Econ quiz
Suppose the demand for Ping golf clubs is D1, illustrated in the figure to the right. What is the elasticity of demand between prices $85 and $80 along D1 (use the midpoint formula)? (Enter a numeric response using a real number rounded to two decimal places. For this problem do not take the absolutevalue; rather use the minus sign.) Instead, suppose the demand for Ping golf clubs is D2. Relative to demand curve D1, demand curve D2 is (blank) more elastic.
-4.71 is more elastic.
Suppose that after hurricane Irene, the average income in Cape Charles, Virginia decreased by 16 percent. In response to this change in income, suppose the quantity of steak demanded in Cape Charles (holding the price of steak constant) decreased by 2 percent. What is the income elasticity of demand for steak in Cape Charles? The income elasticity of demand for steak in Cape Charles is blank (Enter your response rounded to two decimal places.) In this instance, steak in Cape Charles is normal and a necessity.
0.13 normal and a necessity
Thuy Anh runs a small flower shop in the town of Florabunda. She is debating whether she should extend her hours of operation. Thuy Anh figures that her sales revenue will depend on the number of extra hours the flower shop is open as shown in the table to the right. She would have to hire a worker for those extra hours at a wage rate of $16 per hour. Using marginal analysis, by how many hours should Thuy Anh extend her flower shop's hours of operations? A. 2 hours B. 3 hours C. 4 hours D. 5 hours
4 hours
Which of the following would cause a shift in the demand curve from point A to point B? A. An increase in the price of a substitute good. B. An increase in income (normal good). C. A decrease in income (inferior good). D. All of the above.
All of the above.
What is the basis for trade? A. Efficiency. B. Available resources. C. Absolute advantage. D. Economic growth. E. Comparative advantage.
Comparative advantage.
Which of the following statements about the price elasticity of demand is correct? A. The elasticity of demand for a good in general is equal to the elasticity of demand for a specific brand of the good. B. The absolute value of the elasticity of demand ranges from zero to one. C. Demand is more elastic the smaller percentage of the consumer's budget the item takes up. D. Demand is more elastic in the long run than it is in the short run.
Demand is more elastic in the long run than it is in the short run.
Of the following, which is the best example of good with a perfectly inelastic demand? A. the demand for tickets in New York City when the Mets or Yankees are in the World Series B. the demand for gasoline C. the demand for a college education by a student who has a full scholarship to an Ivy League school D. a diabetic's demand for insulin
a diabetic's demand for insulin
The difference between the highest price a consumer is willing to pay for a good and the price the consumer actually pays is called A. the income effect. B. producer surplus. C. consumer surplus. D. the substitution effect.
consumer surplus.
Complete the following statement: "When there is a shortageLOADING... of a good A. consumers compete against one another by bidding the price upward. B. as prices increase, consumer demand more of a particular good. C. decreasing prices lead to a change in demand. D. as prices increase, producers are driven to produce less. E. producers react to shortages by lowering prices. The process continues until the market is finally in equilibrium."
consumers compete against one another by bidding the price upward.
The table above shows the number of labor hours required to produce a motorcycle and a guitar in Ireland and Scotland. Scotland has a comparative advantage in the production of A. neither product. B. motorcycles. C. guitars. D. both products.
motorcycles.
A good that is nonrival and excludable is a: A. public good. B. common resource. Your answer is not correct. C. private good. D. quasi−public good.
quasi−public good.
In the diagram to the right, when demand decreases, a surplus develops at the original price. Equilibrium price will fall and equilibrium quantity will fall as a new equilibrium is established.
surplus; fall; fall
On the lower part of a linear demand curve below the midpoint, the demand is ________ and raising the price causes total revenue to _________. A. elastic; increase B. inelastic; decrease C. elastic; decrease D. inelastic; increase
inelastic; increase
Deadweight loss is the reduction in economic surplus resulting from a market not being in competitive equilibrium. In thediagram, deadweight loss is equal to the area(s): A. C & E. B. B & D. C. A, B, & C. D. A.
(see screenshot) C & E.
The Coase Theorem suggests that: A. without government intervention, private markets will create externalities and result in inefficient outcomes. B. if transaction costs are low, the government will regulate an efficient solution to the problem of externalities. C. if transaction costs are low, private bargaining will result in an efficient solution to the problem of externalities. Your answer is correct. D. if imposed on free markets, government regulations will create externalities and result in inefficient outcomes. E. none of the above. However, this type of bargaining will tend to be limited when: A. the number of parties involved is small. B. all parties to the agreement do not have full information. Your answer is correct. C. monitoring an agreement is costless. D. both a and b. E. all of the above.
