EC 110 Test 2B

In analyzing international trade, we often focus on a country whose economy is small relative to the rest of the world. We do so a.because it is impossible to analyze the gains and losses from international trade without making this assumption. b.because then we can assume that world prices of goods are unaffected by that country's participation in international trade. c.in order to rule out the possibility of tariffs or quotas. d.All of the above are correct.

b.because then we can assume that world prices of goods are unaffected by that country's participation in international trade.

With free trade, consumer surplus is a.$320. b.$845. c.$640. d.$1,690.

a. $320.

Suppose that the production of plastic creates a social cost which is depicted in the graph above. Without any government regulation, what price will the firm charge per unit of plastic? a.$7.00 b.$4.00 c.$6.00 d.$10.00

a. $7.00

Suppose the cost to plant each tree is $120 and the 4 homeowners have agreed to split all tree-planting costs equally. How many trees would Adams prefer to plant? a.2 b.3 c.1 d.0

a. 2

The change in total surplus in this market because of trade is a.D, and this area represents a gain in total surplus because of trade. b.D, and this area represents a loss of total surplus because of trade. c.B + D, and this area represents a gain in total surplus because of trade. d.B + D, and this area represents a loss of total surplus because of trade.

a. D, and this area represents a gain in total surplus because of trade.

Under which of the following scenarios would a park be considered a common resource? a.Visitors can enter the park free of charge, but frequently all of the picnic tables are in use. b.Visitors can enter the park free of charge and there are always plenty of empty picnic tables. c.Visitors to the park must pay an admittance fee and frequently all of the picnic tables are in use. d.Visitors to the park must pay an admittance fee, but there are always plenty of empty picnic tables.

a. Visitors can enter the park free of charge, but frequently all of the picnic tables are in use.

When a country that exported a particular good abandons a free-trade policy and adopts a no-trade policy, a.consumer surplus increases and total surplus decreases in the market for that good. b.consumer surplus decreases and total surplus increases in the market for that good. c.consumer surplus increases and total surplus increases in the market for that good. d.consumer surplus decreases and total surplus decreases in the market for that good.

a. consumer surplus increases and total surplus decreases in the market for that good.

When a good is rival in consumption, a.one person's use of the good diminishes another person's ability to use it. b.everyone will be excluded from obtaining the good. c.people can be prevented from using the good. d.an unlimited number of people can use the good at the same time.

a. one person's use of the good diminishes another person's ability to use it.

Assume that your roommate is very messy. Suppose she gets a $25 benefit from being messy but imposes a $50 cost on you. The Coase theorem would suggest that an efficient solution would be for you to a.pay your roommate at least $25 but no more than $50 to clean up after herself. b.pay your roommate at least $51 to clean up after herself. c.charge your roommate at least $25 to have you clean up after her. d.charge your roommate at least $50 but no more than $100 to keep you from complaining about the mess.

a. pay your roommate at least $25 but no more than $50 to clean up after herself.

Because of the free-rider problem, a.private markets tend to undersupply public goods. b.poverty has increased. c.fireworks displays have become increasingly dangerous. d.the federal government spends too many resources on national defense and not enough resources on medical research.

a. private markets tend to undersupply public goods.

When a country that imports a particular good imposes an import quota on that good, a.producer surplus increases and total surplus decreases in the market for that good. b.producer surplus decreases and total surplus decreases in the market for that good. c.producer surplus increases and total surplus increases in the market for that good. d.producer surplus decreases and total surplus increases in the market for that good.

a. producer surplus increases and total surplus decreases in the market for that good.

To internalize the externality in this market, the government should a.provide a subsidy for this product. b.impose a tax on this product. c.forbid production. d.produce the product itself.

a. provide a subsidy for this product.

Which city currently charges drivers a "congestion toll" to drive into the heart of the city's financial, legal, and entertainment district? a.London b.Washington, D.C. c.Tokyo d.Sydney

a.London

Suppose the government imposes a tariff of $20 per unit. The amount of revenue collected by the government from the tariff is a.$6,000. b.$12,000. c.$9,000. d.$15,000.

b. $12,000.

Vietnam's gains from trade in rice amount to a.750. b.1,500. c.1,000. d. 1,250.

b. 1,500.

A benevolent social planner would like to see a.200 units of plastic produced. b.500 units of plastic produced. c.650 units of plastic produced. d.more than 650 units of plastic produced.

b. 500 units of plastic produced.

