Microeconomics Midterm 2 Study Guide Ch.7-13 (12 not included)
A negative externality arises when a person engages in an activity that has a. an adverse effect on a bystander who is not compensated by the person who causes the effect. b. an adverse effect on a bystander who is compensated by the person who causes the effect. c. a beneficial effect on a bystander who pays the person who causes the effect. d. a beneficial effect on a bystander who does not pay the person who causes the effect.
A
All else equal, what happens to consumer surplus if the price of a gooddecreases? a. Consumer surplus increases. b. Consumer surplus decreases. c. Consumer surplus is unchanged. d. Consumer surplus may increase, decrease, or remain unchanged.
A
An externality a. results in an equilibrium that does not maximize the total benefits to society. b. causes demand to exceed supply. c. strengthens the role of the "invisible hand" in the marketplace. d. affects buyers but not sellers.
A
At the equilibrium price of a good, the good will be purchased by those buyers who a. value the good more than price. b. value the good less than price. c. have the money to buy the good. d. consider the good a necessity.
A
Bob owns 5 acres of land. Bob 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 a. both rival in consumption and excludable. b. neither rival in consumption nor excludable. c. excludable, but not rival in consumption. d. rival in consumption, but not excludable.
A
Consumer surplus is a. the amount a buyer is willing to pay for a good minus the amount the buyer actually pays for it. b. the amount a buyer is willing to pay for a good minus the cost of producing the good. c. the amount by which the quantity supplied of a good exceeds the quantity demanded of the good. d. a buyer's willingness to pay for a good plus the price of the good.
A
Cost is a measure of the a. seller's willingness to sell. b. seller's producer surplus. c. producer shortage. d. seller's willingness to buy.
A
Deadweight loss is the a. decline in total surplus that results from a tax. b. decline in government revenue when taxes are reduced in a market. c. decline in consumer surplus when a tax is placed on buyers. d. loss of profits to business firms when a tax is imposed.
A
Externalities tend to cause markets to be a. inefficient. b. unequal. c. unnecessary. d. overwhelmed.
A
If a consumer is willing and able to pay $20 for a particular good and if he pays $16 for the good, then for that consumer, consumer surplus amounts to a. $4. b. $16. c. $20. d. $36.
A
If revenue from a cigarette tax is used to pay for healthcare for people with lung cancer, the cigarette tax may be justified on the basis of a. the benefits principle. b. the ability-to-pay principle. c. vertical equity. d. horizontal equity.
A
In many cases selling pollution permits is a better method for reducing pollution than imposing a corrective tax because a. it is hard to estimate the market demand curve and thus charge the "right"corrective tax. b. selling pollution permits create a net increase in pollution. c. Corrective taxes distort incentives. d. Corrective taxes provide greater flexibility to firms that can reduce pollution at a low cost
A
Most people agree that the tax system a. should be both efficient and equitable. b. cannot raise enough revenue to cover government expenditures. c. would raise more revenue if tax rates were lowered. d. should be rewritten to require everyone to pay the same percentage of income in taxes.
A
Neither public goods nor common resources are a. excludable, but only public goods are not rival in consumption. b. excludable, but only common resources are not rival in consumption. c. rival in consumption, but only public goods are not excludable. d. rival in consumption, but only common resources are not excludable.
A
Producer surplus measures the a. benefits to sellers of participating in a market. b. costs to sellers of participating in a market. c. price that buyers are willing to pay for sellers' output of a good or service. d. benefit to sellers of producing a greater quantity of a good or service than buyers demand.
A
Suppose Katie, Kendra, and Kristen each purchase a particular type of cellphone at a price of $80. Katie's willingness to pay was $100, Kendra's willingness to pay was $95, and Kristen's willingness to pay was $80. Which of the following statements is correct? a. For the three individuals together, consumer surplus amounts to $35. b. Having bought the cell phone, Kristen is better off than she would have been had she not bought it. c. Had the price of the cell phone been $95 rather than $80,
A
Suppose that alcohol consumption creates a negative externality. What can the government do to equate the equilibrium quantity of alcohol and the socially optimal quantity of alcohol? a. impose a tax on alcohol that is equal to the per-unit externality b. offer a subsidy on alcohol that is equal to the per-unit externality c. impose a regulation limiting the amount of alcohol that each consumer can purchase d. nothing
A
Suppose the demand for peanuts increases. What will happen to producer surplus in the market for peanuts? a. It increases. b. It decreases. c. It remains unchanged. d. It may increase, decrease, or remain unchanged.