1. if transaction costs are low, private bargaining will result in an efficient solution to the problem of externalities. 2. all parties to the agreement do not have full information.
How can a country gain from specialization and trade? A. A country can specialize in producing that for which it has an absolute advantage and then trade for other needed goods and services. B. A country can specialize by using all available resources to invest in capital goods to promote economic growth. C. A country can specialize in producing that which is most scarce and then trade for other needed goods and services. D. A country can specialize in producing that for which it has a comparative advantage and then trade for other needed goods and services. E. A country can specialize by using all available resources to produce goods and services to avoid trading with other countries.
A country can specialize in producing that for which it has a comparative advantage and then trade for other needed goods and services.
Health insurance companies deal with asymmetric information problems by A. requiring policyholders to pay a deductible B. requiring applicants to submit medical records C. limiting the coverage of pre-existing conditions. D. All of the above. Your answer is correct. E. A and B only.
All of the above.
b. Which of the following statements is true? A. By protecting private property rights, governments make it more likely that investments will be made in businesses that provide jobs and income for workers. B. It is easy for a country to become rich even without having secure property rights. C. Protecting property rights has no impact on a country's standard of living. D. Only rich countries have recognized governments that would even be capable of securing property rights.
By protecting private property rights, governments make it more likely that investments will be made in businesses that provide jobs and income for workers.
In the diagram to the right, illustrating a binding price ceiling at P3, the amount of producer surplus transferred to consumers is represented by area C and the deadweight loss is equal to areas B and D
C; B and D
If the absolute value of the price elasticity of demand for gasoline is 0.5, then a 10 percent increase in the price of gasoline leads to a 0.5 percent decrease in the quantity demanded. True False
False
The table above shows the number of labor hours required to produce a motorcycle and a guitar in Ireland and Scotland. If the two countries specialize and trade, who should export guitars? A. There is no basis for trade between the two countries. B. They should both be exporting guitars. C. Scotland D. Ireland
Ireland
If the price elasticity of demand for canned soup is estimated at −1.62. What happens to sales revenue if the price of canned soup rises? A. It rises. B. It falls. C. It rises by 1.62 percent. D. It falls by 162 percent.
It falls.
Does either country have an absolute advantage in producing both goods? A. Neither country has an absolute advantage in both goods because the United States can produce more boots but Canada can produce more shirts. B. Both countries have an absolute advantage in both goods because they both produce boots and shirts. C. Canada has an absolute advantage in both goods because it can produce more boots and more shirts. D. The United States has an absolute advantage in both goods because it can produce more boots and more shirts. E. Neither country has an absolute advantage in both
Neither country has an absolute advantage in both goods because the United States can produce more boots but Canada can produce more shirts.
If the demand for orange juice is elastic, will an increase in the price of orange juice increase or decrease the revenue received by orange juice sellers? If the price of orange juice increases, revenue will blank
decrease
Hospitals and doctors sometimes perform tests that may not be of any value to patients because A. health care providers are paid for each service they render. Your answer is correct. B. patients want as many tests as possible. C. they want to make sure before diagnosing. D. insurance does not cover all of the cost of procedures.
health care providers are paid for each service they render.
When a competitive market is in equilibrium, what is the economically efficient level of output? A. any output level where marginal benefit is greater than marginal cost B. the output level where marginal cost is equal to marginal benefit C. any output level where marginal cost is greater than marginal benefit D. All of the above.
the output level where marginal cost is equal to marginal benefit
Fracking, or hydraulic fracturing, has been used more frequently in recent years to drill for oil and natural gas that previously was too expensive to obtain. According to an article in the New York Times, "horizontal drilling has enabled engineers to inject millions of gallons of high-pressure water directly into layers of shale to create the fractures that release the gas. Chemicals added to the water dissolve minerals, kill bacteria that might plug up the well, and insert sand to prop open the fractures." Although most experts agree now that when fracking is done correctly it is safe, some people still worry that chemicals used in fracking might lead to pollution of underground supplies of water used by households and farms. Source: Susan L. Brantley and Anna Meyendorff, "The Facts on Fracking," New York Times, March 13, 2013. First, assume that fracking causes no significant pollution and allows for an increase in natural gas supply. If fracking causes no significant pollution, then it will shift the supply curve for natural gas to the right. Now assume that fracking does result in serious ground water pollution. If fracking does result in serious ground water pollution, then the supply curve for natural gas will shift upward. If fracking causes pollution then, A. the free market equilibrium price will be equal to the socially efficient price. B. the free market equilibrium quantity will be higher than socially efficient. C. the free market equilibrium quantity will be lower than socially efficient. D. the free market equilibrium price will be higher than socially efficient.
