Chapter 15,16,17

Refer to the above data. If the marginal cost of producing this good at the optimal quantity is $4, the optimal quantity must be: a. 1 unit. b. 2 units. c. 3 units. d. 4 units.

c

Refer to the above data. The collective willingness of this society to pay for the 2nd unit of this public good is: a. $2. b. $4. c. $6. d. $8.

c

A progressive tax is such that: a. tax rates are higher the greater one's income. b. the same tax rate applies to all income receivers, so that the rich pay absolutely more taxes than the poor. c. entrepreneurial income is exempt from taxation. d. the revenues it yields are spent on transfer payments.

a

Last Word) Because there are so many sources of carbon dioxide, making monitoring difficult and costly, many economists: a. prefer a carbon tax to cap-and-trade for reducing carbon dioxide emissions. b. prefer cap-and-trade to a carbon tax for reducing carbon dioxide emissions. c. believe that cap-and-trade and a carbon tax are both costly, but should be implemented to reduce carbon dioxide emissions. d. believe that neither cap-and-trade nor carbon taxes can effectively reduce carbon dioxide emissions.

a

Market failure is said to occur whenever: a. private markets do not allocate resources in the most economically desirable way. b. prices rise. c. some consumers who want a good do not obtain it because the price is higher than they are willing to pay. d. government intervenes in the functioning of private markets.

a

Other things being equal, the burden of a sales tax on a product will be borne entirely by the producer if: a. Demand is perfectly elastic b. Supply is perfectly elastic c. Supply and demand have the same price elasticity d. Demand is perfectly inelastic

a

Refer to the above diagrams for two separate product markets. Assume that society's optimal level of output in each market is Q0 and that government purposely shifts the market supply curve from S to S1 in diagram (a) and from S to S2 in diagram (b). The shift of the supply curve from S to S2 in diagram (b) might be caused by a per unit: a. subsidy paid to the producers of this product. b. tax on the producers of this product. c. subsidy paid to the buyers of this product. d. tax on the buyers of this product.

a

Refer to the above graph. Assume the market for this product is in equilibrium at the intersection of D2 and S1. The shift in supply from S1 to S2 is due to an excise tax imposed on the product. The incidence of the tax is: a. $1 from the buyers and $3 from the sellers b. $3 from the buyers and $3 from the sellers c. $1 from the buyers and $1 from the sellers d. $4 from the buyers and $0 from the sellers

a

Suppose that Steve and Susie each perceive $200 of marginal benefit from a proposed new park, whereas Elizabeth perceives $800. If the proposed tax levied on each for the park would be $300, a majority vote will: a. defeat this project and resources will be underallocated to it. b. defeat this project and resources will be efficiently allocated. c. pass this project and resources will be underallocated to it. d. pass this project and resources will be overallocated to it.

a

What are the two characteristics that differentiate private goods from public goods? a. Rivalry and excludability b. Negative externality and positive externality c. Marginal cost and marginal benefit d. Ownership and usage

a

(Last Word) In a cap-and-trade program: a. government fixes the price of pollution rights and firms choose how many permits to purchase. b. government fixes the maximum amount of a pollutant that firms can discharge and issues permits that firms can buy from and sell to each other. c. each firm is provided a fixed number of permits for a particular pollutant and no individual firm is allowed to acquire additional permits. d. firms can emit whatever type of pollutant they want, so long as the total tonnage does not exceed a government established quantity.

b

A regressive tax means that if someone earning $25,000 pays $5,000, someone earning $50,000 must pay: a. Less than $5,000 b. Less than $10,000 c. More than $10,000 but less than $15,000 d. More than $15,000 but less than $20,000

b

If the tax cost of this proposed project is $300 per person, a majority vote will: a. defeat this project and resources will be underallocated to it. b. pass this project and resources will be allocated efficiently. c. pass this project and resources will be overallocated to it. d. defeat this project and resources will be overallocated to it.

b

If your income increases from $10,000 per year to $14,000 per year and your tax payment increases from $2,000 to $2,840, the marginal tax rate: a. Is 20 percent b. Is 21 percent c. Is 25 percent d. Cannot be determined from the given data

b

In a free-market economy, a product which entails a positive externality will be: a. Overproduced b. Underproduced c. Produced at the optimal level d. Associated only with goods and services provided by the government

b

Private firms can hardly produce a public good profitably because of: a. Liability rules and lawsuits b. The free-rider problem c. Shortages and surpluses d. Moral hazard and adverse selection

b

Refer to the above diagrams for two separate product markets. Assume that society's optimal level of output in each market is Q0 and that government purposely shifts the market supply curve from S to S1 in diagram (a) and from S to S2 in diagram (b). The shift of the supply curve from S to S1 in diagram (a) might be caused by a per unit: a. subsidy paid to the producers of this product. b. tax on the producers of this product. c. subsidy paid to the buyers of this product. d. tax on the buyers of this product.

b

Refer to the above information. The marginal benefits of crime control for Level Two are: a. $10,000 b. $40,000 c. $50,000 d. $200,000

b

Refer to the above table. If income increases from $15,000 to $30,000, the marginal tax rate is: a. 10.0 percent b. 13.3 percent c. 18.3 percent d. 26.6

b

Which of the following statements concerning a pure public good is false? a. It is impossible to exclude nontaxpayers from the enjoyment of the public good b. All benefits associated with the production and use of a public good are received by the government c. The availability of a public good to one person simultaneously makes it available to all members of society d. The private sector does not have an economic incentive to produce a socially optimal amount of a public good

b

At the optimal quantity of a public good: a. marginal benefit exceeds marginal cost by the greatest amount. b. total benefit equals total cost. c. marginal benefit equals marginal cost. d. marginal benefit is zero.