A
The Tragedy of the Commons results when a good is a. rival in consumption and not excludable. b. excludable and not rival in consumption. c. both rival in consumption and excludable. d. neither rival in consumption nor excludable.
A
The best remedy for market failure is often a. a market-based solution. b. shutdown of the market. c. no government intervention. d. externalizing the externalities.
A
The difference between a corrective tax and a tradable pollution permit is that a. a corrective tax sets the price of pollution and a permit sets the quantity of pollution. b. a corrective tax creates a more efficient outcome than a permit. c. a corrective tax sets the quantity of pollution and a permit sets the price of pollution. d. a permit creates a more efficient outcome than a corrective tax.
A
The largest source of revenue for the federal government is the a. individual income tax. b. property tax. c. sales tax. d. corporate income tax.
A
Under which of the following scenarios would a park be considered a club good? a. Visitors to the park must pay an admittance fee, but there are alway splenty of empty picnic tables. b. Visitors to the park must pay an admittance fee and frequently all of the picnic tables are in use. c. Visitors can enter the park free of charge and there are always plenty of empty picnic tables. d. Visitors can enter the park free of charge, but frequently all of the picnic tables are in use.
A
When a country allows trade and becomes an exporter of a good a. producer surplus from that good rises and consumer surplus from that good falls. b. producer and consumer surplus from that good rise. c. producer and consumer surplus from that good fall. d. producer surplus from the good falls, and consumer surplus from that good rises.
A
Which of the following is correct? a. Efficiency deals with the size of the economic pie, and equality deals with how fairly the pie is sliced. b. Equality can be judged on positive grounds whereas efficiency requires normative judgments. c. Efficiency is more difficult to evaluate than equality. d. Equality and efficiency are both maximized in a society when total surplus is maximized.
A
Which of the following statements is correct? a. Corrective taxes are often preferred over direct regulation because they typically reduce externalities at a lower cost. b. Corrective taxes distort economic incentives. c. Corrective taxes are often preferred over direct regulation because they typically reduce externalities at a faster rate. d. Both a and b are correct.
A
If a consumer places a value of $15 on a particular good and if the price of the good is $17, then the a. consumer has consumer surplus of $2 if he or she buys the good. b. consumer does not purchase the good. c. market is not a competitive market. d. price of the good will fall due to market forces.
B
A deadweight loss is a consequence of a tax on a good because the tax a. induces the government to increase its expenditures. b. induces buyers to consume less, and sellers to produce less. c. increases the equilibrium price in the market. d. imposes a loss on buyers that is greater than the loss to sellers.
B
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.
B
A television broadcast is an example of a good that is a. private. b. not rival in consumption. c. social. d. normal.
B
All else equal, what happens to consumer surplus if the price of a good ncreases? a. Consumer surplus increases. b. Consumer surplus decreases. c. Consumer surplus is unchanged. d. Consumer surplus may increase, decrease, or remain unchanged.
B
At the equilibrium price of a good, the good will be sold by those sellers a. whose cost is more than price. b. whose cost is less than price. c. that can produce the good. d. enter the market first.
B
Goods that are not rival in consumption include both a. private goods and common resources. b. club goods and public goods. c. common resources and public goods. d. private goods and club goods.
B
If a tax takes a smaller fraction of income as income rises, it is a. proportional. b. regressive. c. progressive. d. based on the ability-to-pay principle.
B
If the current allocation of resources in the market for wallpaper is efficient, then it must be the case that a. producer surplus equals consumer surplus in the market for wallpaper. b. the market for wallpaper is in equilibrium. c. on the last unit of wallpaper that was produced and sold, the value to buyers exceeded the cost to sellers. d. All of the above are correct.
