microeconomics exam 2

You are offered a free ticket to see the Chicago Cubs play the Chicago White Sox at Wrigley Field. Assume the ticket has no resale value. Willie Nelson is performing on the same night, and his concert is your next-best alternative activity. Tickets to see Willie Nelson cost $40. On any given day, you would be willing to pay up to $50 to see and hear Willie Nelson perform. Assume there are no other costs of seeing either event. Based on this information, at a minimum, how much would you have to value seeing the Cubs play the White Sox to accept the ticket and go to the game? a. $0 b. $10 c. $40 d. $50

$10

Leonard, Sheldon, Raj, and Penny each like to attend comic-book conventions. The price of a ticket to a convention is $50. Leonard values a ticket at $70, Sheldon at $65, Raj at $60, and Penny at $55. Suppose that if the government taxes tickets at $5 each, the price will rise to $55. A consequence of the tax is that consumer surplus shrinks by a.$50 and tax revenues increase by $20, so there is a deadweight loss of $30. b.$30 and tax revenues increase by $20, so there is a deadweight loss of $10. c.$20 and tax revenues increase by $20, so there is no deadweight loss. d.$50 and tax revenues increase by $20, so there is no deadweight loss.

$20 and tax revenues increase by $20 so there is no deadweight loss

Suppose a tax of $5 per unit is imposed on a good, and the tax causes the equilibrium quantity of the good to decrease from 200 units to 100 units. The tax decreases consumer surplus by $450 and decreases producer surplus by $300. The deadweight loss from the tax is a. $250. b. $500. c. $750. d. $1,000.

$250 (100X5/2)

If the supply curve is S, the demand curve is D, and the equilibrium price is $100, what is the producer surplus? a. $625 b. $1250 c. $2500 d. $5000

$2500 (100*50/2)

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.

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

Suppose the government imposes a tax of (P'-P'''). The area measured by K+L represents a. Tax revenue b. Consumer surplus before the tax c. Producer surplus after the tax d. Total surplus before the tax

tax revenue

Which of the following is a disadvantage of government provision of a public good? a. The government lacks information about the value people place on the good. b. The government does not provide enough of any public good. c. The private sector can provide all public goods at a lower cost. d. There are no disadvantages of government provision of a public good.

the government lacks information about the value people place on the good

which of the following will cause a decrease in consumer surplus? a. An increase in the number of sellers of the good b. A technological improvement in the production of the good c. A decrease in the production cost of the good d. The imposition of a binding price floor in the market

the imposition of a binding price floor in the market

If a price ceiling is not binding then, a. There will be a surplus in the market b. There will be a shortage in the market c. The market will be less efficient than it would without the price ceiling d. There will be no effect on the market price or quantity sold

there will be no effect on the market price or quantity sold

What happens to the total surplus in a market when the government imposes a tax? a. Total surplus increases by the amount of the tax. b. Total surplus increases but by less than the amount of the tax. c. Total surplus decreases. d. Total surplus is unaffected by the tax.

total surplus decreases (tax takes away from surplus)

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

turning the common resource into a club good

The maximum price that a buyer will pay for a good is called a. Consumer surplus b. Producer surplus c. Efficiency d. Willingness to pay

willingness to pay

Two firms, A and B, each currently emit 100 tons of chemicals into the air. The government has decided to reduce pollution and from now on will require a pollution permit for each ton of pollution emitted into the air. The government gives each firm 40 pollution permits, which it can either use or sell to the other firm. It costs Firm A $200 for each ton of pollution that it eliminates before it is emitted into the air, and it costs Firm B $100 for each ton of pollution that it eliminates before it is emitted into the air. After the two firms buy or sell pollution permits from each other, we would expect that Firm A will emit 20 fewer tons of pollution into the air, and Firm B will emit 100 fewer tons of pollution into the air. 100 fewer tons of pollution into the air, and Firm B will emit 20 fewer tons of pollution into the air. 50 fewer tons of pollution into the air, and Firm B will emit 50 fewer tons of poll

