ECON Exam 2

Chin purchases five protein bars at a price of $3 each. The marginal benefit he receives from each bar is $5 for the first bar, $4.50 for the second bar, $4 for the third bar, $3.50 for the fourth bar, and $3 for the fifth bar. The marginal cost of producing the bars is $2 each. What is Chin's consumer surplus on the fifth bar?

$0

Refer to the market for child care that is shown in the figure. The original equilibrium price is $10,000. A subsidy is now introduced for parents who pay for child care to increase demand (to "new demand"). The amount of the subsidy is:

$2,000.

According to the figure, if there is international trade in this market, and the world price of engines is $800, buyers and sellers will make exchanges at a price of _____ because sellers will refuse to sell for _____ than the world price.

$800; less

A tax on buyers causes which of the following? (i) a leftward shift of the demand curve (ii) a decrease in quantity sold (iii) an increase in the price buyers pay

(i), (ii), and (iii)

PRACTICE EXAM

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Which of the following taxes is regressive? Raj pays a 10% tax on the first $10,000 he earns plus a _____ tax on any additional income.

5%

Which of the following is an example of a quantity quota?

A city enforces zoning laws that restrict the number of housing units.

Opportunity cost of doing A is Opportunity cost of doing B is

A/B B/A

Which of the following is an example of an in-kind transfer?

Martin receives housing from the government due to his low income.

Which of the following illustrates a positive externality?

The value of Maria's house rises when the city builds a park nearby, enhancing her view.

Why would a company set up internal markets?

To solve the knowledge problem.

Which of the following statements is based on normative analysis?

We should protect the environment.

Which of the following is an example of a negative externality?

When Fazio parks his big truck at the grocery store, people in the cars on each side of his parking space have a hard time opening their car doors.

Which of the following would be both nonrival and nonexcludable?

a siren tornado warning system

You have a comparative advantage if you can complete a task:

at a lower opportunity cost than anyone else.

Which of the following is consistent with the view that "fairness" means equality of outcomes?

equal incomes

The marginal private benefit is the:

extra benefit enjoyed by the buyer of one extra unit of a good or service.

All of the solutions to externality problems involve:

getting buyers and sellers to consider marginal external costs and benefits.

The statutory burden of a tax is the:

government-designated burden of a tax payment.

A quantity regulation is a:

minimum or maximum quantity that can be sold.

In the field of economics, the observation that the living standard of a household is more stable than its income, because people think in terms of their long-term earnings as they spend, is known as:

permanent income vs current income

An income level below which a family is defined to be in poverty is known as the:

poverty line

The producer surplus on a unit sold equals:

price minus marginal cost.

Common resources have:

private gains but shared costs.

An import is a good or service:

purchased from a foreign seller.

In 2017, eBay started charging a 20% value-added tax on fees charged to small businesses in the United Kingdom. Holding all else constant, this would _____ in the United Kingdom.

raise the prices that eBay sellers charge their customers.

Which of the following is a social insurance program in the United States?

social security

A tax on sellers shifts the:

supply curve to the left.

A tariff is a:

tax on imported products.

Chin purchases five protein bars at a price of $3 each. The marginal benefit he receives from each bar is $5 for the first bar, $4.50 for the second bar, $4 for the third bar, $3.50 for the fourth bar, and $3 for the fifth bar. The marginal cost of producing the bars is $2.50 each. What is Chin's total consumer surplus from the five bars that he purchased?

$5

Portia produces and sells headbands. Her marginal cost for one headband is $6, and her average cost is $4. She gains producer surplus only when she sells headbands at a price above:

$6

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.

What conditions must be met for private bargaining to be effective in resolving an externality?

Bargaining costs must be low, and property rights must be clear.

Which of the following benefits could a company gain from using internal markets?

Better allocation of its resources and more accurate predictions.

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Which of the following is NOT true of the incidence of poverty in the United States? - Children and single moms are most likely to be in poverty. - People of color are more likely than others to experience poverty. - Elderly people are more likely than other age groups to be in poverty. - Most people in poverty will spend much of their lives in poverty, but most people will spend some time in poverty during their lifetime.

Elderly people are more likely than other age groups to be in poverty.

Which of the following is NOT one of the three questions that should guide discussions and policies related to the redistribution of income that were presented in the chapter? - How long will it take to redistribute income? - How fair is this redistribution? - How large are the benefits of redistributing income to those who most benefit from it? - How large are the costs of redistribution of income?

How long will it take to redistribute income?

