ECON Exam 2

Answer question 10, Ch. 6

a

Answer question 6, Ch. 7

a

If the government were to limit the release of air-pollution produced by a steel mill to 75 parts per million, the policy would be considered a a. regulation b. corrective tax c. subsidy d. market-based policy

a

Table 10-1. How large would a corrective tax need to be to move this market from the equilibrium outcome to the socially-optimal outcome? a. 2 b. 3 c. 9 d. 10

a

Table 6-1. Suppose the government imposes a price ceiling of $5 on this market. What will be the size of the shortage in this market? a. 0 units b. 2 units c. 8 units d. 10 units

a

The general consensus on minimum wage laws is that they a. decrease employment possibilities for low skilled workers b. affect workers at all skill levels equally c. lead to extremely low rates of unemployment d. increase employment possibilities for low skilled workers

a

Table 10-1. What is the socially-optimal quantity of output in this market? a. 1 unit b. 2 units c. 3 units d. 4 units

b

At any given quantity, the willingness to pay in the market for gasoline is reflected in the a. height of the demand curve at that quantity b. height of the supply curve at that quantity c. value to the producer of the last unit of gasoline sold d. total quantity of gasoline exchanged in the market

a.

Figure 8-4. The vertical distance between points A & B represents a tax in the market. The amount of deadweight loss as a result of the tax is a. $210 b. $420 c. $980 d. $1,600

a.

Answer question 4, Ch. 10

b

Figure 10-4. The socially optimal quantity would be a. Q1 b. Q2 c. Q3 d. Q4

b

Suppose the government increases the size of a tax by 25%. The deadweight loss from that tax a. increases by 25% b. increases by more than 25% c. increases but by less than 25% d. decreases by 25%

b.

Answer question 13, Ch. 6

c

The supply curve for a product reflects the a. willingness to pay of the marginal buyer b. quantity buyers will ultimately purchase of the product c. cost to sellers of producing the product d. seller's profit from producing the product

c

Which of the following policies is the government most inclined to use when faced with a positive externality? a. taxation b. permits c. subsidies d. usage fees

c

Answer question 5, Ch. 7

d

A $2 tax levied on the sellers of mailboxes will shift the supply curve a. upward by exactly $2 b. upward by less than $2 c. downward by exactly $2 d. downward by less than $2

a

Consumer surplus is: a. the amount a buyer is willing to pay for a good minus the amount the buyer actually pays for it b. the amount a buyer is willing to pay for a good minus the cost of producing the good. c. the amount by which the quantity supplied of a good exceeds the quantity demanded of the good. d. a buyer's willingness to pay for a good plus the price of the good

a

Figure 6-9. The burden of the tax on sellers is a. $1 per unit b. $1.50 per unit c. $2 per unit d. $3 per unit

a

Figure 7-17. At equilibrium, total surplus is measured by the area a. ACG b. AFG c. KBG d. CFG

a

Figure 7-17. If 10 units of the good are produced & sold, then a. the good is overproduced relative to the efficient output level & total surplus can be increased by reducing its production b. producer surplus is maximized c. total surplus is minimized d. the good is underproduced relative to the efficient output level & total surplus can be increased by increasing its production

a

Figure 7-18. Buyers who value this good more than the equilibrium price are represented by which line segment? a. AC b. CK c. BC d. CH

a

Figure 7-7. Which area represents producer surplus when the price is P1? a. BCG b. ACH c. ABGD d. DGH

a

Figure 8-5. Suppose that the government imposes a tax of P3-P1. After the tax is levied, consumer surplus is represented by area a. A b. A+B+C c. D+H+F d. F

a

Figure 8-9. Which of the following combinations will minimize the deadweight loss from a tax? a. supply 1 & demand 1 b. supply 2 & demand 2 c. supply 1 & demand 2 d. supply 2 & demand 1

a

If a price floor is not binding, then a. the equilibrium price is above the price floor b. the equilibrium price is below the price floor c. it has no legal enforcement mechanism d. more than one of the above is correct

a

If one person's use of a good diminishes another person's enjoyment of it, the good is a. rival in consumption b. excludable c. normal d. exhaustible

a

To increase safety at a bad intersection, you must decide whether to install a traffic light in your hometown at a cost of $15,000. If the traffic light reduces the risk of fatality by .4%, & the value of a human life is estimated to be $10 million, you should a. install the light because the expected benefit of $40,000 is greater than the cost b. install the light because the expected benefit of $20,000 is greater than the cost c. Not install the light because the expected benefit of $15,000 is only equal to the cost d. not install the light because the expected benefit of $4,000 is less than the cost.

a

When a free-rider problem exists, a. the market will devote too few resources to the production of the good b. the cost of the good will always be more than the benefit of the good c. the good will not be produced by either the private sector or the government d. entrepreneurs will eventually find a way to make free-riders pay their share.

a

When producers operate in a market characterized by negative externalities, a tax that forces them to internalize the externality will a. give sellers the incentive to account for the external effects of their actions b. increase demand c. increase the amount of the commodity exchanged in market equilibrium d. restrict the producers' ability to take the costs of the externality into account when deciding how much to supply

a

The benefit to buyers of participating in a market is measured by a. consumer surplus b. producer surplus c. total surplus d. deadweight loss

a.

