Econ Chapters 6-11 Concepts

an external cost is

a cost imposted on bystanders

which of the following is most likely to be traded internationally?

hair gel

when the income effect dominates, a person's labor supply curve slopes

downward

if demand is more ________, then it reacts to changes in price

elastic

when a good is nonrival and nonexcluable (public), it suffers from the

free rider problem

Mana has a comparative advantage in baking cakes. This means that she

gives up less to bake a cake than other bakers give up to bake a cake.

The United States has a comparative advantage in _____-skilled labor. This explains why the U.S. is a net _____ of manufactured goods.

high; importer

The Coase theorem states that the externality problem can be solved by private bargaining

if bargaining is costless and property rights are clearly established.

When people focus on their comparative advantage and then trade for other things, they

improve their standard of living or increase their leisure time

tariffs ____ producer surplus

increase

which is more elastic - insulin or nasal decongestant spray? why?

the spray because it has more substitutes

A per-unit tax is applied to a product in some market. The original equilibrium price was $1. You observe that as a result of the tax, the price paid by buyers is $2 higher than the price received by sellers at the new quantity traded in the market. The most you are able to conclude is that

A tax of $2 has been applied to a market where the demand and supply curves have the same slope

which is considered a nonexcludable good?

public beaches

In the importing country, the MOST likely effect of a tariff is to

raise the price and decrease the quantity demanded

Your landscaping company uses labor and shovels. The price of shovels falls, and this _____ your demand for labor because labor and shovels are _____.

raises; complements

The equilibrium price of gas is $10/hour. To try to control prices, the government put a $5 price ceiling in place. What happens to the supply of gas?

the supply is less than demand

Canada produces lettuce but can also export it. If Canada exports some lettuce

the world price is higher than the domestic price

which is more elastic - water or diamonds? why?

water because diamonds are luxurious

Saudi Arabia has a tremendous comparative advantage in oil production. Which factor is a source of this comparative advantage?

large reserves of crude oil

The United States has a comparative disadvantage in _____-skilled labor. This explains why the U.S. is a net _____ of high-skilled services.

low; exporter

People have different abilities for performing the same two tasks, and you want to identify who has a comparative advantage in one of the tasks. Which of the following is NOT one of the three steps for identifying, who has a comparative advantage in performing the selected task?

Identify which person can perform the selected task most quickly.

People gain consumer surplus when they purchase an item

at a price below the value of the benefit they receive from the item

Mario is willing to sell an extra unit of his product as long as price is

at least as high as the marginal private cost

which is more elastic - food or breakfast cereal?

cereal because it has more substitutes

The person with the LOWEST opportunity cost of producing a particular good is said to have a(n)

comparative advantage

total surplus =

consumer surplus + producer surplus

how to find the numerical value of a surplus or shortage?

find the difference of S and D at that price

a per-unit tax of $1 is applied to a product. the original eq price was $2.50. the most you can conclude is that

graphically, the demand curve will be $1 higher than the supply curve at precisely the new after-tax quantity traded in equilibrium

If Italy levies tariffs on American goods entering Italy, this will tend to

harm american producers and benefit italian producers

Roommates Samara and Zendaya are hosting a Christmas party and have to make snacks for their guests and ornaments for themselves. Samara and Zendaya know that to finish both tasks as quickly as possible, each should focus on just one task, but they don't know who should do what. Samara and Zendaya should determine which roommate

has the comparative advantage in preparing snacks

if the price is above your WTP, what's your consumer surplus?

none - you do not buy the good

The free-rider problem is most common when a good is

nonexcludable

free riding is possible when goods are...?

nonexcludable

Municipal law enforcement and iTunes downloads are similar in that both are _____, but they differ in that municipal law enforcement is _____, while iTunes downloads are _____.

nonrival in consumption; nonexcludable; excludable

If Italy imposes a tariff on imported shoes, we should expect the domestic price of shoes in Italy to _____, the domestic consumption of shoes to _____, and the domestic production of shoes to _____.

rise; fall; rise

On hot summer days, parking lots at Disneyland are usually full by early morning, even though one must pay to park there. Parking at such lots is _____ in consumption and _____.

rival; nonexcludable

If you pay a price exactly equal to your marginal benefit, then your consumer surplus is

$0

if you pay a price that is exactly equal to your WTP, your consumer surplus is

$0

Suppose the government imposes a $15 per month tax on internet service. If the demand curve for internet service is perfectly inelastic, and the supply curve is upward-sloping, the monthly price for internet service will increase by

$15

production costs are $3. the item is sold for $8. what's the producer surplus?

