Econ exam 2

Refer to Figure 10-5. Taking into account private value and external benefits, the maximum total surplus that can be achieved in this market is.

$13,230

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

$2.80 and 24 units, respectively

Refer to Table 10-3. The social value of the 4th unit of output that is produced is

$26

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

$4

When the price of good A is $50, the quantity demanded of good A is 500 units. When the price of good A rises to $70, the quantity demanded of good A falls to 400 units. Using the midpoint method, the price elasticity of demand for good A is

0.67, and an increase in price will result in an increase in total revenue for good A.

If a 15% increase in price for a good results in a 20 percent decrease in quantity demanded, the price elasticity of demand is

1.33

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

The presence of a price control in a market for a good or service usually is an indication that

policymakers believed that the price that prevailed in that market in the absence of price controls was unfair to buyers or sellers.

For private goods allocated in markets,

prices guide the decisions of buyers and sellers and these decisions lead to an efficient allocation of resources.

A textbook is a

private good and the knowledge that one gains from reading the book is a public good.

If a nonbinding price floor is imposed on a market, then the

quantity sold in the market will stay the same.

The price elasticity of demand measures

buyers' responsiveness to a change in the price of a good.

Which of the following is not a typical solution to the "Tragedy of the Commons?"

Turning the common resource into a club good

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

Which of the following observations would be consistent with the imposition of a binding price ceiling on a market? After the price ceiling is established,

a smaller quantity of the good is bought and sold.

If a binding price floor is imposed on the video game market, then

a surplus of video games will develo

A good will have a more inelastic demand, the

broader the definition of the market.

Under rent control, bribery is a potential mechanism to

force the total price of an apartment (including the bribe) to be less than the market price.

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.

At a price of $70 per unit, sellers' total revenue equal

$1,050

Refer to Table 10-3. Taking into account private and external benefits, the total surplus to society at the socially efficient quantity is

18 or 50

Consider the town of Springfield with only three residents, Sophia, Amber, and Cedric. The three residents are trying to determine how large, in acres, they should build the public park. The following table shows each resident's willingness to pay for each acre of the park. Acres Willingness to Pay (Dollars) SophiaAmberCedric11024628185361444383516260417020 Refer to Table 11-1. Suppose the cost to build the park is $24 per acre. How many acres should the park be to maximize total surplus from the park in Springfield?

3 acres

Refer to Table 10-1. What is the equilibrium quantity of output in the market?

3 units

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

4 units

Refer to Table 10-4. The market equilibrium quantity of output is

6 units

Which of the following illustrates the concept of a negative externality?

A college student plays loud music on his new stereo system at 2:00 a.m.

Which of the following goods is rival and excludable?

A congested toll road

Refer to Table 5-1. Which of the following is consistent with the elasticities given in Table 5-1?

A is a luxury and B is a necessity.

Which of the following statements about a well-maintained yard best conveys the general nature of the externality?

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

Scenario 11-1 Refer to Scenario 11-1. Due to traffic, Becca expects to be 20 minutes late to pick up her children. Which of the following most accurately describes the set of prices that she would be willing to pay for a variable toll road that would get her to the daycare center on time?

Any price less than $20

Which of the following is not a characteristic of a public good?

Because it is a free good, there is no opportunity cost.

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

Which of the following causes a shortage of a good?

Binding price ceiling

Which of the following statements is not correct?

Corrective taxes set the maximum quantity of pollution, whereas tradable pollution permits fix the price of pollution.

For which of the following goods is the income elasticity of demand likely highest?

Diamonds

Refer to Figure 5-6 . Along which of these segments of the supply curve is supply least elastic?

GH

Refer to Figure 5-7 . If, holding the supply curve fixed, there were an increase in demand that caused the equilibrium price to increase from $6 to $7, then sellers' total revenue would

Increase

Which of the following statements about agriculture in the United States is correct?

