MicroEcon 247 Practice Mid-Term Exam Part 1 (all MindTap Quizlets into one)
Which event is likely to create a surplus?
A price floor is set above the equilibrium price.
Which statement best describes the situation as the time horizon increases?
Demand becomes more elastic.
The average worker in the United States can produce 20 tonnes of coal or 10 tonnes of iron per week. The average worker in Canada can produce either 10 tonnes of coal or 10 tonnes of iron per week. Which statement best summarizes this situation?
The United States has an absolute advantage in the production of coal
Which statement best explains the situation where a tax burden falls more on consumers than sellers?
The demand curve is less elastic than the supply curve.
Because Coke and Pepsi are substitutes, what is likely to happen when the price of Coke decreases?
The demand for Pepsi decreases.
If buyers are expecting higher prices for apples in the near future, what is mostly likely to happen now in the market for apples?
The demand for apples will increase.
Which statement is most relevant in the market for coffee when the price of tea, a substitute for coffee, increases?
The demand for coffee will increase.
Which situation would be the most likely result of market failure?
The market fails to allocate resources efficiently.
Which statement is most relevant when there is a shortage of a good at the current price?
The price is below the equilibrium price.
Which of the following is part of the scientific method?
developing theories, gathering data, and determining whether the theories are consistent with the data
Which goods should a country specialize in and produce?
goods for which a country has a comparative advantage
Which of the following best describes the primary study of microeconomics?
how households and firms make decisions, and how they interact in the market
What is the primary study of economics?
how society manages its scarce resources
If skis and ski boots are complementary goods, what is most relevant when the price of skis decreases?
increased demand for ski boots
Which combination helps to explain why better farming technology over the past 100 years has led to farmers leaving the industry and moving to the city?
increased food supply coupled with inelastic food demand
How would you describe the income elasticity of demand for a luxury good?
large
Which of the following is an example of an economist acting as a policy adviser rather than a scientist?
making normative statements
Which of the following best describes the long-run supply curve?
more elastic than the short-run supply
What do economists often use as a substitute for laboratory experiments?
natural experiments offered by history
Which term best defines the value or cost of a good or service that is given up by choosing one alternative over another?
opportunity cost
With trade, where does a country's set of consumption opportunities lie?
outside the production possibilities frontier
In the short run, which term best describes the price elasticity of supply of spaces in the university parking lot?
perfectly inelastic
Suppose that, as the price of a good falls from $4.00 to $2.00, the quantity demanded increases from 10 to 30. What is the price elasticity of demand?
1.50
Suppose a gardener produces both squash and peppers in her garden, and she must give up 13 bushels of peppers to get 5 bushels of squash. What would be the opportunity cost of 1 bushel of squash?
2.6 bushels of peppers
What is your gain if you were willing to pay $3.05 for milk at the market but were charged only $2.05?
A consumer surplus of $1.00.
In which situation is supply price inelastic?
A large percentage change in the price of the good causes a smaller percentage change in the quantity supplied.
Why is cost-benefit analysis difficult for analysts?
Analysts do not typically observe prices when evaluating the benefits of a public good.
Which statement best expresses the concept of the Laffer curve?
As the tax rate is reduced, total tax revenue increases.
When trade takes place, what is the most likely outcome?
Both parties can be better off.
What is the largest component of federal government spending?
Canada Health and Social Transfer
Historically, what is the result of common property rights to scarce resources?
They have led to abuse when the demand for the resource is too great, thus causing a decrease in environmental quality.
If the government ceased to provide public goods, which consequence would ensue?
They would become unavailable due to the free-rider principle.
An accurate statement if the demand for a good is inelastic?
Total revenue falls if the price of the good is decreased.
A change in the quantity demanded of cigarettes results from a change in the price of cigarettes.
True
A club good is a good that is excludable but nonrival in consumption.
True
A country is said to have a comparative advantage in the production of a good when it can produce that good at a lower opportunity cost than its trading partner.