1. for natural gas to the right 2.curve for natural gas will shift upward b. the free market equilibrium quantity will be higher than socially efficient.
The figure illustrates the market for apples in which the government has imposed a price floorLOADING... of $13 per crate. How many crates of apples will be sold after the price floor has been imposed? blank (Enter your response as an integer.) Will there be a shortage or surplus? If there is a shortage or surplus, how large will it be? There will be a (blank) surplus of 18 million crates of apples per year. (Enter your response as an integer.) Will apple producers benefit from the price floor? A. Apple producers who are able to sell their apples at the $13 price per crate will benefit. B. Apple producers who are not able to sell their apples will not benefit. C. Total revenue for apple producers as a group will decrease from $200 million to $182 million. D. Both a and b. E. All of the above.
14 million crates of apples per year. surplus of 18 million All of the above.
The figure to the right shows the production possibilities frontier for Vidalia, a nation that produces two goods, roses and orchids. What is the opportunity cost of 80 dozen orchids? A. 0 roses B. 2.5 dozen roses C. 40 dozen roses D. 200 dozen roses
200 dozen roses
Suppose the figure to the right represents the production of a manufactured good. Production of this good generates volatile organic compounds, which are a type of air pollution. As a result, the cost of production to society is greater than the private cost of production. The marginal private cost of production is represented by MC1 and the marginal social cost is represented by MC2. Suppose the government decides to impose a Pigovian tax to bring about an efficient level of output. What size should the tax be? The government should levy a tax of $300 per ton produced. (Enter your response as a whole number.)
300
Following below are four graphs and four market scenarios, each of which would cause either a movement along the supply curve for premium bottled water or a shift of the supply curve. Match each scenario with the appropriate diagram. a. A decrease in the supply of sports drinks: 4. b. A drop in the average household income in the United States from $56,000 to $52,000: 3. c. An improvement in the bottling technology for premium bottled water: 2. d. An increase in the prices of electrolytes used in premium bottled water: 1.
4 , 3, 2, 1
Suppose a study shows that the demand for Lacoste shirts is more elastic than the demand for all shirts. What could be a likely explanation for this? The demand for Lacoste shirts could be more elastic than the demand for all shirts because A. Lacoste shirts are consumed over a shorter period of time. B. Lacoste shirts are more of a necessity. C. Lacoste shirts are less costly. D. Lacoste shirts have more close substitutes. E. Lacoste shirts are more broadly defined.
Lacoste shirts have more close substitutes.
Suppose the figure to the right represents the market for cotton. To help reduce debt, the government decides to levy a tax on cotton of $1.20 per pound to be paid by cotton farmers. What is the incidence of this tax? Producers pay $0.40 of the $1.20 tax and consumers pay $0.80 (Enter your responses rounded to two decimalplaces.)
Producers pay $0.40 of the $1.20 tax and consumers pay $0.80 (Enter your responses rounded to two decimalplaces.)
The marginal social benefit from vaccinations is greater than the marginal private benefit to people being vaccinated. A. True B. False
True
Which of the following would shift the supply curve for MP3 players to the right? A. an increase in the price of a substitute in production B. a decrease in the price of an input used to produce MP3 players C. an increase in consumer income (assuming that all MP3 players are normal goods) D. a decrease in the number of firms that produce MP3 players
a decrease in the price of an input used to produce MP3 players
Ranchers can raise either cattle or sheep on their land. Which of the following would cause the supply of sheep to increase? A.a decrease in the price of cattle. B. an increase in the price of sheep feed C. an increase in the price of sheep D. an increase in the demand for cattle
a decrease in the price of cattle
Which of the following terms refers to the situation in which one party to an economic transaction takes advantage of knowing more than the other party to the transaction? A. principal-agent problem B. moral hazard C. adverse selection Your answer is correct. D. co-payment
adverse selection
When will the private benefit from consuming a good differ from the social benefit? A. when there is an externality, such as second-hand smoke generated by the consumption of cigarettes. B. when there is an externality, such as fewer diseases generated by the consumption of vaccines. C. when there is an externality, such as sulfur dioxide generated by the production of paper products. D. when there is no externality, such as in the consumption of apples. E. both a and b.
both a and b.
