrease in total surplus that results from a market distortion, such as a tax, is called a wedge loss. revenue loss. deadweight loss. consumer surplus loss.
deadweight loss.
Refer to Figure 7-6. When the price falls from P2 to P1, producer surplus decreases by an amount equal to C. decreases by an amount equal to A+B. decreases by an amount equal to A+C. increases by an amount equal to A+B.
decreases by an amount equal to A+B.
Suppose that a tax is placed on books. If the buyers pay the majority of the tax, then we know that the demand is more inelastic than the supply. supply is more inelastic than the demand. government has required that buyers remit the tax payments. government has required that sellers remit the tax payments.
demand is more inelastic than the supply.
A $1.50 tax levied on the buyers of pomegranate juice will shift the demand curve upward by exactly $1.50. upward by less than $1.50. downward by exactly $1.50. downward by less than $1.50.
downward by exactly $1.50.
When a tax is imposed on a good, the supply curve for the good always shifts. demand curve for the good always shifts. amount of the good that buyers are willing to buy at each price always remains unchanged. equilibrium quantity of the good always decreases.
equilibrium quantity of the good always decreases.
Refer to Figure 6-1. A binding price ceiling is shown in graph (a) only. graph (b) only. both graph (a) and graph (b). neither graph (a) nor graph (b).
graph (b) only.
In the housing market, supply and demand are more elastic in the short run than in the long run, and so rent control leads to a larger shortage of apartments in the short run than in the long run. more elastic in the short run than in the long run, and so rent control leads to a larger shortage of apartments in the long run than in the short run. more elastic in the long run than in the short run, and so rent control leads to a larger shortage of apartments in the short run than in the long run. more elastic in the long run than in the short run, and so rent control leads to a larger shortage of apartments in the long run than in the short run.
more elastic in the long run than in the short run, and so rent control leads to a larger shortage of apartments in the long run than in the short run.
The burden of a luxury tax usually falls more on the rich than on the middle class. more on the poor than on the rich. more on the middle class than on the rich. equally on the rich, the middle class, and the poor.
more on the middle class than on the rich.
As a result of a decrease in price, 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.
Suppose the equilibrium price of a physical examination ("physical") by a doctor is $200, and the government imposes a price ceiling of $150 per physical. As a result of the price ceiling, the demand curve for physicals shifts to the right. supply curve for physicals shifts to the left. quantity demanded of physicals increases, and the quantity supplied of physicals decreases. number of physicals performed stays the same.
quantity demanded of physicals increases, and the quantity supplied of physicals decreases.
Refer to Figure 6-13. Suppose buyers, rather than sellers, were required to pay this tax (in the same amount per unit as shown in the graph). Relative to the tax on sellers, the tax on buyers would result in buyers bearing a larger share of the tax burden. sellers bearing a smaller share of the tax burden. the same amount of tax revenue for the government. an increase in the amount of tax revenue for the government.
the same amount of tax revenue for the government.
Producer surplus directly measures the well-being of society as a whole. the well-being of buyers and sellers. the well-being of sellers. sellers' willingness to sell.
the well-being of sellers.
Consider the market for gasoline. Buyers and sellers would lobby for a price ceiling. and sellers would lobby for a price floor. would lobby for a price ceiling, whereas sellers would lobby for a price floor. would lobby for a price floor, whereas sellers would lobby for a price ceiling.
would lobby for a price ceiling, whereas sellers would lobby for a price floor.
Refer to Figure 6-8. In 1973, OPEC restricted supply and U.S. government regulations limited the price oil companies could charge for gasoline. Which of the following statements best relates the figure to the events that occurred in the United States in the 1970s? Buyers of gasoline paid a price of P1 before 1973; they paid a price of P2 after OPEC increased the price of crude oil in 1973, and there was a shortage of gasoline at that price. Buyers of gasoline paid a price of P1 before 1973; they paid a price of P3 after OPEC increased the price of crude oil in 1973, and there was a shortage of gasoline at that price. Buyers of gasoline paid a price of P2 before 1973; they paid a price of P3 after OPEC increased the price of crude oil in 1973, with no shortage of gasoline at that price. The price ceiling was binding before 1973; the price ceiling was no longer binding after OPEC increased the price of crude oil in 1973.
Buyers of gasoline paid a price of P1 before 1973; they paid a price of P2 after OPEC increased the price of crude oil in 1973, and there was a shortage of gasoline at that price.
Refer to Table 7-7. If the price is $1,l50, who would be willing to supply the product? Abby and Bobby Abby, Bobby, and Dianne Carlos, Dianne, and Evaline Dianne and Evaline only
Carlos, Dianne, and Evaline
All else equal, what happens to consumer surplus if the price of a good increases? Consumer surplus increases Consumer surplus decreases Consumer surplus is unchanged Consumer surplus may increase, decrease, or remain unchanged
Consumer surplus decreases
Refer to Figure 6-14. The buyers will bear the highest share of the tax burden compared to sellers if the demand is D1, and the supply is S1. D2, and the supply is S1. D1, and the supply is S2. D2, and the supply is S2.
