Econ 202 Final Exam study guide

Economists sometimes give conflicting advice because

economists have different values and scientific judgments

In the markets for goods and services in the circular-flow diagram,

firms provide households with output

Economists make assumptions to

focus their thinking on the essence of the problem at hand

A circular-flow diagram is a model that

helps to explain how the economy is organized

In the simple circular-flow diagram, the participants in the economy are

households and firms

Refer to Figure 6-1. The price ceiling shown in graph (a)

is not binding.

Refer to Table 10-5. If the government wanted to reduce pollution from 16 units to exactly 5 units, which of the following fees per unit of pollution would achieve that goal?

$88

Refer to Table 10-5. Suppose the government wants to reduce pollution from 16 units to 5 units and auctions off 5 pollution permits to achieve this goal. Which of the following is a likely auction price of the permits?

$88

Refer to Table 10-5. If the government charged a fee of $84 per unit of pollution, how many units of pollution would the firms eliminate altogether?

10

Refer to Figure 10-7. This graph shows the market for pollution when permits are issued to firms and traded in the marketplace. The equilibrium price of pollution is

$1,000

Refer to Figure 10-1. This graph represents the tobacco industry. Without any government intervention, the equilibrium price and quantity are

$2.07 and 38 units, respectively.

Refer to Figure 10-1. This graph represents the tobacco industry. The socially optimal price and quantity are

$2.80 and 24 units, respectively.

Refer to Figure 6-13. What is the amount of the tax per unit?

$4

Refer to Table 10-2. How large would a subsidy need to be in this market to move the market from the equilibrium level of output to the socially optimal level of output?

$6

Refer to Figure 10-3. What is the equilibrium price in this market?

$8

Refer to Figure 6-13. Acme, Inc. is a seller of the good. Acme sells a unit of the good to a buyer and then pays the tax on that unit to the government. After paying the tax, Acme receives how much?

$8.00

Refer to Table 10-5. If the government wanted to eliminate exactly 10 units of pollution, which of the following fees per unit of pollution would achieve that goal?

$83

Refer to Figure 10-3. What is the socially optimal quantity of output in this market?

10 units

Refer to Figure 2-4, Graph (a). The opportunity cost of moving from point P to point R is

2 cups of coffee

Refer to Figure 6-11. Suppose a tax of $2 per unit is imposed on this market. How much will buyers pay per unit after the tax is imposed?

Between $5 and $7

Refer to Figure 6-11. Suppose a tax of $2 per unit is imposed on this market. What will be the new equilibrium quantity in this market?

Between 60 units and 100 units

Refer to Figure 6-14. The buyers will bear the highest share of the tax burden compared to sellers if the demand is

D2 , and the supply is S2 .

How are economists not like mathematicians, physicists, and biologists?

Economists cannot run lab experiments in the same way that other scientists can

Refer to Figure 6-11. Suppose a tax of $2 per unit is imposed on this market. Which of the following is correct?

One-half of the burden of the tax will fall on buyers, and one-half of the burden of the tax will fall on sellers.

Which of the following is an example of a positive, as opposed to a normative, statement?

The United States Department of Justice sued AT&T to block its merger with T-Mobile.

Refer to Figure 6-15. In which market will the majority of the tax burden fall on buyers?

The market shown in graph (b)

Refer to Table 2-2. Which of the following statements is correct?

The opportunity cost of an additional 200 socks increases as more socks are produced.

Which of the following is an example of a normative, as opposed to a positive, statement?

Universal healthcare would be good for U.S. citizens.

Refer to Figure 6-3. A government-imposed price of $6 in this market is an example of a

binding price floor that creates a surplus.

1When a tax is placed on the buyers of beer, the

burden of the tax will be shared by the buyers and the sellers, but the division of the burden is not always equal.

Refer to Figure 6-14. Suppose D1 represents the demand curve for paperback novels, D2 represents the demand curve for gasoline, and S1 is representative of the supply curve for paperback novels as well as the supply curve for gasoline. After the imposition of the $2 tax on paperback novels and on gasoline, the

buyers of gasoline bear a higher burden of the $2 tax than buyers of paperback novels.

Sauruv installed a marble sculpture in his front yard. A negative externality arises if the sculpture

creates a safety hazard for neighborhood children

If the government imposes a binding price ceiling on a market, then the price paid by buyers will

decrease, and the quantity sold in the market will decrease.

If the government removes a binding price floor from a market, then the price paid by buyers will

decrease, and the quantity sold in the market will increase.

11. Refer to Figure 6-7. If the government imposes a price ceiling at $6, it would be

nonbinding if market demand is Demand A and binding if market demand is Demand B.