In 2018, the unemployment rate in the United States went as low as 3.7%, as measured by the Bureau of Labor Statistics. This historically low level of unemployment occurred simultaneously with a large trade deficit. This provides evidence against which of the following arguments against international trade?

International trade may lead to job loss.

Use the data in the table to answer the question. The table provides data on how long it takes Maia and Juanita to mow the lawn and weed the flower beds. hrs to mow lawn | hrs to weed flower beds Maia 3 1 Juanita 4 2 Who has a comparative advantage in mowing lawns?

Juanita because she has a lower opportunity cost

When people focus their efforts, on the tasks they have a comparative advantage in, what will happen to output?

More of all goods will be produced than if everyone produced everything for themselves.

A binding price floor in a market is removed. Which of the following is likely to occur as a result?

The market price will fall.

Which of the following is NOT a correct rationale about why income redistribution programs do not always reduce efficiency? - Fewer resources may need to be devoted to dealing with crime when incomes are more equal. - Less concentrated political power may exist when incomes are more equal. - When incomes are more equal, work incentive grows. - Worker productivity grows when educational opportunities are widespread.

When incomes are more equal, work incentive grows.

A subsidy is a:

a government payment designed to encourage particular purchases or productive activities.

An externality is defined as:

a side-effect of an activity that affects bystanders whose interests are not taken into account.

Joachim produces and sells baskets. His marginal cost for one basket is $10, and his average cost is $7. He gains producer surplus every time that he sells a basket at a price:

above $10.

In a market graph, consumer surplus is the area:

above the price and below the demand curve.

Argentina and Chile both produce copper and timber. If Chile produces copper much more efficiently than Argentina and timber slightly more efficiently than Argentina, _____ can benefit from trading copper and timber with each other.

both countries

Russia and Kazakhstan both produce horses and oil. If Kazakhstan is much more efficient than Russia in the production of horses and slightly more efficient than Russia in the production of oil, _____ can benefit from trading horses and oil with each other.

both countries

To get maximum output, you should allocate each task to the person who:

can do the task with the lowest opportunity cost.

You have an absolute advantage in producing a product if you:

can produce the product using the fewest inputs.

What type of good is nonrival and excludable?

club goods

Specialization will increase output when it is based on:

comparative advantage.

A subsidy for buyers of a product shifts the:

demand curve to the right.

Buyers bear a smaller incidence of the tax when:

demand is more elastic than supply.

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

improve their standard of living or increase their leisure time.

When the definition of poverty focuses on relative poverty, a person is in poverty if the household income is:

in the bottom 10% of household incomes in the nation.

In the United States, the poverty line income:

is adjusted based on family size.

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

The distribution of wealth is _____ the distribution of income.

more unequal than

A good is characterized as _____ when one person's use of the good does not reduce another person's ability to use the same unit of the good.

nonrival

Statements about what option should be chosen are _____ statements.

normative

By contrast with a market that produces the socially optimal output, a market with negative externalities will:

overproduce.

Internal markets, which are markets that managers set up within their organization, are:

set up to allocate resources of a company more efficiently, often not using real money.

The cash-assistance, goods, and services provided by the government to better the lives of those at the bottom of the income distribution are known as the:

social safety net

Which of the following is NOT a trade cost?

the cost of producing a good

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

Which principle helps buyers and sellers make decisions about whether to trade?

the cost-benefit principle

The Rational Rule for Society is that society should produce another unit of a good if:

the marginal social benefit exceeds the marginal social cost.

A price ceiling is:

the maximum price that a seller can charge in a market.

Which of the following is a negative result of redistributing income toward equality?

work incentives are reduced.

According to the figure, if there is international trade in this market, and the world price of engines is $800, the value of the domestic producer surplus is:

$180,000; the triangle from the world price point down to the supply curve line.

Suppose that the world price of TVs is $400, and the government imposes a $100 tariff. The new price domestic consumers pay for a TV is:

$500.

The graph shows the marginal social benefit and demand curves in the shampoo market. What is the marginal external benefit?

Area between demand and marginal social benefit curve. $2

According to diminishing marginal utility, which of the following people would gain the lowest marginal benefit from an extra $100 of income?

Ariana, an actress with an annual household income of $1,500,000

Which of the following is a positive economic statement?

If the government raises taxes, people will have less income available for purchases and saving.

Which of the following claims reflects normative analysis?

The minimum wage should be higher so that workers earn a living wage.

(Figure: Imports and Exports) During the 2008 to 2009 financial crisis, imports as a share of GDP fell in the United States. Which of the following could explain this phenomenon?