What do American drivers on congested roads and Soviet shoppers waiting in line to purchase clothing have in common? a.Both the American drivers and the Soviet shoppers could avoid waiting if the prices were lowered. b.Both the American drivers and the Soviet shoppers are consuming products at prices that do not represent the full costs of the products. c.American drivers and Soviet shoppers have nothing in common. d.Both the American drivers and the Soviet shoppers can purchase as much as they want at the market price.

b. Both the American drivers and the Soviet shoppers are consuming products at prices that do not represent the full costs of the products.

Why is the commercial value of ivory a threat to the elephant, while the commercial value of beef is the cow's guardian? a.Cows are a common resource. b.Elephants are a common resource. c.Elephants live in Africa, whereas cows live in the United States. d.Cows are a public good.

b. Elephants are a common resource.

Which of the following statements is not correct? a.A free rider is a person who benefits from something for which he or she does not have to pay. b.The Tragedy of the Commons illustrates the underuse of a common resource. c.The creation of general knowledge is a public good. d.A gasoline tax is an imperfect solution to the problem of traffic congestion on public roads.

b. The Tragedy of the Commons illustrates the underuse of a common resource.

When a country allows trade and becomes an exporter of a good, which of the following is not a consequence? a.The price paid by domestic consumers of the good increases. b.The losses of domestic consumers of the good exceed the gains of domestic producers of the good. c.The gains of domestic producers of the good exceed the losses of domestic consumers of the good. d.The price received by domestic producers of the good increases.

b. The losses of domestic consumers of the good exceed the gains of domestic producers of the good.

The idea that "externalities arise because something of value has no price attached to it" is associated with a.common resources, but not with public goods. b.both public goods and common resources. c.public goods, but not with common resources. d.neither public goods nor common resources.

b. both public goods and common resources.

The nation of Aquilonia has decided to end its policy of not trading with the rest of the world. When it ends its trade restrictions, it discovers that it is importing rice, exporting steel, and neither importing nor exporting TVs. We can conclude that producer surplus in Aquilonia is now a.lower in the rice and TV markets, and higher in the steel market. b.higher in the steel market, lower in the rice market, and unchanged in the TV market. c.higher in the rice and steel markets, and unchanged in the TV market. d.lower in the rice and steel markets, and the same in the TV market.

b. higher in the steel market, lower in the rice market, and unchanged in the TV market.

The proposition that if private parties can bargain without cost over the allocation of resources, they can solve the problem of externalities on their own, is called a.the Pigovian theorem. b.the Coase theorem. c.a corrective tax. d.the externality theorem.

b. the Coase theorem.

Which of the following magnitudes is constant over all units of output? a.the social value of the last unit of output that was produced and sold b.the external benefit of the last unit of output that was produced and sold c.the private value of the last unit of output that was produced and sold d.the private cost of the last unit of output that was produced and sold

b. the external benefit of the last unit of output that was produced and sold

For any country, if the world price of copper is higher than the domestic price of copper without trade, that country should a.import copper, since that country has a comparative advantage in copper. b.neither export nor import copper, since that country cannot gain from trade. c.export copper, since that country has a comparative advantage in copper. d.neither export nor import copper, since that country already produces copper at a low cost compared to other countries.

c. export copper, since that country has a comparative advantage in copper.

Suppose Isoland changes from a no-trade policy to a policy that allows international trade. If the world price of peaches is $3, then the policy change results in a a.$45.00 increase in consumer surplus. b.$15.00 decrease in producer surplus. c.$12.50 increase in total surplus. d.$20.00 increase in total surplus.

c. $12.50 increase in total surplus.

Suppose the cost to run the ferry for each roundtrip is $750 per day and the 4 business owners have agreed to split the costs of the ferry trips equally. How many ferry trips would the owner of Restaurant 1 prefer to have? a.0 b.3 c.2 d.1

c. 2

Who among the following is a free rider? a.Oscar goes to Elmo's house to watch a football game on the local television channel. b.Grover sends his 5 children to a private school rather than to the public school in his neighborhood. c.Ernie listens to National Public Radio, but does not contribute to any fundraising efforts. d.Bert takes the commuter rail to work, but he purchases the discounted monthly passes rather than buying tickets each day.

c. Ernie listens to National Public Radio, but does not contribute to any fundraising efforts.

Suppose Japan exports televisions to the United States and imports sugar from Argentina. This situation suggests a.Japan has an absolute advantage relative to Argentina in producing sugar, and the United States has an absolute advantage relative to Japan in producing televisions. b.Japan has a comparative advantage relative to the United States in producing sugar, and Argentina has a comparative advantage relative to Japan in producing televisions. c.Japan has a comparative advantage relative to the United States in producing televisions, and Argentina has a comparative advantage relative to Japan in producing sugar. d.Japan has an absolute advantage relative to the United States in producing televisions, and Argentina has an absolute advantage relative to Japan in producing sugar.

c. Japan has a comparative advantage relative to the United States in producing televisions, and Argentina has a comparative advantage relative to Japan in producing sugar.