$5

a subsidy is

1) a negative tax, 2) a payment made by the government to those who make a specific choice

Chanda can change the oil in a particular car in 30 minutes. It takes 45 minutes for Deepa to change the oil in the same type of car. Which of the following statements is TRUE?

Chanda has an absolute advantage over Deepa in changing the oil.

market failure occurs when market forces lead to

an inefficient outcome

a tax on buyers shifts the

demand curve to the left

graphically, economic surplus is the area

left of the Q and between the supply and demand curves

How would U.S. labor markets be impacted if the U.S. government reduces Social Security benefits by 20%?

the labor supply would increase

Externalities tend to occur because decision makers consider _____ and do NOT consider _____.

their own costs and benefits; the effects of their actions on others

when the substitution effect dominates, a person's labor supply curve slopes

upward

who represents labor supply - employees or employers?

employees

a price floor above equilibrium price creates

excess supply

Eugene and Joey are opening a restaurant together. They must develop the menu which consists of entrée's and desserts. Both Eugene and Joey work 24 hours per day. Each new entrée takes Eugene 4 hours to prepare, and each new dessert takes Eugene 4/3 hours. Each new entrée takes Joey 3 hours to prepare, while a new dessert takes Joey 6 hours. When working on their own without the possibility of specialization and trade, Eugene prepares 4 entrées and Joey also prepares 4 entrées. Each uses the rest of the day to develop as many new desserts as possible. If they were allowed to specialize and trade and they collectively end up with exactly the same number of entrées as before, how many more new desserts would they be able to develop?

10

You have an absolute advantage in producing a product if you

can produce the product using the fewest inputs

An export is a good or service

sold to a foreign buyer

One problem with assuming that people's willingness to pay is a measure of the marginal benefit they would receive from the product is that

willingness to pay reflects ability to pay as well as marginal benefit.

which is more elastic - gas over the course of a week or over a year?

year because it's a longer period of time

How do rice farmers in rural Indonesian villages figure out that they need to produce more rice when the demand for it has risen in other parts of the world?

An increase in the price of rice gives them a signal that rice is more valuable.

A previously isolated nation 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 soybeans, exporting lithium, and neither importing nor exporting cars. We can conclude that

Domestic producers of soybeans are now worse off, domestic consumers of soybeans are better off; domestic producers of lithium are better off, domestic consumers of lithium are worse off; both producers and consumers of cars are unaffected

Which statement is a positive externality?

Edwin buys a run-down house, renovates it, and increases the property values of all the houses in the neighborhood.

Suppose new research provides evidence that drinking coffee provides far greater health benefits than was previously thought. The resulting increase in the demand for coffee

Increases the marginal revenue product of coffee bean growers for any given number of coffee bean growers.

which is more elastic - personal computers or Microsoft personal computers?

Microsoft personal computers because that is less specific and there are more substitutes for that, as compared to computers in general

Which of the following statements is TRUE regarding comparative advantage and absolute advantage?

People can have a comparative advantage without having an absolute advantage in a task.

The world price (inclusive of trade costs) of a pound of walnuts is higher today than its equilibrium price in the United States would be without trade. Compared to the situation without trade, which of the following correctly describes some of the consequences of free trade for people in the United States?

The domestic price of walnuts is higher, consumer surplus is lower, total economic surplus is higher.

Which of the following is a TRUE statement about work assignments based on comparative advantage?

The person with the lowest opportunity cost at a task should perform it.

how is CS measured?

WTP - P

a binding price ceiling means that

WTP > WTS

Suppose we observe a decrease in the wages and an increase in employment in the electric vehicle manufacturing industry. Which of the following would explain this outcome?

Wages fall on the production lines of traditional gas and diesel powered vehicles

which of the following is an example of a quota?

a government limits the amount of a product that can be sold in a market

the minimum wage is an example of

a price floor

When a good is nonrival and nonexcludable, the good is referred to as

a public good

Which of the following would be both nonrival and nonexcludable?

a siren tornado warning system

a binding price floor leads to

a surplus

On a market graph, producer surplus is the area that is

above the supply curve and below the price.