True
A country is said to have an absolute advantage in the production of a good when it uses a smaller quantity of inputs than its trading partner to produce the same quantity of output.
True
A market economy allocates resources through the decentralized decisions of many firms and households as they interact in markets for goods and services.
True
A minimum wage set above the equilibrium wage will decrease the quantity of workers demanded and increase the quantity supplied, thus causing unemployment among teenagers.
True
An import quota reduces the number of imports and moves a domestic market closer to the equilibrium that would exist without trade.
True
An increase in demand will increase both the price of the product and the quantity sold.
True
Canada is a federalist state, which means that political power is divided between the federal government and the provincial governments, with greater power going to the federal government. The local or municipal level of government is granted powers by the provincial government.
True
A normal good is one for which, other things being equal, an increase in income leads to a decrease in demand.
False
A surplus in the market would result when the quantity supplied is less than the quantity demanded.
False
A tariff increases the number of imports and moves the domestic market farther from its equilibrium without trade.
False
A tax burden falls more heavily on consumers when demand is more elastic.
False
A tax has a deadweight loss because it induces buyers, but not sellers, to change their behaviour.
False
Alberta is the only province or territory not to have a sales tax.
False
An individual's tax liability (how much he or she owes in taxes) is based on how much he or she spends, saves and consumes.
False
Both the slope of a linear demand curve and the price elasticity of demand are constant
False
Economists argue that a clean environment is a normal good with negative income elasticity.
False
Equity is related to the size of the economic pie; whereas efficiency is related to how the pie gets sliced and distributed.
False
Free markets will NOT produce the quantity of goods that maximizes the sum of consumer and producer surplus.
False
Government support for basic research is a public good, and determining the amount of funding for that support is not a difficult task.
False
Government-issued pollution permits and corrective taxes have dissimilar effects in trying to control pollution.
False
If the provision of public goods were left to the private sector, then individuals would choose to consume only what they need and pay for the benefits received. Consequently, firms would produce the quantity that is demanded.
False
In the market for factors of production, households buy factors of production, and firms sell factors of production.
False
John had $1000 to purchase a new computer. He found one that cost $800 and met all his needs; however, he decided not to purchase it today. John's consumer surplus is $200.
False
One tax system is more unbiased than another if it increases the same amount of revenue at a smaller cost to taxpayers.
False
Public goods may switch to private goods, but private goods can never switch to public goods.
False
Shortages drive prices down; surpluses drive prices up.
False
The adverse effects of rent controls are clear to the general population because these effects occur very quickly.
False
The federal level of government is responsible for the areas of health care, education, welfare, natural resources, and civil laws. The provincial level of government is responsible for matters of national interest, including national defense and foreign policy, international trade, competition policy, criminal laws, and money and banking.
False
The height of the demand curve reflects the willingness of sellers to produce a good or service.
False
The marginal tax rate falls as people enter higher tax brackets, so higher-income individuals pay a smaller percentage of their income in taxes than do lower-income individuals.
False
The more inelastic the demand, the larger the deadweight loss of the tax.
False
Trade lowers the economic well-being of a nation in the sense that the gains of the winners must exceed the losses of the losers.
False
When a tax is placed on a good, it places a wedge between the price that buyers pay and the price that sellers receive. The quantity of the good sold will rise.
False
When a tax is placed on the sale of a good, if the total decrease in consumer and producer surplus is greater than the tax revenue collected by the government, then there is no deadweight loss.
False
When property rights are well established, the market will fail to allocate resources efficiently.
False
When the government places a tax on a good, the benefit of that tax actually accrues to the government.
False
Free trade is ultimately good for both trading countries, regardless of whether one country has a comparative advantage.
True
Which statement is an argument in support of free trade?
Free trade creates jobs, many of which pay more than the jobs lost.
In which situation is the government's budget said to be in surplus?
Government tax receipts exceed government spending.