Which graph represents a market with a positive externality? a.Panel (a) b.Panel (b) c.Panel (c) d.Both (b) and (c) are correct.

c. Panel (c)

Which of the following is true of markets characterized by positive externalities? a.Social value exceeds private value, and market quantity exceeds the socially optimal quantity. b.Social value seldom exceeds private value; therefore, social quantity is less than private quantity. c.Social value exceeds private value, and market quantity is less than the socially optimal quantity. d.Social value is less than private value, and market quantity exceeds the socially optimal quantity.

c. Social value exceeds private value, and market quantity is less than the socially optimal quantity.

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 incurred by the government when it intervenes in the market. c.cost of an externality. d.cost reduction when the negative externality is eliminated.

c. cost of an externality.

Which of the following pairs of goods includes a good that is excludable and rival in consumption as well as a good that is not excludable and not rival in consumption? a.tablet computer, gym membership at a gym that always has plenty of open equipment and classes b.congested nontoll road, national defense c.tablet computer, national defense d.online music subscription, streetlight

c. tablet computer, national defense

When trade takes place, the quantity Q2 - Q1 is a.the number of rifles produced in Mexico. b.the number of rifles bought and sold in Mexico. c.the number of rifles imported by Mexico. d.the number of rifles exported by Mexico.

c. the number of rifles imported by Mexico.

Producer surplus before trade is a.$24,800. b.$14,400. c.$16,800. d.$21,600.

d. $21,600.

The social cost of the 2nd unit of output that is produced is a.$23. b.$38. c.$7. d.$30.

d. $30.

Which of the following statements about a well-maintained yard best conveys the general nature of the externality? a.A well-maintained yard cannot provide any type of externality. b.A well-maintained yard conveys a positive externality because it increases the home's market value. c.A well-maintained yard conveys a negative externality because it increases the property tax liability of the owner. d.A well-maintained yard conveys a positive externality because it increases the value of adjacent properties in the neighborhood.

d. A well-maintained yard conveys a positive externality because it increases the value of adjacent properties in the neighborhood.

When a country allows international trade and becomes an exporter of a good, a.domestic producers of the good become better off. b.domestic consumers of the good become worse off. c.the gains of the winners exceed the losses of the losers. d.All of the above are correct.

d. All of the above are correct.

Which price and quantity combination represents the social optimum? a.P2 and Q0. b.P1 and Q0. c.P0 and Q1. d.P2 and Q1.

d. P2 and Q1.

Which of the following goods is rival and excludable? a.a congested nontoll road b.an uncongested toll road c.an uncongested nontoll road d.a congested toll road

d. a congested toll road

A negative externality arises when a person engages in an activity that has a.an adverse effect on a bystander who is compensated by the person who causes the effect. b.a beneficial effect on a bystander who pays the person who causes the effect. c.a beneficial effect on a bystander who does not pay the person who causes the effect. d.an adverse effect on a bystander who is not compensated by the person who causes the effect.

d. an adverse effect on a bystander who is not compensated by the person who causes the effect.

With trade, China will a.import 250 pencil sharpeners. b.export 150 pencil sharpeners. c.import 100 pencil sharpeners. d.export 250 pencil sharpeners.

d. export 250 pencil sharpeners.

With free trade allowed, this country a.exports 200 units of the good. b.exports 400 units of the good. c.imports 400 units of the good. d.exports 800 units of the good.

d. exports 800 units of the good.

When a policy succeeds in giving buyers and sellers in a market an incentive to take into account the external effects of their actions, the policy is said to a.equalize private cost and external cost. b.equalize private value and private cost. c.externalize the actions of the buyers and sellers. d.internalize the externality.

d. internalize the externality.

Dog owners do not bear the full cost of the noise their barking dogs create and often take too few precautions to prevent their dogs from barking. Local governments address this problem by a.having a well-funded animal control department. b.subsidizing local animal shelters. c.encouraging people to adopt cats. d.making it illegal to "disturb the peace.

d. making it illegal to "disturb the peace."

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

d. receives the benefit of a good but avoids paying for it.

If education produces positive externalities, we would expect a.the government to tax education. b.people to realize the benefits, which would increase the demand for education. c.colleges to relax admission requirements. d.the government to subsidize education.

d. the government to subsidize education.