D2, and the supply is S2.
Refer to Figure 6-11. Suppose a tax of $2 per unit is imposed on this market. Which of the following is correct? One-fourth of the burden of the tax will fall on buyers, and three-fourths of the burden of the tax will fall on sellers. One-third of the burden of the tax will fall on buyers, and two-thirds of the burden of the tax will fall on sellers. One-half of the burden of the tax will fall on buyers, and one-half of the burden of the tax will fall on sellers. Two-thirds of the burden of the tax will fall on buyers, and one-third of the burden of the tax will fall on sellers.
One-half of the burden of the tax will fall on buyers, and one-half of the burden of the tax will fall on sellers.
Refer to Figure 7-5. If the demand curve is D and the supply curve shifts from S' to S, what is the changein producer surplus? Producer surplus increases by $625. Producer surplus increases by $1,875. Producer surplus decreases by $625. Producer surplus decreases by $1,875.
Producer surplus increases by $1,875.
Refer to Figure 7-5. If the supply curve is S and the demand curve shifts from D to D', what is the changein producer surplus? Producer surplus increases by $3,125 Producer surplus increases by $5,625 Producer surplus decreases by $3,125 Producer surplus decreases by $5,625
Producer surplus increases by $3,125
Refer to Figure 6-15. In which market will the majority of the tax burden fall on buyers? The market shown in graph (a). The market shown in graph (b) The market shown in graph (c) The tax burden on buyers is the same for all three graphs.
The market shown in graph (b)
Refer to Figure 6-5. Which of the following statements is not correct? When the price is $10, quantity supplied equals quantity demanded. When the price is $6, there is a surplus of 8 units. When the price is $12, there is a surplus of 4 units. When the price is $16, quantity supplied exceeds quantity demanded by 12 units.
When the price is $6, there is a surplus of 8 units.
A price ceiling is often imposed on markets in which "cutthroat competition" would prevail without a price ceiling. a legal maximum on the price at which a good can be sold. often imposed when sellers of a good are successful in their attempts to convince the government that the market outcome is unfair without a price ceiling imposed to make sure everyone can earn a fair wage.
a legal maximum on the price at which a good can be sold.
demanded to exceed quantity supplied by 90 units. a legal maximum on the price at which a good can be sold. often imposed when buyers of a good are successful in their attempts to convince the government that the market outcome is unfair without a price floor. a source of efficiency in a market. a legal minimum on the price at which a good can be sold.
a legal minimum on the price at which a good can be sold.
Suppose the government wants to encourage Americans to exercise more, so it imposes a binding price ceiling on the market for in-home treadmills. As a result, the demand for treadmills will increase. the supply of treadmills will decrease. a shortage of treadmills will develop. a surplus of treadmills will develop.
a shortage of treadmills will develop.
Suppose a tax is imposed on the sellers of fast-food French fries. The burden of the tax will fall entirely on the buyers of fast-food French fries. fall entirely on the sellers of fast-food French fries. be shared equally by the buyers and sellers of fast-food French fries. be shared by the buyers and sellers of fast-food French fries but not necessarily equally.
be shared by the buyers and sellers of fast-food French fries but not necessarily equally.
Refer to Figure 7-6. Suppose producer surplus is larger than C but smaller than A+B+C. The price of the good must be lower than P1. P1. between P1 and P2. higher than P2.
between P1 and P2.
Refer to Figure 6-9. In this market, a minimum wage of $7.00 is binding and creates a labor shortage. binding and creates unemployment. nonbinding and creates a labor shortage. nonbinding and creates neither a labor shortage nor unemployment.
binding and creates unemployment.
Refer to Figure 6-3. A government-imposed price of $24 in this market is an example of a binding price ceiling that creates a shortage. nonbinding price ceiling that creates a shortage binding price floor that creates a surplus. nonbinding price floor that creates a surplus. , Not Selected Results for question 12. 12
binding price floor that creates a surplus.
Refer to Figure 6-5. A government-imposed price of $12 in this market is an example of a binding price ceiling that creates a shortage. nonbinding price ceiling that creates a shortage. binding price floor that creates a surplus. nonbinding price floor that creates a surplus.
binding price floor that creates a surplus.
Refer to Table 7-7. Suppose each of the five sellers can supply at most one unit of the good. The market quantity supplied is exactly 2 if the price is $1,700. $1,100. $1,650. $1,050.
$1,050.
Refer to Table 7-8. If the sellers bid against each other for the right to sell the good to a consumer, then the good will sell for $50 or slightly more. $100 or slightly less. $150 or slightly less. $200 or slightly more.
$100 or slightly less.
Refer to Figure 7-5. If the supply curve is S and the demand curve shifts from D to D', what is the increase in producer surplus to existing producers? $625 $2,500 $3,125 $5,625
$2,500
Refer to Figure 7-5. If the supply curve is S, the demand curve is D, and the equilibrium price is $100, what is the producer surplus? $625 $1,250 $2,500 $5,000
$2,500
Refer to Table 7-7. If the market price is $1,000, the producer surplus in the market is $1000. $300. $1,700. $700.