Which statement is most relevant to the circular-flow diagram?
Households are sellers in the resource market.
Which of the following is an example of a positive statement?
Increasing the minimum wage results in more unemployment.
How does a tax on a good affect welfare?
It affects the behaviour of the buyers and the sellers.
What is the most likely result of trade between two countries?
It can make both countries better off.
According to those who believe that labour supply is fairly elastic, what is the effect of a tax on labour?
It distorts market outcomes a great deal.
Which statement best describes an economic model?
It is a simplification of reality.
Which statement would economists argue regarding legalized ticket scalping?
It is a victimless crime.
How is the burden of paying the tax on corporate profits borne?
It is borne by consumers, employees, and firms.
Which statement best defines externalities?
It is the impact of one person's actions on the well-being of a bystander.
What is the likely effect of an effective price ceiling?
It results in a shortage of the product.
What happens if the use of a common resource is NOT regulated?
It will be overused.
Suppose the government imposes policies that restrict the trade in goods that use child labour in their production. What consequence would this have?
It will harm the intended beneficiaries by reducing their employment rates.
What can be said to have an impact on the elasticity of labour supply?
Many workers can adjust the number of hours they work.
Which statements best describes vertical equity?
People with greater ability to pay should pay larger amounts of taxes.
Which statement best summarizes the ability-to-pay principle?
People with high incomes should pay a larger percentage of their income in taxes than people with low incomes.
If Canada wants domestic auto producers to benefit at the expense of domestic consumers while simultaneously raising more money for the government, what would the government most likely do?
Place a tariff on imported autos.
Suppose social benefits occur during private research for an HIV vaccine. Which statement best describes this situation?
Private costs exceed social costs.
Which statement most accurately describes goods in terms of consumption?
Private goods are excludable and rival in consumption.
What can be expected if the market price of a product rises?
Producer surplus will rise.
What is likely to occur if efficiency is exhibited?
Resource allocation maximizes the total surplus received by all members of society.
Suppose an economy currently imposes a 75% tax rate on labour. What would result from changing the marginal tax rate?
Tax revenue would increase from a decrease in the marginal tax rate.
Oil producers pump a significant amount of water into an oil well to optimize the production capacity of that well. As a result, farmers and ranchers have found that the water table in their wells is dropping significantly. What should the government do to correct this problem?
Tax the oil producers on the amount of water they use.
What is an example of horizontal equity?
Taxpayers with similar abilities to pay taxes should pay the same amount of taxes.
Which statement best describes producer surplus?
The area above the supply curve and below the market price.
A paper plant emits pollutants into the air. In the absence of government intervention, which conclusion can most likely be drawn from this?
The firm will produce more than the optimum level of output.
Under free trade, which argument best refutes the unfair-competition argument?
The gains of the consumers from buying at the low price would exceed the losses of the producers.
Which situation best describes comparative advantage?
The opportunity cost of producing a good is smaller for one producer than for another producer.
Which statement best describes a market that is in equilibrium?
The price has reached the level where quantity supplied equals quantity demanded.
Parking permits at your university are $50 per semester, and students complain that they cannot find parking places in the university's parking lot. Which statement best describes this situation in economic terms?
The price of parking permits is below the equilibrium price.
Suppose that the market for lumber is initially in equilibrium. Then the government imposes a tax on lumber. What would we expect to happen?
The quantity of lumber traded after the tax will be less than the optimum quantity.
A tax is levied on sellers of goods. Which statement best describes the effects of the tax?
The supply curve shifts left.
Why does the federal government have a greater ability than provincial governments to increase tax revenues by raising tax rates?
The supply of labour is more elastic in a single province than it is in Canada as a whole.
Which statement best describes tax burdens?
A tax burden falls most heavily on the side of the market that is more inelastic.
In order to control the amount its citizens smoke, the government imposes a tax on cigarettes. Which consequence will ensue?
The total market for cigarettes will be reduced.