The percentage decrease in imports was greater than the percentage decrease in GDP.

Which tax is regressive? Arturo pays an 8% tax on the first $9,000 he earns plus _____ tax on any additional income.

a 5%

The world price of a pair of pants is $30 (less than equilibrium price). According to the figure, opening up to international trade will lead to _____ in the domestic producer surplus and _____ in the domestic consumer surplus.

a decrease; an increase

Survey data for Americans are illustrated in a graph with the average level of well-being reported (on the vertical axis) at each level of income (on the horizontal axis). The slope of this curve indicates the relationship between well-being and income is consistent with _____ marginal benefit for additional income.

a diminishing

As prices _____, they provide useful business intelligence.

aggregate information

A binding price floor is:

always above the equilibrium price.

An increase in producer surplus would most likely occur if:

an effective price floor was imposed.

Marjean walks to work every day along a busy road. As she does so, she breathes in the fumes of many cars, often arriving at work coughing. The economic term for the impact of the cars on Marjean is:

an externality.

Managers can harness market forces by setting up internal markets, which:

are organized within a company to buy and sell scarce resources.

People gain consumer surplus when they purchase an item:

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

The economic burden of a tax is the:

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

When the economic surplus in a market is less than it would be if the market were efficient, the market is experiencing:

deadweight loss.

In 2016, Amazon began charging a 5.75% sales tax on products it sells in the District of Columbia. Holding all else constant, the effect of this tax would be to _____ in the District of Columbia.

decrease Amazon sales.

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.

Which of the following is a mean-tested social safety net program in the United States? - worker's compensation - social security - earned income tax credit - Medicare

earned income tax credit

A key difference between equity and efficiency is that equity deals with _____ and efficiency focuses on _____.

fairness; maximizing economic surplus

If you need to make a decision and all the information needed to make a good decision is not available, then you:

have a knowledge problem.

A government leader determines that the 5% unemployment rate is too high. She asks her staff to research policy options to reduce the rate and a few weeks later is given four options. Each option would reduce the rate by a different amount and at a different cost. The leader studies the options and chooses the one she feels is best for the country. In order, what types of analysis were used in this three-stage chain of events?

normative; positive; normative

A prediction market is a market where:

payoffs are linked to whether an uncertain event occurs.

Buyers bear all the economic burden of a tax if the demand curve is _____, given an upward sloping supply curve.

perfectly inelastic

Analysis that describes what would happen if various actions were taken is _____ analysis.

positive

The percent of the population whose household income falls below the poverty line is known as the:

poverty rate.

The main role of markets is:

reallocating resources to better uses.

Which of the following is NOT a cost of the redistribution of income?

reduced marginal benefits to extra income.

The outcome that is most efficient for society as a whole — including the interests of buyers, sellers, and bystanders — is the _____ outcome.

socially optimal

An export is a good or service:

sold to a foreign buyer.

A good has a free-rider problem when:

someone can enjoy the benefits of the good without bearing the costs.

Which of the following is LEAST likely to be traded internationally?

sports arenas

Sellers bear a smaller incidence of a tax when:

supply is more elastic relative to demand.

Government social insurance programs are funded by:

taxes and fees that are assessed on workers and employees specifically for each program.

The tragedy of the commons is the:

tendency to overconsume common resources.

In the market for pesticides shown here, the original equilibrium price is $25. In an effort to reduce the usage of pesticides, a tax is then placed on the buyers in this market. Who bears the statutory burden of this tax?

the buyer

The marginal benefit minus the marginal cost equals:

the economic surplus

A market's deadweight loss is calculated as:

the economic surplus at the efficient quantity minus the economic surplus at the actual quantity.

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

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

A tax on sellers causes which of the following? (i) a leftward shift of the supply curve (ii) a decrease in quantity sold (iii) an increase in the price buyers pay

(i), (ii), and (iii)

Which of the following statements describes the Coase Theorem?

If bargaining is costless, and property rights are clearly established and enforced, then externality problems can be solved through private bargaining.

Which of the following is NOT one of the four key reasons that the government provides in-kind benefits rather than cash benefits?

In-kind benefits give the recipient the greatest flexibility to choose what matters most.

Suppose that one hour of labor in Singapore can produce 20 computers or 40 cellphones. Further, suppose that one hour of labor in Ireland can produce 10 computers or 15 cellphones. _____ has a comparative advantage in the production of computers. _____ has a comparative advantage in the production of cellphones.

Ireland; Singapore