If a tax is levied on the sellers of a product, then the demand curve will

not shift

An externality is the uncompensated impact of

one person's actions on the well-being of a bystander.

Rent-control laws dictate

only a maximum rent that landlords may charge tenants.

Minimum-wage laws dictate

only a minimum wage that firms may pay workers.

The production possibilities frontier provides an illustration of the principle that

people face trade-offs.

Refer to Figure 2-4, Graph (a). Production is

possible at points P, Q, R, and S, but efficient only at points P, R, and S.

58. When positive externalities are present in a market

social benefits will be greater than private benefits

In the 1970s, long lines at gas stations in the United States were primarily a result of the fact that

the U.S. government maintained a price ceiling on gasoline.

According to the Coase theorem, private parties can solve the problem of externalities if

the cost of bargaining is small

Refer to Figure 6-13. Suppose buyers, rather than sellers, were required to pay this tax (in the same amount per unit as shown in the graph). Relative to the tax on sellers, the tax on buyers would result in

the same amount of tax revenue for the government

Refer to Figure 10-7. This graph shows the market for pollution when permits are issued to firms and traded in the marketplace. In the absence of a pollution permit system, the quantity of pollution would be

100 units

Refer to Table 10-2. What is the equilibrium quantity of output in this market?

2 units

Refer to Table 10-2. What is the socially optimal level of output in this market?

3 units

Refer to Figure 10-7. This graph shows the market for pollution when permits are issued to firms and traded in the marketplace. The equilibrium number of permits is

50

Refer to Table 2-2. What is the opportunity cost to Ecoville of increasing the production of socks from 400 to 600?

500 glasses

Refer to Figure 2-1. Which arrow represents the flow of spending by households?

A

. Refer to Figure 2-1. Makena buys a freezer for her new home. To which of the arrows does this transaction directly contribute?

A and B

A price ceiling is

A legal maximum on the price at which a good can be sold

Refer to Figure 2-4, Graph (a) and Graph (b). Which of the following is not a result of the shift of the economy's production possibilities frontier from Graph (a) to Graph (b)?

Production of 3 donuts and 3 cups of coffee becomes possible.

When constructing a production possibilities frontier, which of the following assumptions is not made?

The quantities of the factors of production that are available are increasing over the relevant time period.

Zaria and Hannah are roommates. Zaria assigns a $30 value to smoking cigarettes. Hannah values smoke-free air at $15. Which of the following scenarios is a successful example of the Coase theorem?

Zaria pays Hannah $16 so that Zaria can smoke

A price floor is

a legal minimum on the price at which a good can be sold.

The minimum wage was instituted to ensure workers

a minimally adequate standard of living

Refer to Figure 2-4, Graph (a) and Graph (b). A shift of the economy's production possibilities frontier from Graph (a) to Graph (b) could be caused by

an improvement in donut production technology

A tax on the buyers of smart watches encourages

buyers to demand a smaller quantity at every price

When recommending specific policies to undertake, economists make

claims about how the world should be

Refer to Figure 2-4, Graph (a). Production at point Q is

possible but inefficient.

Refer to Figure 6-2. The price ceiling causes quantity

demanded to exceed quantity supplied by 150 units

Refer to Figure 6-14. Suppose D1 represents the demand curve for gasoline in both the short run and long run, S1 represents the supply curve for gasoline in the short run, and S2 represents the supply curve for gasoline in the long run. After the imposition of the $2 tax, the price paid by buyers will be

higher in the long run than in the short run

Microeconomics is the study of

how individual households and firms make decisions.

When an externality is present, the market equilibrium is

inefficient, and the equilibrium does not maximize the total benefit to society as a whole.

Refer to Figure 10-3. If the government wanted to tax or subsidize this good to achieve the socially optimal level of output, it would

introduce a subsidy of $4 per unit.

Refer to Figure 10-1. The social cost curve is above the supply curve because

it takes into account the external costs imposed on society by tobacco consumption.

An economy's production of two goods is efficient if

the economy is producing at a point on the production possibilities frontier

The bowed-outward shape of the production possibilities frontier can be explained by the fact that

the opportunity cost of one good in terms of the other depends on how much of each good the economy is producing.

Refer to Figure 6-13. How is the burden of the tax shared between buyers and sellers? Buyers bear

three-fourths of the burden, and sellers bear one-fourth of the burden.

Instead of conducting laboratory experiments to generate data to test their theories, economists often

use whatever data the world gives them

Under rent control, landlords can cease to be responsive to tenants' concerns about the quality of the housing because

with shortages and waiting lists, they have no incentive to maintain and improve their property.