Increasing the supply of agricultural products typically benefits consumers but harms farmers as a group

For which pairs of goods is the cross-price elasticity most likely to be positive?

Pens and pencils

Which of the following is usually true about government-provided goods?

People do not have to pay an explicit fee to enjoy these goods.

The Pennsylvania Turnpike is a tolled freeway running through the state of Pennsylvania. Motorists must pay tolls at various points along the Turnpike based on the distance they traveled on the freeway. Suppose that despite the tolls, many motorists in the urban areas use the Turnpike causing traffic to slow during peak times. What type of good would the Turnpike be classified as in this case?

Private good

Refer to Figure 10-2. The socially optimal quantity would be

Q2

Refer to Figure 10-4, Graph (b) and Graph (c). The installation of a scrubber in a smokestack reduces the emission of harmful chemicals from the smokestack. Therefore, the socially optimal quantity of smokestack scrubbers is represented by point

Q5

What causes the Tragedy of the Commons?

Social and private incentives differ, and common resources are not excludable but are rival in consumption.

Refer to Table 5-4 . Using the midpoint method, which of the three supply curves represents the least elastic supply?

Supply curve A

Which of the following is NOT a way of internalizing technology spillovers?

Taxes

Which of the following was not a reason OPEC failed to keep the price of oil high?

The agreement OPEC members signed allowed each country to produce as much oil as each wanted.

Suppose that coal producers create a negative externality equal to $5 per ton of coal. What is the relationship between the equilibrium quantity of coal and the socially optimal quantity of coal?

The equilibrium quantity is greater than the socially optimal quantity.

Which of the following is not a reason why government agencies subsidize basic research?

The government wants to attract the brightest researchers away from private research firms.

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

The market shown in graph (b)

Which of the following is not an advantage of corrective taxes?

They subsidize the production of goods with positive externalities.

When a tax is placed on the sellers of cell phones, the size of the cell phone market

and the effective price received by sellers both decrease.

A tax on the buyers of cameras encourages

buyers to demand a smaller quantity at every price.

The parable called the Tragedy of the Commons applies to goods such as

clean air and clean water.

Goods that are rival in consumption include both

common goods and private goods or common resources and private goods

If the government decides to build a new highway, the first step would be to conduct a study to determine the value of the project. The study is called a

cost-benefit analysis.

Marcus says that he would smoke one pack of cigarettes each day regardless of the price. If he is telling the truth, Marcus's

demand for cigarettes is perfectly inelastic

Refer to Table 5-2. Using the midpoint method, if the price falls from $200 to $150, the price elasticity of demand is

elastic

The demand for grape-flavored Hubba Bubba bubble gum is likely

elastic because there are many close substitutes for grape-flavored Hubba Bubba

The failure of markets to adequately protect the environment can be viewed either as a problem of

externalities or as a problem of common resources.

Elasticity of demand is closely related to the slope of the demand curve. The more responsive buyers are to a change in price, the

flatter the demand curve will be

scenario 5-2 The supply of aged cheddar cheese is inelastic, and the supply of bread is elastic. Both goods are considered to be normal goods by a majority of consumers. Suppose that a large income tax increase decreases the demand for both goods by 10 percent. Refer to Scenario 5-2. The change in equilibrium price will be

greater in the aged cheddar cheese market than in the bread market.

Refer to Figure 5-2. If the price decreases in the region of the demand curve between points A and B, we can expect total revenue to

increase

If the price elasticity of supply is 1.2, and price increased by 5 percent, quantity supplied would

increase by 6 percent

If the demand for donuts is elastic, then a decrease in the price of donuts will

increase total revenue of donut sellers.

Josiah installed a metal sculpture in his front yard. A positive externality arises if the sculpture

increases the value of other properties in the neighborhood.

Private decisions about consumption of common resources and production of public goods usually lead to an

inefficient allocation of resources and external effects.