Under which circumstance will markets allocate resources efficiently?
There are many buyers and sellers.
What is the effect of rent controls on apartments?
There is a chronic shortage of apartments.
When a tax raises the price to buyers and lowers the price to sellers, buyers will tend to consume less, and producers will tend to produce less. Therefore, taxes distort incentives and cause markets to allocate resources inefficiently.
True
When demand is price inelastic, price and total revenue are positively related.
True
When the government imposes a binding price ceiling on a competitive market, a shortage of the good arises, and sellers must ration the scarce goods among the large number of potential buyers.
True
Where externalities exist in a market, one can assume that the total benefit to society will not be maximized.
True
Which of the following will NOT shift the supply curve?
a change in the price of the good
Which example illustrates the concept of a negative externality?
a college student plays his new stereo system in the residence at 2:00 a.m.
What is a free-rider?
a person who receives the benefit of a good but avoids paying for it
Greater youth partition in physical activities is seen as a positive externality. Which consequence would you expect as a result of this?
a tax credit for costs of enrolling youth in sports activities
Assume a province initiates rent controls. What is a method landlords use to ration housing when shortages develop?
accepting under-the-table payments from waiting tenants
Which of the following pertains to pollution?
an external cost
Suppose the supply curve is elastic and the demand curve is inelastic. Who is likely to share the greater part of a tax burden?
buyer of the product
What is an example of a club good?
cable TV
What idea is Adam Smith best known for?
concept of the "invisible hand"
Which term best describes the difference between what a consumer would willingly have paid for a unit of a product and the amount actually paid?
consumer surplus
What would polluters do because of a tax of a fixed amount per unit of pollution?
decrease the supply of output, thereby moving the market closer to the optimal level of output
What is the likely effect of moving production from a low-cost producer to a high-cost producer?
decreased total surplus
What is a common source of disagreement among economists?
differences in scientific judgments
Which measure did the Canadian government implement in order to protect the northern cod stock?
extended the national jurisdiction over marine resources to 370 km offshore
Which department of government constitutes the greatest component of provincial spending?
health
If Al and Sal earn the same amount of income, which term describes why they should pay the same amount of taxes?
horizontal equity
Which of the following best defines the free-rider problem?
inability to prevent individuals who do not pay for a good from using it
What is an example of a pure public good?
national defence
Which of the following would refer to a beneficial impact of one person's actions on the well-being of a bystander?
positive externality
In a market economy, what guides economic activity?
prices as incentives to both buyers and sellers
Which term refers to goods that are both excludable and rival in consumption?
private goods
Assume that producing electricity results in a negative externality. In the absence of government regulation, what would the market be likely to do?
produce more than the optimal amount of electricity
What happens when government imposes a tariff on a good?
producer surplus increases
Which of the following is an example of a common resource?
property that all citizens have the right to use
Which of the following is NOT a benefit from trade?
reduced competition
According to most economists, what is the effect of rent control programs?
reduction of the availability and quality of rental housing
What happens to consumer surplus when the price falls in the free market?
rises
What is the second-largest revenue source for provinces?
sales tax
What kind of statements does positive economics deal with exclusively?
statements that pertain to facts
Which term refers to taxes imposed on goods and services produced abroad and sold domestically?
tariffs
To whom do free markets allocate the supply of goods?
the buyers who value them most highly
Which expression is used to describe the relationship between the price of one good and the demand for another good?
the cross-price elasticity of demand
What is a deadweight loss?
the decrease in total surplus that results from a tax
For most students, what is the largest single cost of a university education?
the income given up to attend school
If the Ministry of the Environment forces automobile manufacturers to install pollution control devices in cars, which concept would this be an example of?
the internalization of external costs
What is the opportunity cost of the purchase of submarines by the Government of Canada from the United States?
the loss to the Canadian public of another item that could have been purchased with the money used for submarines
What is the determinant of deadweight loss?