20 FEWER tons of pollution into the air, and Firm B will emit 100 FEWER tons of pollution into the air

In the absence of taxes, Carlos would prefer to purchase a large fishing boat with a 75 hp motor. The government has recently decided to place a tax on boats with 75 hp motors or higher. If Carlos decides to purchase a smaller boat with a 50 hp motor as a result of the tax, which of the following statements is correct? a. Other people who choose to purchase large boats will incur the cost of the deadweight loss of the tax. b.There are no deadweight losses as long as some people still choose to purchase large boats. c.The deadweight loss will decrease as a result of an increases in Carlos's consumer surplus. d.Carlos is worse off, and his loss of welfare is part of the deadweight loss of the tax.

Carlos is worse off, and his loss of welfare is part of the deadweight loss of the tax

If the government removes a binding price floor from a market, then the price paid by buyers will a. Increase, and the quantity sold in the market will increase b. Increase, and the quantity sold in the market will decrease c. Decrease, and the quantity sold in the market will increase d. Decrease, and the quantity sold in the market will decrease

Decrease, and the quantity sold in the market will increase

In which of the following cases is the Coase theorem most likely to solve the externality? a. Ed is allergic to his roommate's cat. b. Chemicals from manufacturing plants in the Midwest are causing acid rain in Canada. c. Polluted water runoff from farms is making residents of a nearby town sick. d. Industrialization around the world is causing global warming.

Ed is allergic to his roommates cat

When a tax is placed on the sellers of a product, buyers pay, a. More, and sellers receive more than they did before the tax. b. More, and sellers receive less than they did before the tax. c. Less, and sellers receive more than they did before the tax. d. Less, and sellers receive less than they did before the tax.

More, and sellers receive less than they did before the tax.

Suppose there is currently a tax of $80 per ticket on airline tickets. Sellers of airline tickets are required to pay the tax to the government. If the tax is reduced from $80 per ticket to $64 per ticket, then the, a. Demand curve will shift upward by $16, and the price paid by buyers will decrease by less than $16. b. Demand curve will shift upward by $16, and the price paid by buyers will decrease by $16. c. Supply curve will shift downward by $16, and the effective price received by sellers will increase by less than $16. d. Supply curve will shift downward by $16, and the effective price received by sellers will increase by $16.

Supply curve will shift downward by $16, and the effective price received by sellers will increase by less than $16.

Suppose the government imposes a 20-cent tax on the sellers of artificially sweetened beverages. The tax would shift a. Demand, raising both the equilibrium price and quantity in the market for artificially sweetened beverages. b. Demand, lowering the equilibrium price and raising the equilibrium quantity in the market for artificially sweetened beverages. c. Supply, raising the equilibrium price and lowering the equilibrium quantity in the market for artificially sweetened beverages. d. Supply, lowering the equilibrium price and raising the equilibrium quantity in the market for artificially sweetened beverages.

Supply, raising the equilibrium price and lowering the equilibrium quantity in the market for artificially sweetened beverages

Suppose that 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, a. The demand for treadmills will increase b. The supply of treadmills will decrease c. A shortage of treadmills will develop d. A surplus of treadmills will develop

a shortage of treadmills will develop

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.

both Public goods and common resources

Which of the following statements is correct? a. Equity is more important than efficiency as a goal of the tax system. b. Efficiency is more important than equity as a goal of the tax system. c. Both equity and efficiency are important goals of the tax system. d. Neither equity nor efficiency is an important goal of the tax system.

both equity and efficiency are important goals of the tax system

If the government were to limit the release of air pollution produced by a glue factory to 75 parts per million, the policy would be considered a a. corrective tax. b. subsidy. c. command-and-control policy. d. market-based policy.

command-and-control policy

Which of the following statements is not correct? a. 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. b. Both corrective taxes and tradable pollution permits provide market-based incentives for firms to reduce pollution. c. Corrective taxes set the maximum quantity of pollution, whereas tradable pollution permits fix the price of pollution. d. 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

In addition to tax payments, the two other primary costs that a tax system inevitably imposes on taxpayers are: a.deadweight losses and frustration with the political system. b.deadweight losses and administrative burdens. c.administrative burdens and tax-preparation costs. d.administrative burdens and the risk of punishment for failure to comply with tax laws.