When the price of candy bars is $1.00, the quantity demanded is 500 per day. When the price falls to $0.80, the quantity demanded increases to 600. Given this information and using the midpoint method, we know that the demand for candy bars is

inelastic.

When her income increased from $10,000 to $20,000, Heather's consumption of macaroni decreased from 10 pounds to 5 pounds and her consumption of soy-burgers increased from 2 pounds to 4 pounds. Using the midpoint method, we can conclude that for Heather, macaroni

is an inferior good with an income elasticity of -1 and soy-burgers are normal goods with an income elasticity of 1.

On hot summer days, electricity-generating capacity is sometimes stretched to the limit. At these times, electric companies may ask people to voluntarily cut back on their use of electricity. An economist would suggest that

it would be more efficient if the electric company raised its rates for electricity at peak times.

Most labor economists believe that the supply of labor is

less elastic than the demand, and, therefore, workers bear most of the burden of the payroll tax.

Refer to Figure 6-8 . When the price ceiling is enforced in this market, and the supply curve for gasoline shifts from S 1 to S 2 , the resulting quantity of gasoline that is bought and sold is

less than Q3

Refer to Figure 6-8 When the price ceiling is enforced in this market, and the supply curve for gasoline shifts from S 1 to S 2 , the resulting quantity of gasoline that is bought and sold is

less than Q3

The supply of a good will be more elastic, the

longer the time period being considered.

Suppose researchers at the University of Wisconsin discover a new vitamin that increases the milk production of dairy cows. If the demand for milk is relatively inelastic, the discovery will

lower both price and total revenues

One disadvantage of government subsidies over price controls is that subsidies

make higher taxes necessary.

Refer to Figure 6-2. The price ceiling 10

makes it necessary for sellers to ration the good using a mechanism other than price.

When property rights are not well established,

markets fail to allocate resources efficiently.

In the housing market, supply and demand are

more elastic in the long run than in the short run, and so rent control leads to a larger shortage of apartments in the long run than in the short run

When a tax is placed on the sellers of a product, buyers pay

more, and sellers receive less than they did before the tax.

If a road is congested, then use of that road by an additional person would lead to a

negative externality

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.

Both public goods and common resources are

nonexcludable

The U.S. military defends Jacob from foreign conflict. The fact that Jacob enjoys this protection does not detract from other Americans' enjoyment of it. For this reason, we say that national defense is

not rival in consumption

Scenario 10-1 The demand curve for gasoline slopes downward and the supply curve for gasoline slopes upward. The production of the 1,000th gallon of gasoline entails the following: a private cost of $3.10 a social cost of $3.55 a value to consumers of $3.70 Refer to Scenario 10-1. Suppose the dollar amount of the externality, per gallon of gasoline, is constant, regardless of how much gasoline is produced. Then the externality could be internalized if producers of gasoline were

required to pay a tax of $0.45 per gallon of gasoline sold.

Rent control

serves as an example of a price ceiling

A benevolent social planner would prefer that the output of good x be increased from its current level if, at the current level of output of good x,

social cost = private cost = private value < social value.

Refer to Figure 10-6. If 250 units of plastics are produced and consumed, then the

social optimum has been reached.

Suppose the government imposes a 20-cent tax on the sellers of artificially-sweetened beverages. The tax would shift

supply, raising the equilibrium price and lowering the equilibrium quantity in the market for artificially sweetened beverages.

Refer to Figure 6-4 . In graph (b), there will be

surplus

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

The term tax incidence refers to

the distribution of the tax burden between buyers and sellers

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.

Scenario 5-1 Suppose the demand function for good X is given by: Qdx = 15 − 0.5Px − 0.8Py where Qdx is the quantity demanded of good X, Px is the price of good X, and Py is the price of good Y, which is related to good X. Refer to Scenario 5-1. Using the midpoint method, if the price of good X is constant at $10 and the price of good Y decreases from $10 to $8, the cross-price elasticity of demand is about

−2.57, and X and Y are complements.