B
Market failure can be caused by a. too much competition. b. externalities. c. low consumer demand. d. scarcity
B
On a graph, consumer surplus is represented by the area a. between the demand and supply curves. b. below the demand curve and above price. c. below the price and above the supply curve. d. below the demand curve and to the right of equilibrium price.
B
The Tragedy of the Commons can be corrected by a. conducting a cost-benefit analysis. b. assigning property rights to individuals. c. providing government subsidies for the resource. d. making certain everyone in the economy has access to the resource.
B
The concept that people should pay taxes based on the benefits they receive from government services is called a. the ability-to-pay principle. b. the benefits principle. c. horizontal equity. d. vertical equity.
B
The difference between social cost and private cost is a measure of the a. loss in profit to the seller as the result of a negative externality. b. cost of an externality. c. cost reduction when the negative externality is eliminated. d. cost incurred by the government when it intervenes in the market.
B
The overuse of a common resource relative to its economically efficient use is called a. the free rider problem. b. the Tragedy of the Commons. c. a public good. d. cost-benefit analysis.
B
Tom tunes pianos in his spare time for extra income. Buyers of his service are willing to pay $155 per tuning. One particular week, Tom is willing to tune the first piano for $120, the second piano for $125, the third piano for $140, and the fourth piano for $160. Assume Tom is rational in deciding how many pianos to tune. His producer surplus is a. $95. b. $80. c. $75. d. $60.
B
University researchers create a positive externality because what they discover in their research labs can easily be learned by others who haven't contributed to the research costs. What could the federal government do to equate the equilibrium quantity of university research and the socially optimal quantity of university research produced? a. tax university researchers b. offer grants to university researchers c. eliminate subsidized student loans d. nothing
B
Which of the following statements is correct? a. Government should tax goods with either positive or negative externalities. b. Government should tax goods with negative externalities and subsidize goods with positive externalities. c. Government should subsidize goods with either positive or negative externalities. d. Government should tax goods with positive externalities and subsidize goods with negative externalities.
B
Which of the following will cause an increase in consumer surplus? a. an increase in the production cost of the good b. a technological improvement in the production of the good c. a decrease in the number of sellers of the good d. the imposition of a binding price floor in the market
B
Which tax system requires all taxpayers to pay the same percentage of their income in taxes? a. a regressive tax b. a proportional tax c. a progressive tax d. a horizontal equity tax
B
A city street is a. always a public good, whether or not it is congested. b. a public good when it is congested, but it is a common resource when it is not congested. c. a common resource when it is congested, but it is a public good when it is not congested. d. always a common resource, whether or not it is congested.
C
An externality is the impact of a. society's decisions on the well-being of society. b. a person's actions on that person's well-being. c. one person's actions on the well-being of a bystander. d. society's decisions on the poorest person in the society.
C
Because public goods are a. excludable, people have an incentive to be free riders. b. excludable, people do not have an incentive to be free riders. c. not excludable, people have an incentive to be free riders. d. not excludable, people do not have an incentive to be free riders.
C
Chuck would be willing to pay $20 to attend a dog show, but he buys a ticket for $15. Chuck values the dog show at a. $5. b. $15. c. $20. d. $35.
C
Corrective taxes differ from most taxes in that corrective taxes a. reduce economic efficiency. b. do not raise revenue for the government. c. do not cause deadweight losses. d. always result in a high burden on sellers of goods to which the corrective tax applies
C
Goals of efficiency and equity in tax policy are a. complementary in most countries. b. necessary for application of the ability-to-pay principle. c. often in conflict with each other. d. easier to achieve when tax codes are complex.
C
Goods that are rival in consumption include both a. club goods and public goods. b. public goods and common resources. c. common resources and private goods. d. private goods and club goods.
C
Government policy can potentially raise economic well-being a. in all markets for goods and services. b. in economic models, but not in reality. c. when a good does not have a price attached to it. d. never
C
Governments can improve market outcomes for a. public goods but not common resources. b. common resources but not public goods. c. both public goods and common resources. d. neither public goods nor common resources.
