ECON Midterm Review
If a tax is imposed on a market with inelastic demand and elastic supply: A) buyers will bear most of the burden of the tax. B) sellers will bear most of the burden of the tax. C) the burden of the tax will be shared equally between buyers and sellers. D) there is no way to determine how the burden of the tax will be shared.
A
The benefits of economies of scale and increased competition to an economy include: I. lower unit costs. II. lower consumer prices. III. lower output levels. A) I and II only B) II and III only C) I and III only D) I, II, and III
A
An alternative to rent controls that increases the quantity of housing and targets consumers that need low-cost rental property is: A) tax credits. B) vouchers. C) subsidies to landlords D) not available.
B
A market with a binding price ceiling fails to maximize all of the following EXCEPT: A) the gains from trade. B) consumer surplus. C) excess supply. D) producer surplus.
C
If a minimum wage is posted in the labor market: A) the demand for labor would increase. B) the supply of labor would decrease. C) a surplus of labor would develop. D) All of the answers are correct
C
Which of the following could cause an increase in the demand for gasoline? A) the resolution of a civil war in one of the world's biggest oil producing nations B) the expectation that the price of gasoline will decrease in the future C) a new technology that makes the production of gasoline significantly less expensive D) an approaching hurricane that threatens a major oil refinery in Texas
D
Which of the following would NOT be considered as an example of public good? A) asteroid deflection B) national defense C) mosquito control D) public roads
D
Which of these cases would likely result from an increase in minimum wage? A) an increase in the price of hamburgers B) an increase in unemployment among teenagers C) incomes increase for those who keep minimum wage jobs D) All of the answers are correct
D
An increase in supply and a decrease in demand occur in a market. What happens to the equilibrium price and quantity? A) The equilibrium price decreases; the change in the equilibrium quantity is ambiguous. B) The equilibrium price decreases; the equilibrium quantity increases. C) The equilibrium price increases; the change in the equilibrium quantity is ambiguous. D) The equilibrium price increases; the equilibrium quantity decreases.
A
Economic growth in China has led to more Chinese people owning cars which: A) increased demand for oil, causing oil prices to rise. B) decreased demand for oil, causing oil prices to rise. C) increased demand for oil but decreased supply, causing oil prices to increase rapidly. D) increased demand and supply of oil, causing oil prices to increase rapidly.
A
If the price of cocoa rises by 10 percent and the elasticity of supply is 0.5, then the quantity supplied: A) increases by 5 percent. B) increases by 20 percent. C) decreases by 5 percent. D) decreases by 20 percent
A
Increased trade has led to: A) increased globalization of world economies. B) a more equal distribution of wealth across countries. C) a decline in human cooperation. D) more specialization and less globalization.
A
Increases in farm productivity have lowered the prices of many agricultural products. Farm revenues decreased, which implies the: A) demand for many agricultural products is inelastic. B) costs of production increased. C) demand for many agricultural products is elastic. D) costs of production stayed the same
A
Martin's maximum willingness to pay for an electric boat motor is $250. Because of a tax, the price of the motor increases from $230 to $280. The deadweight loss of the tax attributable to Martin is: A) $20. B) $250. C) $50. D) $30.
A
Suppose France can produce four phones or three computers with one unit of labor, and Sweden can produce one phone or two computers with one unit of labor. If France can trade only with Sweden, then the theory of comparative advantage suggests that: A) France should specialize in producing phones and import computers from Sweden. B) France should specialize in producing computers and import phones from Sweden. C) France should produce both phones and computers, and import nothing from Sweden. D) France should import both phones and computers from Sweden.
A
The main reason why specialization can raise productivity is that: A) knowledge in human brains is limited. B) some persons have more knowledge than others. C) it is always good to know less than more. D) it is impossible to learn anything well.
A
The production possibilities frontier shows: A) the combinations of outputs a country can produce given its resources and productivity. B) the combinations of inputs that a country has given its outputs and productivity. C) the combinations of outputs and resources that a country possesses given its productivity. D) the maximum level of a country's productivity given its resources and outputs.
A
Uncongested, non-toll roads are a good example of a: A) public good. B) common resource. C) private good. D) natural monopoly
A
What does the law of demand state? I. There is a negative relationship between price and quantity demanded. II. There is an inverse relationship between price and quantity that buyers are willing and able to purchase. III. There is an inverse relationship between price and demand. A) I and II only B) II and III only C) I and III only D) I, II, and III
A
When external benefits are significant: A) market output is too low. B) market output is too high. C) market output is at the efficient level. D) social surplus is maximized.
