Midterm 2 Practice Questions HW 4/5

A family on a trip budgets $800 for meals and gasoline. If the price of a meal for the family is $50, how many meals can the family buy if they do not buy any gasoline? A) 32 B) 24 C) 16 D) 8

16

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HW 5

If the price a consumer pays for a product is equal to a consumer's willingness to pay, then the consumer surplus relevant to that purchase is A) zero B) There is not enough information given to answer this question C) Negative, and the consumer would not purchase the product D) Positive, and the consumer would purchase the product

A

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

A

Suppose televisions are a normal good and buyers of televisions experience a decrease in income. As a result, consumer surplus in the television market A) most likely decreases B) is unchanged C) may increase, decrease, or remain unchanged D) most likely increases

A

The distinction between efficiency and equality can be described as follows: A) Efficiency refers to maximizing the size of the pie; equality refers to distributing the pie fairly among members of society B) Efficiency refers to maximizing the number of trades among buyers and sellers; Equality refers to maximizing the gains from trade among buyers and sellers C) Efficiency refers to maximizing the size of the pie; Equality refers to producing a pie of a given size at the least possible cost D) Efficiency refers to minimizing the price paid by buyers; equality refers to maximizing the gains from trade among buyers and sellers

A

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

A

What is the socially optimal level of output in this market? A) 5 units B) 3 units C) 4 units D) 6 units

A

Which of the following is consistent with the elasticities give in Table 5-1? A) A is a luxury and B is a necessity B) A has fewer substitutes than B C) A is a good after an increase in income and B is that same good after a decrease in income D) A is a good immediately after a price increase and B is that same good 3 years after the price increase

A

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 A) increases, and the consumer surplus in the market for red wine decreases B) decreases, and the consumer surplus in the market for red wine decreases C) increases, and the consumer surplus in the market for red wine increases D) decreases, and the consumer surplus in the market for red wine increases

B

If the price of the product is $110, then who would be willing to purchase the product? A) Calvin and Sam B) Calvin, Sam, and Andrew C) Calvin D) Calvin, Sam, Andrew, and Lori

B

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

B

Producer surplus is A) Measured using the demand curve for a good B) The amount a seller is paid minus the cost of production C) Always a negative number for sellers in a competitive market D) The opportunity cost of production minus the cost of producing goods that go unsold

B

We can say that the allocation of resources is efficient if A) consumer surplus is maximized B) total surplus is maximized C) producer surplus is maximized D) sellers' costs are minimized

B

When the price if P1, consumer surplus is A) A+B+D B) A+B+C C) A+B D) A

B

Which of the following is not an advantage of corrective taxes? A) They raise revenues for the government B) The subsidize the production of goods with positive externalities C) They enhance economic efficiency D) They move the allocation of resources closer to the social optimum

B

According to the Coase theorem, private parties can solve the problem of externalities if A) the initial distribution of legal rights favors the person being adversely affected by the externality B) the number of parties involved is sufficiently large C) the cost of bargaining is small D) property rights aren't clearly defined

C

At equilibrium, total surplus is represented by the area A) A+B+D+F B) A+B+C C) A+B+C+D+H+F D) A+B+C+D+H+F+G+I

C

At the equilibrium price, consumer surplus is A) $1600 B) $700 C) $800 D) $1400

C

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

C

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

C

Josiah installed a metal sculpture in his front yard. A positive externality arises if the sculpture A) is visually unappealing to Josiah's neighbors B) creates a safety hazard for neighboring children C) increases the value of other properties in the neighborhood D) increases the value of Josiah's home

C

The demand curve for gasoline slopes downward and the supply curve for gasoline slopes upward. The production of the 1000th gallon of gasoline entails the following: - A private cost of $3.10 - A social cost of $3.55 - A value to consumers of $3.70 Let Qmarket represent the equilibrium quantity of gasoline, an let Qoptimum represent the socially optimal quantity of gasoline. Which of the following inequalities is correct? A) Qoptimum<Qmarket<1000 B) Qoptimum<1000<Qmarket C) 1000<Qoptimum<Qmarket D) Qmarket<1000<Qoptimum

C

Using the midpoint method, if the price falls from $200 to $150, the absolute value of the price elasticity of demand is A) 5.3 B) 0.8 C) 2.8 D) 0.36

C

A budget constraint illustrates the A) prices that a consumer chooses to pay for the products he consumes B) consumption bundles that give a consumer equal satisfaction C) purchases made by consumers D) consumption bundles that a consumer can afford

D

A family on a trip budgets $1000 for meals and gasoline. If the price of a meal for the family is $50 and if gasoline costs $3.50 per gallon, then how many meals can the family buy if they buy 100 gallons of gasoline? A) 16 B) 19 C) 21 D) 13

D

Education yields positive externalities. For example, A) When students go to school, they reinforce the demand for teachers B) Colleges and universities have benefited, in recent years, from increases in tuition paid by students C) As a result of earning a college degree, a person becomes a more productive worker and benefits by earning higher wages D) A more educated population tends to result in lower crime rates

D

If the market price is $1000, the producer surplus in the market is A) $700 B) $1000 C) $1700 D) $300

D

In which market will the majority of the tax burden fall on buyers? A) The market shown in graph A B) The market shows in graph C C) The tax burden on buyers is the same for all three graphs D) The market shown in graph B

D

Suppose researches at the University of Wisconsin discover a new vitamin that increases the milk production of dairy cows. If the demand for milk is relatively inelastic, the discovery will A) lower price and raise total revenues B) raise both price and total revenues C) raise price and lower total revenues D) lower both price and total revenues

D

Suppose that the equilibrium price in the market for widgets is $5. If a law increased the minimum legal price for widgets to $6, producer surplus A) would necessarily decrease because the higher price would create a surplus of widgets B) would be unaffected C) would necessarily increase even if the higher price resulted in a surplus of widgets D) might increase or decrease

D

The Surgeon General announces that eating chocolate increases tooth decay. As a result, the equilibrium price of chocolate A) increases, and producer surplus decreases B) increases, and producer surplus increases C) decreases, and producer surplus increases D) decreases, and producer surplus decreases

D

The market quantity of oranges demanded per day is exactly seven if the price of an orange, P, satisfies A) $0.25<P<$0.75 B) $0.60<P<$0.75 C) $0.60<P<$2.00 D) $0.25<P<$0.60

D

When the price of candy bars is $1.00, the quantity demanded is 500 per day. When the price falls to $0.80, the quantity demanded increases to 600. Given this information and using the midpoint method, we know that the demand for candy bars is A) elastic B) unit elastic C) perfectly inelastic D) inelastic

D

You are in charge of the local city-owned aquatic center. You need to increase the revenue generated by the aquatic center to meet expenses. The mayor advises you to increase the price of a day pass. The city manager recommends reducing the price of a day pass. You realize that A) bot the mayor and the city manager think that demand is inelastic B) both the mayor and the city manager think that demand is elastic C) the mayor thinks demand is elastic, and the city manager thinks demand is inelastic D) the mayor thinks demand is inelastic, and the city manager thinks demand is elastic

D