C
Markets fail to allocate resources efficiently when a. demanders and suppliers cannot agree on a price. b. goods are rival in consumption and excludable. c. property rights are not well established. d. too many buyers and sellers exist in the same market.
C
Private markets fail to account for externalities because a. externalities don't occur in private markets. b. sellers include costs associated with externalities in the price of their product. c. decision makers in the market fail to include the costs of their behavior to third parties. d. the government cannot easily estimate the optimal quantity of pollution.
C
Producer surplus is a. measured using the demand curve for a good. b. always a negative number for sellers in a competitive market. c. the amount a seller is paid minus the cost of production. d. the opportunity cost of production minus the cost of producing goods that go unsold.
C
Producer surplus is the area a. under the supply curve. b. between the supply and demand curves. c. below the price and above the supply curve. d. under the demand curve and above the price.
C
Producers have little incentive to produce a public good because a. the social benefit is less than the private benefit. b. the social benefit is less than the social cost. c. there is a free-rider problem. d. there is a Tragedy of the Commons.
C
Research into new technologies provides a a. negative externality, and too few resources are devoted to research as a result. b. negative externality, and too many resources are devoted to research as a result. c. positive externality, and too few resources are devoted to research as a result. d. positive externality, and too many resources are devoted to research as a result.
C
The ability-to-pay principle claims that a person should pay taxes according to a. the level of public education that the person has received throughout his lifetime. b. how many government services that person will receive. c. how well that person can shoulder the tax burden. d. the level of debt that the person has.
C
The loss in total surplus resulting from a tax is called a. a deficit. b. economic loss. c. deadweight loss. d. inefficiency.
C
Under which of the following scenarios would a park be considered a public good? a. Visitors to the park must pay an admittance fee, but there are always plenty of empty picnic tables. b. Visitors to the park must pay an admittance fee and frequently all of the picnic tables are in use. c. Visitors can enter the park free of charge and there are always plenty of empty picnic tables. d. Visitors can enter the park free of charge, but frequently all of the picnic tables are in use.
C
We can say that the allocation of resources is efficient if a. producer surplus is maximized. b. consumer surplus is maximized. c. total surplus is maximized. d. sellers' costs are minimized.
C
Welfare economics is the study of a. the well-being of less fortunate people. b. welfare programs in the United States. c. how the allocation of resources affects economic well-being. d. the effect of income redistribution on work effort.
C
What is the difference between command-and-control policies and market-based policies toward externalities? a. Command-and-control policies provide incentives for private decision makers to solve the problems on their own, whereas market-based policies regulate behavior directly. b. Command-and-control policies rely on taxes, whereas market-based policies rely on quotas. c. Command-and-control policies regulate behavior directly, whereas market-based policies provide incentives for private decis
C
Which of the following is not an advantage of corrective taxes? a. They raise revenues for the government. b. They enhance economic efficiency. c. They subsidize the production of goods with positive externalities. d. They move the allocation of resources closer to the social optimum.
C
Which of the following statements is not correct? a. Common resources are rival in consumption but are not excludable. b. Uncongested toll roads are examples of club goods. c. When African elephants were privatized, the survival of the species deteriorated. d. National defense is not rival in consumption, nor is it excludable.
C
Which of the following would not be considered a private good? a. a pair of scissors b. a pair of shoes c. an SUV d. cable TV service
D
Without government intervention, public goods tend to be a. overproduced and common resources tend to be overconsumed. b. overproduced and common resources tend to be underconsumed. c. underproduced and common resources tend to be overconsumed. d. underproduced and common resources tend to be underconsumed.
C
A drought in California destroys many red grapes. As a result of the drought, the consumer surplus in the market for red grapes a. increases, and the consumer surplus in the market for red wine increases. b. increases, and the consumer surplus in the market for red wine decreases. c. decreases, and the consumer surplus in the market for red wine increases. d. decreases, and the consumer surplus in the market for red wine decreases
D
Consumer surplus a. is the amount a buyer pays for a good minus the amount the buyer is willing to pay for it. b. is represented on a supply-demand graph by the area below the price and above the demand curve. c. measures the benefit sellers receive from participating in a market. d. measures the benefit buyers receive from participating in a market.