A
Which of the following best characterizes the relationship between the parties to a trade and the gains from trade? A) Gains from trade are fueled by differences in preferences and differences in opportunity costs of production. B) Gains from trade are fueled by differences in preferences only. C) Gains from trade are fueled by differences in opportunity costs of production only. D) Gains from trade are greatest when there are no differences between the two parties to trade.
A
Which of the following choices correctly illustrates how changes in opportunity costs affect supply? A) A farmer produces corn and wheat. The price of wheat rises; so he shifts his resources towards wheat and the supply of wheat rises. B) A fisherman fishes for lobsters and oysters. The price of lobsters rises; so he decides to spend more of his time fishing for oysters because he can make the same amount of money with fewer lobsters. C) A textbook for economics becomes cheaper; so more students opt to buy that particular textbook. D) Milk and cereal are complementary goods; so when the price of cereal falls, the quantity supplied of milk rises
A
Which of the following is correct concerning the burden of a tax imposed on coffee mugs? A) Buyers and sellers share the burden of the tax. B) Buyers bear the entire burden of the tax. C) Sellers bear the entire burden of the tax. D) It depends on whether the buyers or the sellers are required to pay the tax.
A
A local university decides to double its enrollment over the next five years in order to increase tuition revenue. Which of the following would most likely occur in the market for rental housing in the surrounding community? A) a decrease in the price of rental housing B) an increase in the demand for rental housing C) a decrease in the supply of rental housing D) a population change leads to a change in quantity demanded, not demand
B
An increase in the minimum wage would likely increase unemployment among which group of workers? A) An increase in the minimum wage does not lead to an increase in unemployment. B) unskilled workers C) female workers D) older workers
B
Angela and Ed are married. Angela can do $40 worth of household chores per hour, and Ed can do $15 worth of household chores per hour. In the labor market, Ed can earn $30/hour and Angela can earn $40/hour. The theory of comparative advantage suggests that: A) Ed should specialize in household production and Angela should specialize in market work. B) Angela should specialize in household production and Ed should specialize in market work. C) Angela should specialize in both household production and market work. D) Ed should specialize in both household production and market work
B
If the price elasticity of demand for Good X is 1 in absolute value, which of the following is TRUE? I. When the price of the good changes, the total revenue for the product does not change. II. A percentage drop in price will lead to an equal percentage increase in quantity demanded. III. When the price of the product rises, total revenue also increases. A) I only B) I and II only C) II and III only D) II only
B
If the supply of a product is inelastic, a large price increase will: A) not have an effect on the quantity supplied. B) only bring about a small increase in quantity supplied. C) cause the supply curve to increase by a nontrivial amount. D) cause a modest decrease in supply.
B
In a market with external costs, suppose the efficient level of output is 1,000 units. Which of the following statements is TRUE? A) To achieve the efficient level of output, the government should set a subsidy equal to the external cost. B) To achieve the efficient level of output the government could set a tax equal to the external cost or issue enough tradeable allowances to restrict the output to the efficient level. C) With external costs, the government can use only taxes to achieve the efficient level of output. D) With external costs, the government can use only tradeable allowances to achieve the efficient level of output.
B
In the oil market, an increase in the wage of oil workers will: A) shift the supply curve of oil to the right. B) shift the supply curve of oil to the left. C) shift the demand curve for oil to the left. D) shift the demand curve for oil to the right.
B
Jim has an old (working) television that he would like to get rid of now that he has purchased a new high-definition, flat-screen television. The old television is no longer worth anything to him now that he has his new flat-screen TV. Veronica on the other hand has an even older television that has just broken down. She would pay up to $50 for any working TV. Which of the following statements is NOT true? A) If Jim trades Veronica his old television for $50, total value in society increases by $50. B) If Jim trades Veronica his old television for $50, both are better off but total value in society does not increase. C) If a middleman facilitates the $50 trade between Jim and Veronica, but takes a $10 finders' fee, Jim and Veronica will still both be better off. D) If Jim and Veronica do not trade, both are worse off than if they did trade.