$300.
Refer to Table 7-2. If there is only one unit of the good and if the buyers bid against each other for the right to purchase it, then the good will sell for $15 or slightly less. $25 or slightly more. $35 or slightly more. $45 or slightly less.
$35 or slightly more.
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 $150. $425. $500. $850.
$500
Bob purchases a book for $6, and his consumer surplus is $2. How much is Bob willing to pay for the book? $6 $2 $8 $4
$8
Refer to Figure 6-10. The per-unit burden of the tax on buyers is $6. $8. $14. $24.
$8.
Refer to Figure 6-13. Acme, Inc. is a seller of the good. Acme sells a unit of the good to a buyer and then pays the tax on that unit to the government. After paying the tax, Acme receives how much? $8.00 $9.00 $10.50 $12.00
$8.00
Refer to Figure 7-2. At the equilibrium price, consumer surplus is $1,600. $800. $1,400. $700.
$800.
Refer to Table 6-1. How many units of the good are purchased after the imposition of the price floor? 5 9 10 15
5
Refer to Figure 6-7. Which of the following statements is not correct? A government-imposed price of $8 would be a binding price floor if market demand is Demand A and a binding price ceiling if market demand is Demand B. A government-imposed price of $10 would be a binding price ceiling if market demand is either Demand A or Demand B. A government-imposed price of $4 would be a binding price ceiling if market demand is either Demand A or Demand B. A government-imposed price of $10 would be a binding price floor if market demand is Demand A and a nonbinding price ceiling if market demand is Demand B.
A government-imposed price of $10 would be a binding price ceiling if market demand is either Demand A or Demand B.
Which of the following is not correct? The economy contains many labor markets for different types of workers. The impact of a minimum wage depends on the skill and experience of the worker. A minimum wage would be binding for workers with high skills and much experience. A minimum wage would not be binding if the equilibrium wage was above the minimum wage.
A minimum wage would be binding for workers with high skills and much experience.
Refer to Figure 7-1. When the price is P1, consumer surplus is A. A+B. A+B+C. A+B+D.
A+B+C.
Dallas buys strawberries, and he would be willing to pay more than he now pays. Suppose that Dallas has a change in his tastes such that he values strawberries more than before. If the market price is the same as before, then Dallas's consumer surplus would be unaffected. Dallas's consumer surplus would increase. Dallas's consumer surplus would decrease. Dallas would be wise to buy fewer strawberries than before.
Dallas's consumer surplus would increase.
Refer to Figure 6-12. Suppose a tax of $5 per unit is imposed on this market. Which of the following is correct? Buyers and sellers will share the burden of the tax equally. Buyers will bear more of the burden of the tax than sellers will. Sellers will bear more of the burden of the tax than buyers will. There is no tax burden.
Sellers will bear more of the burden of the tax than buyers will.
Which of the following is true when the price of a good or service rises? Buyers who were already buying the good or service are better off. Some buyers exit the market. The total consumer surplus in the market increases. The total value of purchases before and after the price change is the same.
Some buyers exit the market.
Refer to Figure 6-8. When the price ceiling is enforced in this market and the supply curve for gasoline shifts from S1 to S2, the market price will increase to P3. a surplus will occur at the new market price of P2. the market price will stay at P1. a shortage will occur at the new market price of P2.
a shortage will occur at the new market price of P2.
Henry is willing to pay 45 cents, and Janine is willing to pay 55 cents, for 1 pound of bananas. When the price of bananas falls from 50 cents a pound to 40 cents a pound, Henry experiences an increase in consumer surplus, but Janine does not. Janine experiences an increase in consumer surplus, but Henry does not. both Janine and Henry experience an increase in consumer surplus. neither Janine nor Henry experiences an increase in consumer surplus.
both Janine and Henry experience an increase in consumer surplus.
Refer to Figure 6-14. Suppose D1 represents the demand curve for paperback novels, D2 represents the demand curve for gasoline, and S1 is representative of the supply curve for paperback novels as well as the supply curve for gasoline. After the imposition of the $2 tax on paperback novels and on gasoline, the buyers of gasoline bear a higher burden of the $2 tax than buyers of paperback novels. sellers of gasoline bear a higher burden of the $2 tax than sellers of paperback novels. buyers of gasoline bear an equal burden of the $2 tax as buyers of paperback novels. buyers of gasoline bear a lower burden of the $2 tax than buyers of paperback novels.
buyers of gasoline bear a higher burden of the $2 tax than buyers of paperback novels.
Refer to Figure 7-1. Area C represents the decrease in consumer surplus which results from a downward-sloping demand curve. consumer surplus to new consumers who enter the market when the price falls from P2 to P1. increase in producer surplus when quantity sold increases from Q2 to Q1. decrease in consumer surplus to each consumer in the market when the price increases from P1 to P2.
consumer surplus to new consumers who enter the market when the price falls from P2 to P1.
Refer to Figure 7-1. When the price rises from P1 to P2, consumer surplus increases by an amount equal to A. decreases by an amount equal to B+C. increases by an amount equal to B+C. decreases by an amount equal to C.
decreases by an amount equal to B+C.