D
Corrective taxes a. encourage consumers to avoid sales taxes by shopping online. b. are frequently used to discourage imports. c. are less efficient than direct regulation. d. give factory owners an economic incentive to reduce pollution
D
Corrective taxes are unlike most other taxes because they a. distort incentives. b. move the allocation of resources away from the social optimum. c. raise revenue for the government. d. move the allocation of resources closer to the social optimum.
D
If an externality is present in a market, economic efficiency may be enhanced by a. increased competition. b. weakening property rights. c. better informed market participants. d. government intervention.
D
If countries that produce textiles increase production and this lowers the world price, a. the producer surplus of U.S. textile firms and the consumer surplus of U.S.consumers both rise. b. the producer surplus of U.S. textile firms and the consumer surplus of U.S.consumers both fall. c. the producer surplus of U.S. textile firms rise and the consumer surplus ofU.S. consumers rises. d. the producer surplus of U.S. textile firms falls and the consumer surplus ofU.S. consumers rise.
D
In some cases, tradable pollution permits may be better than a corrective tax because a. pollution permits allow for a market solution while a corrective tax does not. b. pollution permits generate more revenue for the government than a corrective tax. c. pollution permits are never preferred over a corrective tax. d. the government can set a maximum level of pollution using permits.
D
Opponents of free trade often argue that trade with other countries destroys domestic jobs. If you are a proponent of free trade, what would your argument be? a. free trade creates jobs in the industries we have comparative advantage. b. free trade allows the society to enjoy a higher standard of living as a whole. c. workers that lost their jobs because of free trade will eventually find jobs in the industries we have comparative advantage. d. All of these are good arguments for free trade.
D
Taxes cause deadweight losses because they a. lead to losses in surplus for consumers and for producers that, when taken together, exceed tax revenue collected by the government. b. distort incentives to both buyers and sellers. c. prevent buyers and sellers from realizing some of the gains from trade. d. All of the above are correct.
D
The Surgeon General announces that eating chocolate increases toothdecay. As a result, the equilibrium price of chocolate a. increases, and producer surplus increases. b. increases, and producer surplus decreases. c. decreases, and producer surplus increases. d. decreases, and producer surplus decreases.
D
The phenomenon of free riding is most closely associated with which type of good? a. private goods b. club goods c. common resources d. public goods
D
Total surplus a. can be used to measure a market's efficiency. b. is the sum of consumer and producer surplus. c. is the value to buyers minus the cost to sellers. d. All of the above are correct.
D
Total surplus is represented by the area a. under the demand curve and above the price. b. above the supply curve and up to the price. c. under the supply curve and up to the price. d. between the demand and supply curves up to the point of equilibrium.
D
Under which of the following scenarios would a park be considered a common resource? a. Visitors to the park must pay an admittance fee, but there are always plenty of empty picnic tables. b. Visitors to the park must pay an admittance fee and frequently all of the picnic tables are in use. c. Visitors can enter the park free of charge and there are always plenty of empty picnic tables. d. Visitors can enter the park free of charge, but frequently all of the picnic tables are in use.
D
Which of the following statements about private goods and public goods is correct? a. Private goods and public goods are both excludable. b. Private goods and public goods are both rival in consumption. c. Private goods are not excludable and public goods are excludable. d. Private goods are rival in consumption and public goods are not excludable.
D
Why do elephants face the threat of extinction while cows do not? a. Cattle are a valuable source of income for many people, while elephants have no market value. b. There is a high demand for products that come from cows, where as there is no demand for products that come from elephants. c. There are still lots of cattle that roam free, while all elephants live in zoos. d. Cattle are owned by ranchers, while elephants are owned by no one.
D
The world price of feta cheese is below the price that would prevail in Greece in the absence of trade. With free trade, the Greek feta producers are better off than without free trade. 1. True 2. False
False