Economists reason that the optimal decision is to continue any activity up to the point where the A. marginal benefit is zero. B. marginal benefit equals the marginal cost. C. marginal cost is zero. D. marginal benefit is greater than the marginal cost.
marginal benefit equals the marginal cost.
When people who buy insurance change their behavior after the purchase because they are protected from loss by the insurance, the insurance market is said to face the problem of A. asymmetric information. B. economic irrationality C. adverse selection. D. moral hazard.
moral hazard.
Signalling is a way to A. overcome moral hazard B. overcome information asymmetries Your answer is correct. C. to improve transportation networks D. prevent positive externalities
overcome information asymmetries
When there few close substitutes available for a good, demand tends to be A. perfectly elastic. B. relatively inelastic. C. perfectly inelastic. D. relatively elastic.
relatively inelastic.
Which graph above best represents what happens in the market for hotel rooms at a ski resort during the winter? A. A, because fewer people would need accomodations, thereby shifting demand to the right. B. B, because more hotels would offer rooms, thereby shifting supply to the left. C. A, because more people would need accomodations, thereby shifting demand to the right. D. B, because fewer hotels would offer rooms, thereby shifting supply to the left. From the graph that you picked, if hotel rates stayed at their summer level, the result would be a shortage of hotel rooms.
A, because more people would need accomodations, thereby shifting demand to the right. shortage of hotel rooms
Does it matter whether buyers or sellers are legally responsible for paying a tax? A. Yes, the tax is more equitable if sellers pay the tax. B. No, the market price to consumers and net proceeds to sellers are the same independent of who pays the tax. C. Yes, the tax is more efficient if consumers pay the tax.
No, the market price to consumers and net proceeds to sellers are the same independent of who pays the tax.
Suppose initially that the United States is consuming 4 boots and 8 shirts and Canada is consuming 18 boots and 2 shirts, as indicated in the figure. Then, suppose the United States and Canada specialize by each only producing the good for which they have a comparative advantage and then trade. In particular, suppose the United States trades Canada half of its production for half of what Canada produces. The United States will have 4 additional shirt(s) after the trade (enter a numeric response using an integer) and 14 additional boot(s). At the same time, Canada will be able to consume 10 additional shirt(s) as a result of the trade and 0 additionalboot(s).
The United States will have 4 additional shirt(s) after the trade (enter a numeric response using an integer) and 14 additional boot(s). At the same time, Canada will be able to consume 10 additional shirt(s) as a result of the trade and 0 additionalboot(s).
In Venezuela, the government has implemented price controls on cornmeal, and the resulting shortage created a black market for the product. When compared to the competitive equilibrium, this situation has resulted in a transfer of ________ to black market sellers. A. only producer surplus B. only consumer surplus C. deadweight loss D. both consumer surplus and producer surplus
both consumer surplus and producer surplus
As you move up a linear demand curve, the price elasticity of demand in absolute value A. stays the same. B. increases. C. decreases. D. None of the above.
increases.