According to Arthur Gaffer, the graph that represents the amount of tax revenue (measured on the vertical axis) as a function of the size of the tax (measured on the horizontal axis) looks like a. a U b. an upside-down U c. a horizontal straight line d. an upward-sloping line or curve

b

Goods that are rival in consumption but not excludable would be considered a. natural monopolies b. common resources c. public goods d. private goods

b

If a customer places a value of $15 on a particular good & if the price of the good is $17, then the a. customer has consumer surplus of $2 if he or she buys the good b. consumer does not purchase the good c. market is not a competitive market d. price of the good will fall due to market forces

b

Suppose that in a particular market, the demand curve is highly elastic & the supply curve is highly inelastic. If a tax is imposed in this market, then a. the buyers will bear a greater burden of the tax than the sellers b. the sellers will bear a greater burden of the tax than the buyers c. the buyers & sellers are likely to share the burden of the tax equally d. the buyers & sellers will not share the burden equally, but it is impossible to determine who will bear the greater burden of the tax without more information.

b

Table 10-1. It shows the private value, private cost, & external cost for various quantities of output in a market. What is the equilibrium quantity of output in the market? a. 2 units b. 3 units c. 4 units d. 5 units

b

Table 10-2. What is the equilibrium quantity of output in this market? a. 3 units b. 4 units c. 5 units d. 6 units

b

Table 7-6. If the market price is $1,000, the producer surplus in the market is a. $700 b. $750 c. $2,250 d. $3,700

b

The government provides public goods because a. private markets are incapable of producing these types of goods b. free-riders make it difficult for private markets to supply the socially optimal quantity c. markets are always better off with some government oversight d. external benefits will accrue to private producers

b

The imposition of a binding price floor on a market causes quantity demanded to be a. greater than quantity supplied b. less than quantity supplied c. equal to quantity supplied d. both a & b are possible

b

The maximum price that a buyer will pay for a good is called the a. cost b. willingness to pay c. equity d. efficiency

b

When a good is taxed, the burden of the tax a. falls more heavily on the side of the market that is more elastic b. falls more heavily on the side of the market that is more inelastic c. falls more heavily on the side of the market that is closer to unit elastic d. is distributed independently of relative elasticities of supply & demand

b

All remedies for externalities share the goal of a. moving the allocation of resources toward the market equilibrium b. moving the allocation of resources toward the socially optimal equilibrium c. increasing the allocation of resources d. decreasing the allocation of resources

b.

A $2 tax levied on the buyers of lawnmowers will shift the demand curve a. upward by exactly $2 b. upward by less than $2 c. downward by exactly $2 d. downward by less than $2

c

A congested side street in your neighborhood is a. excludable & rival in consumption b. excludable & not rival in consumption c. not excludable & rival in consumption d. not excludable & not rival in consumption

c

A minimum wage that is set above a market's equilibrium wage will result in a. an excess demand for labor, that is, unemployment b. an excess demand for labor, that is, a shortage of workers c. an excess supply of labor, that is, unemployment d. an excess supply of labor, that is, a shortage of workers

c

A price ceiling will be binding only if it is set a. equal to the equilibrium price b. above the equilibrium price c. below the equilibrium price d. either above or below the equilibrium price

c

A shortage results when a. a nonbonding price ceiling is imposed on a market. b. a nonbonding price ceiling is removed from a market. c. a binding price ceiling is imposed on a market d. a binding price ceiling is removed from a market

c

Answer question 3, Ch. 10

c

Answer question 4, Ch. 7

c

Economists typically measure efficiency using a. the price paid by buyers b. the quantity supplied by sellers c. total surplus d. profits to firms

c

Figure 7-1. When the price is P1, consumer surplus is a. A b. A+B c. A+B+C d. A+B+D

c

Figure 7-18. Sellers whose costs are less than the equilibrium price are represented by which line segment? a. AC b. CK c. BC d. CH

c

Figure 8-4. The vertical distance between points A & B represents a tax in market. The amount of tax revenue received by the government is equal to a. $210 b. $420 c. $980 d. $1,600

c

If the government levies a $500 tax per car on sellers of cars, then the price paid by buyers of cars would a. increase by more than $500 b. increase by exactly $500 c. increase by less than $500 d. decrease by an indeterminate amount

c

If the government were to impose a fine of $1,000 for each unit of air-pollution released by a steel mill, the policy would be considered a. a subsidy b. a regulation c. a corrective tax d. as an example of cap & trade