Refer to Figure 6-8. When the price ceiling is enforced in this market, and the supply curve for gasoline shifts from S1 to S2, the resulting quantity of gasoline that is bought and sold is less than Q3. Q3. between Q1 and Q3 at least Q1.
less than Q3.
Refer to Figure 6-2. The price ceiling causes a shortage of 60 units of the good. makes it necessary for sellers to ration the good using a mechanism other than price. is not binding because it is set below the equilibrium price. causes a shortage of 30 units of the good.
makes it necessary for sellers to ration the good using a mechanism other than price.
When a tax is placed on the sellers of a product, buyers pay more, and sellers receive more than they did before the tax. more, and sellers receive less than they did before the tax. less, and sellers receive more than they did before the tax. less, and sellers receive less than they did before the tax.
more, and sellers receive less than they did before the tax.
Suppose the equilibrium price of a tube of toothpaste is $2, and the government imposes a price floor of $3 per tube. As a result of the price floor, the demand curve for toothpaste shifts to the left. supply curve for toothpaste shifts to the right. quantity demanded of toothpaste decreases, and the quantity of toothpaste that firms want to supply increases. quantity supplied of toothpaste stays the same.
quantity demanded of toothpaste decreases, and the quantity of toothpaste that firms want to supply increases.
If a nonbinding price floor is imposed on a market, then the 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.
Refer to Figure 6-13. How is the burden of the tax shared between buyers and sellers? Buyers bear three-fourths of the burden, and sellers bear one-fourth of the burden. two-thirds of the burden, and sellers bear one-third of the burden. one-half of the burden, and sellers bear one-half of the burden. one-fourth of the burden, and sellers bear three-fourths of the burden.
three-fourths of the burden, and sellers bear one-fourth of the burden.
The Occupational Safety and Health Administration (OSHA) has determined that the probability of a worker dying from exposure to a hazardous chemical used in the production of fertilizer is 0.008. The cost of imposing a regulation that would ban the chemical is $32 million. If the value of a human life is equal to $10 million, how many people must the policy affect in order for the benefits to exceed the costs? 256 401 3201 4001
401
Which of the following goods is rival and excludable? An uncongested toll road An uncongested nontoll road A congested nontoll road A congested toll road
A congested toll road
Refer to Table 7-2. Who experiences the largest loss of consumer surplus when the price of the good increases from $20 to $22? Quilana Wilbur Ming-la All three buyers experience the same loss of consumer surplus.
All three buyers experience the same loss of consumer surplus.
Which of the following is not a characteristic of pollution permits? Prices are set by supply and demand. Allowing firms to trade their permits reduces the total quantity of pollution beyond the initial allocation. Real-world markets for pollution permits include sulfur dioxide and carbon. Firms for whom pollution reduction is very expensive are willing to pay more for permits than firms for whom pollution reduction is less expensive.
Allowing firms to trade their permits reduces the total quantity of pollution beyond the initial allocation.
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? At the current output level, the marginal social cost exceeds the marginal private cost. The current output level is inefficiently high. A per-shot tax could turn an inefficient situation into an efficient one. At the current output level, the marginal social benefit exceeds the marginal private benefit.
At the current output level, the marginal social benefit exceeds the marginal private benefit.
Refer to Figure 8-2. The imposition of the tax causes the price paid by buyers to decrease by $2. increase by $3. decrease by $4. increase by $5.
increase by $3.
Refer to Figure 8-2. The loss of producer surplus associated with some sellers dropping out of the market as a result of the tax is $0. $1. $2. $3.
$1.
Refer to Figure 8-2. The loss of consumer surplus associated with some buyers dropping out of the market as a result of the tax is $0. $1.50. $3. $4.50.
$1.50.
Refer to Figure 8-2. Total surplus without the tax is $10, and total surplus with the tax is $2.50. $10, and total surplus with the tax is $7.50. $20, and total surplus with the tax is $2.50. $20, and total surplus with the tax is $7.50.
$10, and total surplus with the tax is $7.50.
Refer to Figure 8-2. The per-unit burden of the tax on sellers is $2. $3. $4. $5.
$2
Refer to Figure 8-2. The loss of producer surplus for those sellers of the good who continue to sell it after the tax is imposed is $0. $1. $2. $3.
$2.
Refer to Figure 8-2. The amount of deadweight loss as a result of the tax is $2.50. $5. $7.50. $10.
$2.50.
Refer to Figure 8-2. The loss of consumer surplus for those buyers of the good who continue to buy it after the tax is imposed is $0. $1.50. $3. $4.50.
$3.
Refer to Figure 8-2. The loss of producer surplus as a result of the tax is $1. $2. $3. $4.
$3.
Refer to Figure 8-2. The per-unit burden of the tax on buyers is $2. $3. $4. $5.
$3.