B
To be efficient, the revenue from taxation must provide goods that have benefits that ________ the deadweight loss caused by the taxation itself. A) maximize B) exceed C) eliminate D) minimize
B
Two parties fail to solve an externality problem because reaching an agreement requires highpriced lawyers to negotiate and write up contracts. This illustrates the problem of: A) Pigouvian legal fees. B) transaction costs. C) legal inefficiency. D) punitive-cost agreements.
B
When production of a good can be expanded without significantly increasing the overall demand for its inputs: A) supply for this good will tend to be more inelastic. B) supply for this good will tend to be more elastic. C) price for the good will be constant. D) the elasticity of supply of the product will equal the elasticity of supply of the inputs.
B
Which of the following conditions would turn some people into forced riders? A) People who must contribute to the public good because their benefit from the public good is high. B) People who must contribute to the public good even though they will not benefit from the public good. C) People who are not required to contribute to the public good if they will not receive any benefit from it. D) None of the answers is correct.
B
Which of the following contains only excludable and nonrival goods from the table? A) cable Internet service, toll highways, public roads, soup kitchen meals B) online video games, a private beach, toll highways, cable Internet service C) public beaches, soup kitchen meals, public roads, smog reduction D) national defense, a lighthouse, smog reduction, cable Internet service
B
Which of the following is not an effect of a binding price floor? A) misallocation of resources B) deregulation C) surpluses D) wasteful increases in quality
B
Why is the supply curve for oil rather inelastic? A) There are not many widely available good substitutes for oil. B) To increase the production of oil would require a very significant outlay in terms of costs of exploration and drilling. C) The world supply of oil is decreasing. D) The supply curve for oil is always perfectly inelastic.
B
In Market X, the external benefit of consumption is $5. In Market Y, the external cost of consumption is $10. Efficiency in both markets could be achieved by: A) a tax of $5 in Market X and a subsidy of $10 in Market Y. B) subsidizing both markets. C) taxing Market Y and subsidizing Market X. D) taxing both markets.
C
Solving a tragedy of the commons problem could be done through: I. establishment of property rights over the common resource. II. the invisible hand. III. government-armed protection. A) II only B) I and II only C) I and III only D) I, II, and III
C
Suppose it is widely believed that the price of flat-screen, high-definition televisions will be lower next year. What will happen as a result of such beliefs? A) The demand for flat-screen TVs will increase now. B) The demand for flat-screen TVs will increase next year when the prices fall. C) The demand for flat-screen TVs will decrease now. D) The demand for flat-screen TVs will not change
C
The opportunity cost of winning a free ticket to the Super Bowl worth $950 and attending the game is: A) zero, since the ticket was free. B) priceless, if the person really loves football. C) at least $950, the lost market value of selling the ticket and the time to go. D) zero, if the person would rather go to the game than do anything else
C
The per-unit cost of producing Tic Tac candy does not change with increases in production, which means the: A) demand for Tic Tac candy is elastic. B) demand for Tic Tac candy is inelastic. C) supply of Tic Tac candy is elastic. D) supply of Tic Tac candy is inelastic
C
When deciding whether or not to undertake an activity, economists compare: A) the total cost of the activity against the total benefit received. B) the total benefit of the activity against the total cost of production. C) the additional cost of the activity against the additional benefits received. D) the average cost of the activity versus the total benefits received.
C
When the price of a good increases, demand for the good will: A) increase. B) decrease. C) be unaffected. D) depend on the corresponding change in supply.
C
Which of the following scenarios describes how a tragedy of the commons problem occurs? A) A radio station goes out of service because it cannot raise enough money from advertising. B) Illegal immigrants who do not pay taxes benefit from tax-funded school systems. C) Farmers harvest deer out of season rather than pay the high price of beef. D) The establishment of tradable pollution allowances helps reduce pollution.
C
Which of the following statements is NOT true for a case in which the demand for labor is more elastic than the supply of labor? A) Firms can substitute capital for labor if the health insurance on labor gets too costly. B) Most workers would continue to work even if their wages were lower because of the cost of health insurance. C) Firms cannot escape the cost of health insurance for labor by employing fewer workers. D) Firms can move overseas if the tax on labor gets too high
C
Which of the following statements is TRUE? I. A $0.50 tax on each fishing lure sold raises the price per lure by $0.50. II. A tax on sellers is equivalent to a tax on buyers. III. A tax on buyers is analyzed by shifting the demand curve up by the amount of the tax. A) I and II only B) II and III only C) II only D) I, II, and III
C
A subsidy is: A) similar to a reverse tax. B) calculated as the price received by sellers minus the price paid by buyers. C) paid for by taxpayers. D) All of the answer choices are correct
D
Division of knowledge, as discussed in the text, increases economic prosperity because: I. Each person can develop extensive knowledge about a single activity. II. The human brain's capacity to know everything about all productive activities is limited. III. Specialized knowledge increases productivity, which increases total output. A) I and II only B) I and III only C) II and III only D) I, II, and III
D
If the price of computers ______, the demand for printers will ______. A) increases; increase B) decreases; decrease C) decreases; not change D) increases; decrease
D
On a production possibilities frontier a trade-off can be illustrated as: A) an outward shift. B) an inward shift. C) a movement from a point inside the frontier to one on the frontier. D) a movement along the frontier itself.