c

Suppose that electricity producers create a negative externality equal to $6 per unit. Further suppose that the government imposes a $8 per-unit tax on the producers. What is the relationship between the after-tax equilibrium quantity 7 the socially optimal quantity of electricity to be produced? a. they are equal b. the after-tax equilibrium quantity is greater than the socially optimal quantity c. the after-tax equilibrium quantity is less than the socially optimal quantity d. there is not enough information to answer the question

c

Suppose that large-scale pork production has the potential to create ground water pollution. Why might this type of pollution be considered an externality? a. The groundwater pollution reduces the cost of large-scale pork production b. The economic impact of a large-scale pork production facility is localized in a small geographic area c. The pollution has the potential for creating a health risk for water users in the region surrounding the pork production facility. d. Consumers will not reap the benefits of lower production cost from large-scale pork production.

c

Suppose there is currently a tax of $50 per ticket on airline tickets. Sellers of airline tickets are required to pay the tax to the government if the tax is reduced from $50 per ticket to $30 per ticket, then a. the demand curve will shift upward by $20, and the price paid by buyers will decrease by less than $20 b. the demand curve will shift upward by $20, and the price paid by buyers will decrease by $20 c. the supply curve will shift downward by $20, and the effective price received by sellers will increase by less than $20 d. the supply curve will shift downward by $20, & the effective price received by sellers will increase by $20

c

Table 10-2. It shows the private value, private cost, & social value for a market with a positive externality. What is the socially-optimal level of output in this market? a. 3 units b. 4 units c. 5 units d. 6 units

c

Table 7-1. If the price of the product is $18, then the total consumer surplus is a. $38 b. $42 c. $46 d. $72

c

The decrease in total surplus that results from a market distortion, such as a tax, is called a a. wedge loss b. revenue loss c. deadweight loss d. consumer surplus loss

c

The term tax incidence refers to a. whether buyers or sellers of a good are required to send tax payments to the government b. whether the demand curve or the supply curve shifts when the tax is imposed c. the distribution of the tax burden between buyers & sellers d. widespread view that taxes always will be a fact of life

c

Tom is a non-union employee at General Power. The majority of the employees at General Power are unionized. The union at General Power has negotiated very good benefits. Even though he is not a union member & he does not have to pay union dues, Tom receives all the benefits that the union has negotiated. Tom's behavior is an example of a. rivalry b. a barrier to entry c. free riding d. Taft-Hartley opposition

c

What happens to the total surplus in a market when the government imposes a tax? a. Total surplus increases by the amount of the tax b. Total surplus increases but by less than the amount of the tax c. Total surplus decreases d. Total surplus is unaffected by the tax

c

Figure 10-4. This market is characterized by a. government intervention b. a positive externality c. a negative externality d. none of the above is correct

c.

A good is excludable if a. one person's use of the good diminishes another person's enjoyment of it b. the government can regulate its availability c. it is not a normal good d. people can be prevented from using it

d

Altering incentives so that people take account of the external effects of their actions a. is called internalizing the externality b. can be done by imposing a corrective tax c. is the role of government in markets with externalities d. all of the above

d

Both public good & common resources are a. rival in consumption b. non-rival in consumption c. excludable d. non-excludable

d

Figure 6-9. The price that buyers pay after the tax is imposed is a. $5 b. $6 c. $7 d.$8

d

If the government removes a tax on sellers of a good & imposes the same tax on buyers of the good, then the price paid by buyers will a. increase & the price received by sellers will increase b. increase & the price received by sellers will not change c. not change & the price received by sellers will increase d. not change & the price received by sellers will not change

d

If the use of a common resource is not regulated, a. no one can enjoy it b. it will tend to be underused c. property rights will be clearly defined d. it will be overused

d

One economically efficient way to eliminate the Tragedy of the Commons is to a. tax the owners of the resource b. prevent anyone from using the resource c. reduce the marginal social benefit of the resource d. establish private ownership of the resource

d

Table 6-1. Which of the following price floors would be binding in this market? a. $1 b. $2 c. $3 d. $4

d

Table 7-6. If the price is $775, who would be willing to supply the product? a. Abby & Bobby b. Abby, Bobby & Carlos c. Carlos, Dianne, & Evalina d. Dianne & Evalina

d

When a tax is levied on a good, the buyers & sellers of the good share the burden, a. provided the tax is levied on the sellers b. provided the tax is levied on the buyers c. provided a portion of the tax is levied on the buyers, with the remaining portion levied on the sellers d. regardless of how the tax is levied

d

Which of the following is not a result of rent controls? a. reduced incentives to build new rental housing b. reduced incentives for landlords to keep rental units in good repair c. increased discrimination against people deemed undesirable on the part of landlords d. increased turnover as tenants move more frequently from one rental unit to another one

d

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? a. $3 b. $5 c. $7 d $9

c

Answer question 11, Ch. 6

d