deadweight losses and administrative burdens

If the government imposes a binding price ceiling on a market, then the price paid by buyers will, a. Decrease, and the quantity sold in the market will decrease b. Increase, and the quantity sold in the market will increase c. Increase, and the quantity sold in the market will decrease d. Decrease, and the quantity sold in the market will increase

decrease and the quantity sold in the market will decrease

When the price falls from P2 to P1, producer surplus a. Decreases by an amount equal to C b. Decreases by an amount equal to A+B c. Decreases by an amount equal to A+C d. Increases by an amount equal to A+B

decreases by an amount equal to A+B

1. Erin would be willing to pay as much as $100 per week to have her house cleaned. Ernesto's opportunity cost of cleaning Erin's house is $70 per week. Assume Erin is required to pay a tax of $40 when she hires someone to clean her house for a week. Which of the following is correct? He must take home 70, with the tax she must pay him at least 110(70+40) however she is willing to pay 100. It is higher than Erin wtp so she will no longer hire him a. Erin will now clean her own house b. Ernesto will continue to clean Erin's house, but his producer surplus will decline c. Total economic welfare (consumer surplus plus producer surplus plus tax revenue) will increase d. Erin will continue to hire Ernesto to clean her house, but her consumer surplus will decline

erin will now clean her own house

In the figure above, the vertical distance between points E and F represents a tax in the market. The imposition of the tax causes the price paid by buyers to a. decrease by $3. b. increase by $3. c. decrease by $2. d. increase by $2.

increase by $3

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 a. every electric customer has an incentive to prevent the system from overloading, so this voluntary approach is the most efficient. b. it would be more efficient if the electric company raised its rates for electricity at peak times. c. it would be more efficient to have a lottery to decide who had to cut back their use of electricity at peak times. d. 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

The U.S. tax burden is a.about the same as most European countries. b .higher than most European countries. c. lower than most European countries. d. higher than all European countries.

lower than most European countries

. A public television broadcast is an example of a good that is a. private. b. not rival in consumption. c. social. d. excludable.

not rival in consumption

Which of the following is usually true about government-provided goods? a. These goods have a zero opportunity cost. b. These goods are not scarce. c. People do not have to pay an explicit fee to enjoy these goods. d. The invisible hand is at work to ensure these goods are provided in the market

people do not have to pay an explicit fee to enjoy these goods

The Pennsylvania Turnpike is a tolled freeway running through the state of Pennsylvania. Motorists must pay tolls at various points along the Turnpike based on the distance they traveled on the freeway. Suppose that despite the tolls, many motorists in the urban areas use the Turnpike causing traffic to slow during peak times. What type of good would the Turnpike be classified as in this case? a. Private good b. Club good c. Common resource d. Public good

private good

Ice Cream Cones, Clothing, Congested Toll Roads are examples of what type of good? and are they rival in consumption and excludable?

private goods, rival in consumption and excludable

Tornado siren, National defense, Uncongested non-toll roads are examples of what type of good? and are they rival in consumption and excludable

public goods, not rival in consumption and not excludable

One tax system is less efficient than another if it (choices a and b have to do with equity) a.places a lower tax burden on lower-income families than on higher-income families. b.places a higher tax burden on lower-income families than on higher-income families. c.raises the same amount of revenue at a higher cost to taxpayers. d.raises less revenue at a lower cost to taxpayers.

raises the same amount of revenue at a high cost to taxpayers

A free rider is a person who a. will only purchase a product on sale. b. receives the benefit of a good but avoids paying for it. c. can produce a good at no cost. d. rides public transit regularly.

receives the benefit of a good but avoids paying for it

Suppose that in a particular market, the supply curve is highly inelastic and the demand curve is highly elastic. If a tax is imposed in this market, then the a. sellers will bear a greater burden of the tax than the buyers. b. buyers will bear a greater burden of the tax than the sellers. c. buyers and sellers are likely to share the burden of the tax equally. d. 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.

sellers will bear a greater burden of the tax than the buyers