Refer to Figure 6-13. What is the amount of the tax per unit? $1 $2 $3 $4
$4
Refer to Figure 8-2. Producer surplus without the tax is $4, and producer surplus with the tax is $1. $4, and producer surplus with the tax is $3. $10, and producer surplus with the tax is $1. $10, and producer surplus with the tax is $3.
$4, and producer surplus with the tax is $1.
Refer to Figure 8-2. The loss of consumer surplus as a result of the tax is $1.50. $3. $4.50. $6.
$4.50.
Refer to Table 7-9. The equilibrium market price for 10 piano lessons is $400. What is the total producer surplus in the market? $0 $300 $400 $700
$400
Refer to Figure 8-2. The amount of tax revenue received by the government is $2.50. $4. $5. $9.
$5.
Refer to Figure 8-2. The amount of the tax on each unit of the good is $1. $4. $5. $9.
$5.
Refer to Figure 8-2. Consumer surplus without the tax is $6, and consumer surplus with the tax is $1.50. $6, and consumer surplus with the tax is $4.50. $10, and consumer surplus with the tax is $1.50. $10, and consumer surplus with the tax is $4.50.
$6, and consumer surplus with the tax is $1.50.
Refer to Figure 6-11. Suppose a tax of $2 per unit is imposed on this market. How much will buyers pay per unit after the tax is imposed? $3 Between $3 and $5 Between $5 and $7 $7
Between $5 and $7
Suppose there is an early freeze in California that reduces the size of the lemon crop. As the price of lemons rises, what happens to consumer surplus in the market for lemons? Consumer surplus increases Consumer surplus decreases Consumer surplus is not affected by this change in market forces We would have to know whether the demand for lemons is relatively elastic or inelastic to make this determination
Consumer surplus decreases
Which of the following statements is not correct? 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. Both corrective taxes and tradable pollution permits provide market-based incentives for firms to reduce pollution. Corrective taxes set the maximum quantity of pollution, whereas tradable pollution permits fix the price of pollution. 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.
Corrective taxes set the maximum quantity of pollution, whereas tradable pollution permits fix the price of pollution.
Miguel, Maria, and Marcos all would like a place to sit while waiting at their children's bus stop. The neighborhood association is considering installing several park benches at the bus stop. Miguel values the benches at $20, Maria at $30, and Marcos at $40. The park benches and labor for installation cost $100. If Miguel, Maria, and Marcos are the only residents who value the benches, what should the neighborhood association do? Install the park benches because people like places to sit. Install the park benches because the benefits outweigh the costs. Do not install the park benches because the costs outweigh the benefits. Do not install the park benches to prevent the Tragedy of the Commons problem of overuse.
Do not install the park benches because the costs outweigh the benefits.
In which of the following cases is the Coase theorem most likely to solve the externality? 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.
Refer to Figure 8-1. Suppose the government imposes a tax of P'-P'''. Total surplus after the tax is measured by the area I + Y. J + K + L + M. I + Y + B. I + J + K + L + M + Y.
J + K + L + M.
Which of the following statements regarding a Laffer curve is the most plausible? Reducing a high tax rate is less likely to increase tax revenue than is reducing a low tax rate. Reducing a high tax rate is more likely to increase tax revenue than is reducing a low tax rate. Reducing a high tax rate will have the same effect on tax revenue as reducing a low tax rate. Reducing a tax rate can never increase tax revenue.
Reducing a high tax rate is more likely to increase tax revenue than is reducing a low tax rate.
Which of the following events would increase producer surplus? Sellers' costs stay the same and the price of the good increases. Sellers' costs increase and the price of the good stays the same. Sellers' costs increase and the price of the good decreases. Sellers' costs stay the same and the price of the good decreases.
Sellers' costs stay the same and the price of the good increases.
Refer to Table 7-3. If you have a ticket that you sell to the group in an auction, what will be the selling price? lightly more than $20 Slightly more than $25 Slightly more than $50 Slightly more than $60
Slightly more than $50
Refer to Figure 8-5. Which of the following combinations will maximize the deadweight loss from a tax? Supply1 and Demand1 Supply2 and Demand2 Supply1 and Demand2 Supply2 and Demand1
Supply2 and Demand2
Suppose that coal producers create a negative externality equal to $5 per ton of coal. What is the relationship between the equilibrium quantity of coal and the socially optimal quantity of coal? They are equal. The equilibrium quantity is greater than the socially optimal quantity. The equilibrium quantity is less than the socially optimal quantity. There is not enough information to answer the question.
The equilibrium quantity is greater than the socially optimal quantity.
Which of the following is an example of a positive externality? A college student buys a new car when she graduates. The mayor of a small town plants flowers in the city park. Local high school teachers have pizza delivered every Friday for lunch. An avid fisherman buys new fishing gear for his next fishing trip.
The mayor of a small town plants flowers in the city park.
Suppose that candy producers create a positive externality equal to $1 per pound of candy. Further suppose that the government offers a $1-per-pound subsidy to the producers. What is the relationship between the equilibrium quantity and the socially optimal quantity of candy? The equilibrium quantity is greater than the socially optimal quantity. The equilibrium quantity is less than the socially optimal quantity. They are equal. There is not enough information to answer the question.