D
Social surplus is consumer surplus: A) minus producer surplus. B) plus producer surplus. C) plus producer surplus minus everyone else's surplus. D) plus producer surplus plus everyone else's surplus.
D
The problem with using command-and-control policies to eliminate external costs is that there are typically many methods to achieve a goal and: A) consumers may be reluctant to follow. B) the situation may be difficult for the government to control. C) the goal itself may not necessarily be the socially optimal outcome. D) the government may not have enough information to choose the least costly methods.
D
The quantity of cell phones that firms plan to sell this month depends on all of the following EXCEPT the: A) number of producers of cell phones. B) price of a cell phone. C) wages of workers in electronics factories. D) All of these choices affect market conditions.
D
The real power of trade lies in people's ability to: A) get things they can't produce. B) get the lowest price possible. C) increase their consumption. D) specialize and increase production
D
When a payroll tax is enacted or a mandate requires firms to provide health insurance the wage paid to workers ______ and the wage paid by firms ______. A) rises; rises B) rises; falls C) falls; falls D) falls; rises
D
Which of the following are factors that shift the demand curve? A) costs of production, price of the product, and subsidies B) income, population, tastes, and input prices C) expectations, opportunity costs, price of the product D) price of substitutes, tastes, price of complements
D
Which of the following contains only public goods from the table? A) a public beach, soup kitchen meals, public roads B) online video games, a public beach, national defense, a lighthouse C) a public beach, a lighthouse, toll highways, public roads D) national defense, a lighthouse, smog reduction
D
Which of the following explains why local supply tends to be more elastic than global supply? A) As price increases in a certain locale, it is often costly to transport more goods to that particular area, and hence supply is more elastic. B) Local suppliers are small in relation to the global market. C) The statement is false, local supply tends to be less elastic than global supply. D) As price increases in a certain locale, goods can be brought in from other areas, which is not possible on a global scale.
D
Which of the following is the correct answer to the question: Why do smokers pay almost all the taxes assessed on cigarettes? I. Because they are addictive, the demand for cigarettes is relatively elastic when compared to the supply curve of cigarettes. II. Because they are addictive, the demand for cigarettes is relatively inelastic when compared to the supply of cigarettes. III. Cigarette manufacturers can very easily escape a state tax by selling in a different state. A) I only B) II only C) I and III only D) II and III only
D
Which of the following statements about consumer surplus is incorrect? A) Consumer surplus is the net benefit to consumers from the exchange that occurs in a market. B) Consumer surplus is the gains from trade on the part of the consumer that result from a market transaction. C) Total consumer surplus is the area beneath the demand curve and above the market price. D) Consumer surplus is the difference between the minimum price the consumer is willing to pay and the market price
D
Which of the following statements is correct under a market with externalities? A) Social surplus is maximized as long as consumer surplus is maximized. B) Social surplus is maximized as long as producer surplus is maximized. C) Social surplus is maximized as long as both consumer surplus and producer surplus are maximized. D) None of these statements is correct.
D
Why do you think goods are sometimes marked in prices that end in 9s, for example "$29.99" instead of $30, or "$9.99" instead of $10? I. Consumers respond to incentives—they view the products as cheaper and so they buy more. II. Businesses are sneaky and add the extra cent onto taxes on the product. III. It is a sales strategy that makes people think the product is on sale. A) I only B) II only C) III only D) I and III
D
Why is specialization so advantageous to trade? I. Through specialization, people and firms can achieve economies of scale. II. Through specialization, people and firms can use specialized machinery and techniques. III. Trade exists only between people and firms that have complete specialization in the goods they are best at producing. A) I only B) I, II, and III C) I and III only D) I and II only
D