the price elasticity of demand and the price elasticity of supply
Which of the following causes a change in quantity demanded (a movement along the demand curve)?
the price of the good
To whom do free markets allocate the demand for goods?
the sellers who can produce them at least cost
What best explains the height of the supply curve?
the sellers' costs
Which of the following explains the government's tax revenue?
the size of the tax times the amount of the good sold
What kind of information does a production possibilities frontier illustrate?
the various combinations of two goods a country can produce given the available factors of production and the available production technology
What is a payroll tax a tax on?
the wages that a firm pays its workers
Henry compares the cost of enrolling in 15 hours at university with the cost of enrolling in 18 hours at university. What is this an example of?
thinking at the margin
Which type of goods can a country benefit most from specializing in the production of?
those for which a country has a comparative advantage
Why was the World Trade Organization (WTO) established?
to expand international trade
Which of the following best illustrates the demand curve that is perfectly inelastic?
vertical
How would marketable pollution permits affect the slope of the supply curve for pollution opportunities?
vertical change
According to the Coase theorem, if externalities exist, which situation would lead to bargaining that can result in an efficient outcome?
whatever the initial assignment of rights
In which scenario is a good said to be rival in consumption?
when one person's use of the good diminishes other people's use
If the domestic price of a product is below the world price, trade forces the domestic price to rise to the world price. Domestic producers are better off because they can now sell the product at a higher price. However, domestic consumers are worse off because they now have to pay a higher price for the product.
True
Market failure occurs when some unregulated markets do not allocate resources efficiently.
True
Market power and externalities are examples of market failure.
True
Rent subsidies, unlike rent controls, do not reduce the quantity of housing supplied, and therefore do not lead to housing shortages.
True
Smaller countries benefit more from international trade due to economies of scale.
True
Some markets will not provide efficient allocation of resources on their own. The government can regulate these markets directly; or, it can provide incentives so that the private decision-makers will choose to solve the problem on their own.
True
The Tragedy of the Commons is a parable that illustrates why common resources get used more than is desirable from the standpoint of society as a whole.
True
The domestic price of a product reflects the opportunity cost of that product. It tells us how much a domestic consumer in that country must give up in order to obtain one unit of the product.
True
The government taxes each corporation on the basis of its profits, that is, the amount the corporation receives for its goods or services minus the cost of producing them.
True
The market equilibrium outcome in the presence of a corrective tax is the same as the socially optimal and surplus-maximizing outcome.
True
The minimum wage has the greatest impact on the market for teenage workers.
True
The more elastic the supply, the larger the deadweight loss of the tax.
True
The patent system gives firms a greater incentive to engage in research and other activities that advance technology.
True
The presence of externalities in the market is an example of market failure.
True
Total surplus is the sum of consumer and producer surplus, which is the area between the supply and the demand curves up to the equilibrium quantity.
True
Transaction costs are the costs that parties incur in the process of agreeing and following through on a bargain. They may prevent interested parties from solving an externality problem.
True
According to the theory of comparative advantage, a country should specialize and trade in the production of the good or service that it can produce at higher opportunity cost, and this would increase world output.
False
Adam Smith argues that participants in the economy are motivated by self-interest, and that the "invisible hand" of the marketplace guides this self-interest into promoting inefficient coordination in the marketplace.
False
Adam Smith argues that, when government prevents prices from adjusting naturally to supply and demand, it aids the invisible hand's ability to coordinate the millions of households and firms that make up the economy.
False
Because quantity demanded and income move in opposite directions, inferior goods have positive income elasticities
False
Broadly defined markets tend to have more elastic demand than narrowly defined markets because it is easier to find close substitutes for broadly defined goods.
False
For there to be gains from trade, each trading country must be able to produce a good at the same opportunity cost.
False
The circular-flow diagram is a visual model of how the government directs and controls the economy of a nation.
False
When economists try to predict the number of workers a firm will employ, they are involved in macroeconomics.