They are equal.
Suppose that electricity producers create a negative externality equal to $5 per unit. Further suppose that the government imposes a $5 per-unit tax on the producers. What is the relationship between the after-tax equilibrium quantity and the socially optimal quantity of electricity to be produced? They are equal. The after-tax equilibrium quantity is greater than the socially optimal quantity. The after-tax equilibrium quantity is less than the socially optimal quantity. There is not enough information to answer the question.
They are equal.
Which of the following is not an advantage of corrective taxes? 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.
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? 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.
A city street is always a public good, whether or not it is congested. a public good when it is congested, but it is a common resource when it is not congested. a common resource when it is congested, but it is a public good when it is not congested. always a common resource, whether or not it is congested.
a common resource when it is congested, but it is a public good when it is not congested.
A toll on a congested road is in essence an interstate highway subsidy. a hidden tax. a gasoline tax. a corrective tax.
a corrective tax.
Refer to Figure 6-4. In graph (b), there will be a shortage. equilibrium in the market. a surplus. lines of people waiting to buy the good.
a surplus.
Employing a lawyer to draft and enforce a private contract between parties wishing to solve an externality problem is an example of an opportunity cost. an implicit cost. a sunk cost. a transaction cost.
a transaction cost.
The Tragedy of the Commons will be evident when a growing number of sheep grazing on the town commons leads to a destruction of the grazing resource. To correct for this problem, the town could allow individual shepherds to choose their own flock sizes. internalize the externality by subsidizing the production of sheep's wool. auction off a limited number of sheep-grazing permits. wait until the market corrects the problem.
auction off a limited number of sheep-grazing permits.
Market failure associated with the free-rider problem is a result of a problem associated with pollution. benefits that accrue to those who don't pay. benefits that accrue to providers of the product. market power.
benefits that accrue to those who don't pay.
When a good is taxed, both buyers and sellers of the good are made worse off. only buyers are made worse off, because they ultimately bear the burden of the tax. only sellers are made worse off, because they ultimately bear the burden of the tax. 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.
both buyers and sellers of the good are made worse off.
Dawn's bridal boutique is having a sale on evening dresses. The increase in consumer surplus comes from the benefit of the lower prices to only existing customers who now get lower prices on the gowns they were already planning to purchase. only new customers who enter the market because of the lower prices. both existing customers who now get lower prices on the gowns they were already planning to purchase and new customers who enter the market because of the lower prices. Consumer surplus does not increase; it decreases.
both existing customers who now get lower prices on the gowns they were already planning to purchase and new customers who enter the market because of the lower prices.
Brad owns 5 acres of land. Brad sells the land to a real estate developer who builds a subdivision with 10 houses. The land is an example of a good that is both rival in consumption and excludable. neither rival in consumption nor excludable. excludable, but not rival in consumption. rival in consumption, but not excludable.
both rival in consumption and excludable.
Under rent control, bribery is a potential mechanism to Correct answer: bring the total price of an apartment (including the bribe) closer to the equilibrium price. allocate housing to the poorest individuals in the market. force the total price of an apartment (including the bribe) to be less than the market price. allocate housing to the most deserving tenants.
bring the total price of an apartment (including the bribe) closer to the equilibrium price.
When a tax is placed on the buyers of lemonade, the sellers bear the entire burden of the tax. buyers bear the entire burden of the tax. burden of the tax will always be equally divided between the buyers and the sellers. burden of the tax will be shared by the buyers and the sellers, but the division of the burden is not always equal.
burden of the tax will be shared by the buyers and the sellers, but the division of the burden is not always equal.
If a tax shifts the demand curve downward, we can infer that the tax was levied on buyers of the good. sellers of the good. both buyers and sellers of the good. We cannot infer anything because the shift described is not consistent with a tax.
buyers of the good.
Pay-per-view broadcasts are private goods. club goods. common resources. public goods.
club goods.
Goods that are rival in consumption but not excludable would be considered club goods. common resources. public goods. private goods.
common resources.
Before considering any public project, the government should only measure the total benefits of the project. only measure the cost of the project. conduct a cost-benefit analysis and compare the total cost and total benefits of the project. infer that citizens who vote for a project are willing to pay equally for it.
conduct a cost-benefit analysis and compare the total cost and total benefits of the project.
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. consumer surplus before the tax. producer surplus after the tax. producer surplus before the tax.
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 after the tax. consumer surplus before the tax. producer surplus after the tax. producer surplus before the tax.
consumer surplus before the tax.
Justin builds fences for a living. Justin's out-of-pocket expenses (for wood, paint, etc.) plus the value that he places on his own time amount to his producer surplus. producer deficit. cost of building fences. profit.
cost of building fences.
If the government decides to build a new highway, the first step would be to conduct a study to determine the value of the project. The study is called a budget analysis. project analysis. reimbursement analysis. cost-benefit analysis.
cost-benefit analysis.
Refer to Figure 8-1. Suppose the government imposes a tax of P' - P'''. The area measured by I + Y represents the deadweight loss due to the tax. loss in consumer surplus due to the tax. loss in producer surplus due to the tax. total surplus before the tax.
deadweight loss due to the tax.