In 2004, Kenya became the first country to abolish the sales tax on menstrual products. The effect of this tax repeal would be

an increase in sales of menstrual products

Consumer surplus is represented by the area _____ the demand curve and _____ the price that the consumer pays.

below; above

he economic burden of a tax is the

burden created by the change in after-tax prices faced by buyers and sellers

the price elasticity of demand measures how responsive

buyers are to a change in price

If the government imposes a $15 tax on cheap wine, and the price of cheap wine increases by $12

consumers are paying more of the tax than producers are.

The world demand curve slopes downward because, as the world price of a product falls

consumers want to buy a larger quantity

A tax designed to induce people to take account of the negative externalities that they cause is referred to as _____ tax.

corrective

demand for a good would tend to be more inelastic the

fewer substitutes available

taxes on domestic goods and tariffs create

deadweight loss and government revenue

Since the United Kingdom imports a large quantity of textiles from Sri Lanka, the overall wages of English textile workers have _____, while the price of textiles in the United Kingdom has _____.

decreased; decreased

marginal social benefit in the case of a positive externality can be viewed as a shift of the ________ curve to the ______

demand, right

If Bishan wants to capitalize on comparative advantage in his life, then he should

do more of what he is relatively good at and then trade for other things.

a tariff on imports hurts...

domestic consumers because they lose the benefits they received from the world price

a tariff on imports helps...

domestic producers because they gain bad some of their lost surplus

Producing a given quantity of output at the lowest possible cost and lowest marginal cost is called

efficient production

if a person occasionally enjoys a cup of coffee, their demand is

elastic

The marginal external cost is the

external cost imposed on bystanders by one additional unit of output.

Countries benefit from trade by exporting goods in which their opportunity costs are relatively _____ and importing goods in which their opportunity costs are relatively _____.

low; high

what must be true of negative externalities?

marginal social cost exceeds marginal private cost and market price is less than the socially efficient price (marginal social cost > marginal private cost and market price > the socially efficient price)

what must be true of positive externalities?

marginal social cost is less than marginal private cost and market price is more than the socially efficient price (marginal social cost < marginal private cost and market price < the socially efficient price)

Suppose the absolute value of the price elasticity of demand for Harley Davidson motorcycles is 4.04, while the price elasticity of supply for Harley Davidson motorcycles is 0.22. If Congress reinstates a luxury tax on high-end motorcycles, who will pay more of the tax?

motorcycle builders will pay more

a legal maximum price at which a good can be sold is a

price ceiling

a minimum price that the guarantees farmers will receive for a particular crop is a(n)

price floor (or price support)

The benefit enjoyed by a buyer as a result of purchasing one additional unit of a good is the marginal _____ benefit.

private

If the United States removed all tariffs and quotas on lumber imports into the United States

producer surplus would decrease

Suppose that in the market for new furniture, sales are allocated to the sellers who are willing and able to produce the good at the lowest cost. The market would thereby maximize

producer surplus.

A tax that the government collects from the consumers of a good

shifts the demand curve downward

a tariff is a

tax on imported products

India exports shirts, which are labor-intensive, to the United States. The likely source of India's comparative advantage in shirts is

that, in comparison with the United States, India is a labor-abundant country.

producer surplus is

the amount a seller is paid minus the cost of production

Traffic congestion is a common example of a negative externality. In principle, it should be possible for drivers to negotiate the right to drive at particular times, thereby compensating those who would prefer not to drive at peak times and solving the externality. The most likely reason these negotiations do NOT occur is that

the bargaining costs of such negotiations would be prohibitive, as there are (in large cities) many interested parties.

what is consumer surplus?

the benefit that buyers receive for participating in the market

Which of the following is an example of a trade cost associated with a U.S. citizen importing a sweater produced in India?

the cost of the tariff on imported sweaters from india

if a price ceiling is not binding

the equilibrium is below the ceiling

The highest price that Dara would be willing to pay for a particular vase is

the marginal benefit she would receive from the vase

When a quota is used to control an externality, the government must determine both _____ and _____.

the socially optimal quantity; how to distribute that quantity across suppliers