False
Which statement would be of concern to a microeconomist?
Import restrictions on sugar will raise the price of sugar.
Which of the following would NOT illustrate the phrase "There is no such thing as a free lunch"?
In a profit-motivated economy, lunch makers always charge for their services.
Which statement is most relevant to an economy that is producing efficiently?
In order to produce more of one good, less of another good can be produced.
Which statement is most relevant when countries specialize according to their comparative advantage?
It is possible to increase the world's output of all goods.
What is the effect of a law requiring sellers to pay the government a tax on cigarettes?
It shifts the supply curve to the left.
Why does Canada NOT grow its own oranges?
It's cheaper to buy oranges from other countries that have warmer climates.
In France, each unit of labour can produce three bottles of wine or two shirts. In Portugal, each unit of labour can produce two bottles of wine or one shirt. Which country has a comparative advantage in producing wine?
Portugal
Which situation will result in a decrease in total revenue?
Price rises and demand is elastic.
What will cause an increase in the price of homes and a decrease in the purchases of homes?
The supply curve for housing has shifted leftward.
Nitrogen is an important input in the production of vegetables. If the price of nitrogen decreases, all else being equal, what will mostly likely happen in the market for vegetables?
The supply of vegetables will increase.
Suppose that the government imposes a $1 tax on a good that currently sells for a price of $5. Also, assume that after the tax is imposed the good sells for $5.60. Which statement best explains the effect this has on the tax burden?
The tax burden is being shared between buyers and sellers.
Which statement is most relevant if buyers and/or sellers are price takers?
They have no influence on market price.
A normative statement describes how the world ought to be.
True
A price elasticity of demand of 2 means that a 10 percent increase in price will result in a 20 percent decrease in quantity demanded.
True
An increase in demand accompanied by an increase in supply will increase the equilibrium quantity, but the effect upon equilibrium price will be indeterminate.
True
An inferior good is one for which, other things being equal, a decrease in income leads to an increase in demand.
True
Due to one's personal preferences, a necessity good may have inelastic demand even though it would generally be seen as a luxury good in the market.
True
In economics, efficiency refers to the property of society getting the most it can from its scarce resources.
True
Inflation is an increase in the overall level of prices in the economy and is usually caused by growth in the quantity of money.
True
International trade based on comparative advantage is conducive to a more efficient allocation of the world's economic resources.
True
Macroeconomics is the study of economy-wide phenomena, including inflation, unemployment, and economic growth.
True
The elasticity of supply may be elastic at low levels of quantities supplied and inelastic at high levels of quantities supplied because firms often have a maximum capacity for production.
True
Which statement best illustrates the concept of positive economics?
When the money supply grows at a faster rate, the average price level will rise.
The price elasticity of demand for a good is -0.60. What would cause quantity demanded to increase by 12 percent?
a 20 percent decrease in price
What happens in the market for wine when an early frost damages vineyards nationwide?
a decrease in the supply of wine and an increase in price
Suppose there is a shortage of parking spaces in downtown Toronto during weekdays. How can the shortage be eliminated?
allowing the price to rise
What is likely to happen when the price of a substitute good increases?
an increase in equilibrium price and an increase in equilibrium quantity
Which event shifts the demand curve for apple jelly to the right?
an increase in income if apple jelly is a normal good
Which of the following has been an effect of a government-imposed seat belt law?
an increase in the number of accidents
How can trade make everybody better off?
by allowing people to specialize according to comparative advantage
What determines which goods two countries specialize in?
comparative advantage
If the demand for a given product is inelastic, what is the likely effect on the quantity demanded when the price increases by 3 percent?
decrease the quantity demanded by less than 3 percent
According to Adam Smith, what is the "invisible hand" that coordinates economic activity?
the price system
Which of the following is most closely linked to the income of a typical worker in Canada?
the productivity of our workforce
According to the text, what are assumptions used for in economics?
to make the world easier to understand