Refer to Figure 8-2. The imposition of the tax causes the price received by sellers to decrease by $2. increase by $3. decrease by $4. increase by $5.
decrease by $2.
Refer to Figure 8-2. The imposition of the tax causes the quantity sold to increase by 1 unit. decrease by 1 unit. increase by 2 units. decrease by 2 units.
decrease by 1 unit.
A tax on the sellers of coffee will increase the price of coffee paid by buyers, increase the effective price of coffee received by sellers, and increase the equilibrium quantity of coffee. increase the effective price of coffee received by sellers, and decrease the equilibrium quantity of coffee. decrease the effective price of coffee received by sellers, and increase the equilibrium quantity of coffee. decrease the effective price of coffee received by sellers, and decrease the equilibrium quantity of coffee.
decrease the effective price of coffee received by sellers, and decrease the equilibrium quantity of coffee.
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 increases, and the consumer surplus in the market for red wine increases. increases, and the consumer surplus in the market for red wine decreases. decreases, and the consumer surplus in the market for red wine increases. decreases, and the consumer surplus in the market for red wine decreases.
decreases, and the consumer surplus in the market for red wine decreases.
Refer to Figure 6-2. The price ceiling causes quantity supplied to exceed quantity demanded by 60 units. supplied to exceed quantity demanded by 90 units. demanded to exceed quantity supplied by 30 units. demanded to exceed quantity supplied by 90 units.
demanded to exceed quantity supplied by 90 units.
If the production of computer chips yields greater technology spillovers than the production of potato chips, the government should encourage the production of computer chips with subsidies. discourage the production of potato chips with taxes. encourage the production of potato chips with subsidies. discourage the production of computer chips with taxes.
encourage the production of computer chips with subsidies.
If the labor supply curve is very elastic, a tax on labor has a large deadweight loss. raises enough tax revenue to offset the loss in welfare. has a relatively small impact on the number of hours that workers choose to work. results in a large tax burden on the firms that hire labor.
has a large deadweight loss.
When a country is on the downward-sloping side of the Laffer curves, a cut in the tax rate will decrease tax revenue and decrease the deadweight loss. decrease tax revenue and increase the deadweight loss. increase tax revenue and decrease the deadweight loss. increase tax revenue and increase the deadweight loss.
increase tax revenue and decrease the deadweight loss.
If the cost of producing sofas decreases causing the price of sofas to decrease, consumer surplus in the sofa market will increase. decrease. remain constant. increase for some buyers and decrease for other buyers.
increase.
When Monique drives to work every morning, she drives on a congested highway. What Monique does not realize is that when she enters the highway each morning she increases the travel time of all other drivers on the highway. In this case, the external cost of Monique's highway trip increases the social cost above the private cost. lowers the social cost below the private cost. increases the social value above the private benefit. decreases the social value below the private benefit.
increases the social cost above the private cost.
When an externality is present, the market equilibrium is efficient, and the equilibrium maximizes the total benefit to society as a whole. efficient, but the equilibrium does not maximize the total benefit to society as a whole. inefficient, but the equilibrium maximizes the total benefit to society as a whole. inefficient, and the equilibrium does not maximize the total benefit to society as a whole.
inefficient, and the equilibrium does not maximize the total benefit to society as a whole.
The deadweight loss from a tax per unit of good will be smallest in a market with nelastic supply and elastic demand. inelastic supply and inelastic demand. elastic supply and elastic demand. elastic supply and inelastic demand.
inelastic supply and inelastic demand.
On hot summer days, electricity-generating capacity is sometimes stretched to the limit. At these times, electric companies may ask people to voluntarily cut back on their use of electricity. An economist would suggest that every electric customer has an incentive to prevent the system from overloading, so this voluntary approach is the most efficient. it would be more efficient if the electric company raised its rates for electricity at peak times. it would be more efficient to have a lottery to decide who had to cut back their use of electricity at peak times. it would be more efficient to force everyone to cut their usage of electricity by the same amount.
it would be more efficient if the electric company raised its rates for electricity at peak times.
If the size of a tax increases, tax revenue increases. decreases. remains the same. may increase, decrease, or remain the same.
may increase, decrease, or remain the same.
Pollution is a problem that is entirely unrelated to the parable called the Tragedy of the Commons. problem that cannot be remedied with regulations or corrective taxes. negative externality that can be viewed as a public-goods problem. negative externality that can be viewed as a common-resource problem.
negative externality that can be viewed as a common-resource problem.
If a road is congested, then use of that road by an additional person would lead to a negative externality. positive externality. Pigovian externality. free-rider problem with rush-hour drivers stuck in traffic.
negative externality.
Refer to Figure 6-7. If the government imposes a price ceiling at $6, it would be binding if market demand is Demand A or Demand B. nonbinding if market demand is Demand A or Demand B. binding if market demand is Demand A and nonbinding if market demand is Demand B. nonbinding if market demand is Demand A and binding if market demand is Demand B.
nonbinding if market demand is Demand A and binding if market demand is Demand B.