c

Economists call the pursuit of a transfer of wealth through government at someone else's expense: a. the paradox of voting. b. adverse selection. c. rent-seeking behavior. d. the benefits-received principle.

c

External benefits in consumption refer to benefits accruing to: a. Those who are selling the product to the consumers b. Those who bought and consumed the product c. Those other than the ones who consumed the product d. Those who are consuming the product abroad

c

Refer to the above diagrams in which figures (a) and (b) show demand curves reflecting the prices Alvin and Elmer are willing to pay for a public good, rather than do without it. If the marginal cost of the optimal quantity of this public good is $10, the optimal quantity must be: a. 1 unit. b. 2 units. c. 3 units. d. 4 units.

c

Refer to the above graph. Assume the market for this product is in equilibrium at the intersection of D2 and S1. The shift in supply from S1 to S2 is due to an excise tax imposed on the product. How much is the tax per unit of product? a. $2 b. $3 c. $4 d. $6

c

Refer to the above information. If Normal University undertakes program Level Three: a. Total benefits will be less than total costs b. Marginal costs will exceed marginal benefits c. There would be an underallocation of resources to crime control d. There would be an overallocation of resources to crime control

c

Refer to the above supply and demand graph of Product X. What would happen if the government taxed the producers of this product because it has negative externalities in production? a. Supply would increase b. Demand would decrease c. Supply would decrease d. Price would increase

c

Refer to the table above. The average tax rate at the $60,000 level of income is: a. 10.0 percent b. 11.6 percent c. 15.0 percent d. 20.8 percent

c

The ability-to-pay principle of taxation: a .has been declared unconstitutional because it deprives individuals of property without due process of law. b. suggests that people should pay taxes in proportion to the benefits they derive from public goods and services. c. suggests that taxes should vary directly with people's income and wealth. d. suggests that taxes should vary inversely with people's income and wealth.

c

The marginal benefit to society of reducing pollution declines with increases in pollution abatement because of the law of: a. increasing costs. b. diminishing returns. c. diminishing marginal utility. d. conservation of matter and energy.

c

The two main characteristics of a public good are: a. production at constant marginal cost and rising demand. b. nonexcludability and production at rising marginal cost. c. nonrivalry and nonexcludability. d. nonrivalry and large negative externalities.

c

Which is an example of a market failure? a. There are not enough tickets available to concerts of extremely popular performers b. The price of medical care has risen dramatically as a result of the introduction of sophisticated equipment and techniques c. Polio shots and chest x-rays provide widespread benefits to the community as a whole as well as to the individuals who get them d. Extensive decreases in the prices of electronic equipment resulted in large numbers of bankruptcies in the computer industry

c

Which is an example of a negative externality? a. An increase in the value of land you own when a nearby development is completed b. The costs paid by a company to build an automated factory c. Decreased property values in a neighborhood where a disreputable nightclub is operating d. The higher price you pay when you buy a heavily advertised product

c

If government levies a tax or fee on hunting licenses and uses the resulting revenue for wildlife stocking programs, this would be an example of: a. A progressive tax b. A regressive tax d. The ability-to-pay principle of taxation c. The benefits-received principle of taxation

d

In a market where negative externalities are associated with consumption and production, the equilibrium will not be efficient because: a. Too few resources will be allocated towards producing the good b. Firms will shut down until costs are reduced c. Costs of production will, on average, be too high d. Too much resources will be allocated towards producing the good

d

Refer to the above information. Which of the following policies would be most appropriate for dealing with this problem? a. Levy a tax on the consumers of paper products and use the tax revenues to conduct research on new energy sources b. Levy a tax on the consumers of electricity and use the tax revenues to subsidize the consumers of paper products c. Levy a tax on the producers of electricity and use the tax revenues to clean up the river d. Levy a tax on the producers of paper products and use the tax revenues to clean up the river

d

Refer to the above table. Based on cost-benefit analysis, the city should: a. not build any of these stadiums. b. build stadium E. c. build stadium C. d. build stadium D.

d

Refer to the above table. The marginal cost and marginal benefit of stadium B (relative to A) are: a. $20 million and $50 million, respectively. b. $100 million and $200 million, respectively. c. $30 million and $50 million, respectively. d. $20 million and $60 million, respectively.

d

The idea of government failure includes all of the following except: a. limited and bundled choices. b. bureaucratic inefficiency. c. pressure by special-interest groups. d. extensive positive externalities from public and quasi-public goods.

d

The marginal cost to society of reducing pollution rises with increases in pollution abatement because of the law of: a. diminishing marginal utility. b. conservation of matter and energy. c. demand. d. diminishing returns.

d

Which of the above schedules represent(s) a regressive tax? a. V only b. III and V c. IV only d. I only

d

Which of the following is an example of market failure? a. negative externalities b. positive externalities c. public goods d. all of these

d

Which of the following taxes is most likely to be regressive? a. Personal income taxes b. Corporate income taxes c. Estate taxes d. General sales taxes

d