Because public goods are excludable, people have an incentive to be free riders. excludable, people do not have an incentive to be free riders. not excludable, people have an incentive to be free riders. not excludable, people do not have an incentive to be free riders.
not excludable, people have an incentive to be free riders.
The size of a tax and the deadweight loss that results from the tax are positively related. negatively related. independent of each other. equal to each other.
positively related.
Refer to Figure 8-1. Suppose the government imposes a tax of P' - P'''. The area measured by M represents consumer surplus after the tax. consumer surplus before the tax. producer surplus after the tax. producer surplus before the tax.
producer surplus after the tax.
Refer to Figure 8-1. Suppose the government imposes a tax of P'-P'''. The area measured by L + M + Y represents consumer surplus after the tax. consumer surplus before the tax. producer surplus after the tax. producer surplus before the tax.
producer surplus before the tax.
Markets fail to allocate resources efficiently when demanders and suppliers cannot agree on a price. goods are rival in consumption and excludable. property rights are not well established. too many buyers and sellers exist in the same market.
property rights are not well established.
Moving production from a high-cost producer to a low-cost producer will lower total surplus. raise total surplus. lower producer surplus. raise producer surplus but lower consumer surplus.
raise total surplus.
A tax on a good raises the price that buyers pay and raises the price that sellers receive. raises the price that buyers pay and lowers the price that sellers receive. lowers the price that buyers pay and raises the price that sellers receive. lowers the price that buyers pay and lowers the price that sellers receive.
raises the price that buyers pay and lowers the price that sellers receive.
The goal of requiring licenses for hunting and fishing is to reduce the use of a common resource. ensure that the people hunting and fishing are qualified. promote hunting and fishing. monitor compliance with federal gun laws.
reduce the use of a common resource.
When a tax is levied on a good, the buyers and sellers of the good share the burden, 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 Correct answer: seller's willingness to sell. seller's producer surplus. producer shortage. seller's willingness to buy.
seller's willingness to sell.
A supply curve can be used to measure producer surplus because it reflects the actions of sellers. quantity supplied. sellers' costs. the amount that will be purchased by consumers in the market.
sellers' costs.
A benevolent social planner would prefer that the output of good x be increased from its current level if, at the current level of output of good x, social value = private value = private cost < social cost. social cost > private value = social value > private cost. social cost = private cost = private value < social value. social value = private cost = social cost > private value.
social cost = private cost = private value < social value.
When negative externalities are present in a market private costs will be greater than social costs. social costs will be greater than private costs. only government regulation will solve the problem. the market will not be able to generate an equilibrium.
social costs will be greater than private costs.
Refer to Figure 6-9. In this market, a minimum wage of $7.00 creates a labor shortage of 2,000 worker hours. shortage of 4,000 worker hours. surplus of 2,000 worker hours. surplus of 4,000 worker hours.
surplus of 4,000 worker hours.
Refer to Figure 8-1. Suppose the government imposes a tax of P'-P'''. The area measured by K + L represents tax revenue. consumer surplus before the tax. producer surplus after the tax. total surplus before the tax.
tax revenue.
Producer surplus is measured using the demand curve for a good. always a negative number for sellers in a competitive market. the amount a seller is paid minus the cost of production. the opportunity cost of production minus the cost of producing goods that go unsold.
the amount a seller is paid minus the cost of production.
According to the Coase theorem, private parties can solve the problem of externalities if the cost of bargaining is small. the initial distribution of legal rights favors the person being adversely affected by the externality. the number of parties involved is sufficiently large. property rights aren't clearly defined.
the cost of bargaining is small.
If a sawmill creates too much noise for local residents, noise restrictions will force residents to move out of the area. a sense of social responsibility will cause owners of the mill to reduce noise levels. the government can raise economic well-being through noise-control regulations. the government should avoid intervening because the market will always allocate resources efficiently.
the government can raise economic well-being through noise-control regulations.
Refer to Figure 7-6. Area A represents producer surplus to new producers entering the market as the result of an increase in price from P1 to P2. the increase in consumer surplus that results from an upward-sloping supply curve. the increase in total surplus when sellers are willing and able to increase supply from Q1 to Q2. the increase in producer surplus to those producers already in the market when the price increases from P1 to P2.
the increase in producer surplus to those producers already in the market when the price increases from P1 to P2.
Producers have little incentive to produce a public good because the social benefit is less than the private benefit. the social benefit is less than the social cost. there is a free-rider problem. there is a Tragedy of the Commons.
there is a free-rider problem.
It is commonly argued that national defense is a public good. Nevertheless, the weapons used by the U.S. military are produced by private firms. We can conclude that resources would be used more efficiently if the government produced the weapons. resources would be used more efficiently if private firms provided national defense. weapons are rival in consumption and excludable, but national defense is not rival in consumption and not excludable. national defense is rival in consumption and excludable, but weapons are not rival in consumption and not excludable.
weapons are rival in consumption and excludable, but national defense is not rival in consumption and not excludable.