Which of the following terms refers to what occurs when a person gets a vaccination against a disease and that action reduces the chances that other people will contract that disease? A. negative externality B. positive externality Your answer is correct. C. adverse selection D. moral hazard
positive externality
An editorial in the New York Times argued that "the single best way to slow global warming is to put a price on greenhouse gas emissions from fossil fuels." Source: Editorial Board, "Best Way to Fight Climate Change? Put an Honest Price on Carbon," New York Times, October 29, 2018. a. How would it be possible to put a price on greenhouse gas emissions? Don't utilities and other firms that emit greenhouse gases automatically pay a price, without the government intervening? Briefly explain. A. Firms do not automatically pay a price when they emit greenhouse gases because those harmed do not have a property right that would enable them to charge the firms for the external cost of these gases. A carbon tax is one way to put a price on greenhouse gas emissions. B. Firms automatically pay a price when they emit greenhouse gases because the external cost of the emissions upsets the firms' customers who react by reducing their demand for the firms' products. The resulting fall in product prices is the price of greenhouse gas emissions. C. Firms automatically pay a price when they emit greenhouse gases because they are harmed by the emissions in the same way that society is harmed. The external cost of these gases is therefore the price of greenhouse gas emissions. D. Firms do not automatically pay a price when they emit greenhouse gases because they have the property right to pollute. Consequently, it is not possible to charge the firms for the external cost of these gases. Your answer is not correct. b. How would putting a price on greenhouse gas emissions slow global warming? A. By increasing the price of fossil fuels, the use of which generates emissions of greenhouse gases, a carbon tax would reduce their consumption and slow global warming. Your answer is correct. B. Since there is no evidence that greenhouse gas emissions are linked to global warming, putting a price on them would be unnecessary and ineffective. C. Putting a price on greenhouse gas emissions would reduce the use of products that cause pollution, but would not affect the concentration of greenhouse gases in the atmosphere and so have no effect on global warming. D. Putting a price on greenhouse gas emissions would raise the costs of production for all products, push the economy into recession, lower emissions, and slow global warming.
A. Firms do not automatically pay a price when they emit greenhouse gases because those harmed do not have a property right that would enable them to charge the firms for the external cost of these gases. A carbon tax is one way to put a price on greenhouse gas emissions. a. By increasing the price of fossil fuels, the use of which generates emissions of greenhouse gases, a carbon tax would reduce their consumption and slow global warming.
Suppose that France is currently producing 1 bottle of wine and 9 pounds of cheese and Germany is currently producing 3 bottles of wine and 8 pounds of cheese. Then, assume instead that France and Germany specialize by producing only the good for which they have a comparative advantage and then trade 3 bottles of wine for 11 pounds of cheese. After specialization and trade, France gains by consuming the same amount of wine and 22 additional pound(s) of cheese (enter a numeric response using an integer) and Germany gains by consuming the same amount of wine and 11 additional pound(s) of cheese.
After specialization and trade, France gains by consuming the same amount of wine and 2 additional pound(s) of cheese and Germany gains by consuming the same amount of wine and 1 additional pound(s) of cheese.
Refer to the graph. When 15,000 cups of tea are produced and consumed per month, which of the following is true? A. The level of output is economically efficient. B. The sum of consumer and producer surplus is maximized. C. The marginal benefit to buyers of the last cup of tea is equal to the marginal cost of producing the last cup of tea. D. All of the above are true.
All of the above are true.
c. What problems might African farmers have because they lack secure property rights? A. Without secure property rights, farmers are not able to obtain funds by selling some of their land. B. Without secure property rights, farmers in Africa may be reluctant to make the investments in their farms that would raise the farms' productivity. C. Without secure property rights, it is harder for farmers to borrow because they cannot use their land as collateral. D. All of the above.
All of the above.
Using the same amount of resources, the United States and Canada can both produce lumberjack shirts and lumberjackboots, as shown in the production possibilities frontiers in the figure to the right. Canada has a comparative advantage in producing lumberjack boots. The United States has a comparative advantage in producing lumberjack shirts.
Canada- has a comparative advantage in producing lumberjack boots. The United States- has a comparative advantage in producing lumberjack shirts.
In the United States, the bulk of health care spending is paid by health insurance companies. Such a system is also called a third-party payer system where consumers of health care pay a nominal fee and the rest are paid by the health insurance provider. Why might such a system lead to an inefficient outcome? A. Consumers have an incentive to over-consume health care services because they pay prices well below the cost of providing these services. Your answer is correct. B. Consumers fearing that excessive use of health care services may lead to a rise in insurance premiums tend to under-consume health care services. C. Physicians concerned that insurance companies may not approve payments tend not to order expensive tests for their patients. D. Health insurance companies have an incentive to control cost and therefore tend to deny consumers many cutting edge medical treatments.
Consumers have an incentive to over-consume health care services because they pay prices well below the cost of providing these services.
Briefly explain whether you agree with the following statement: "The reluctance of healthy young adults to buy medical insurance creates a moral hazard problem for insurance companies." A. Disagree. Young, healthy adults do not need insurance. Thus, selling insurance to someone who doesn't need it would be a moral hazard. B. Disagree. Moral hazard becomes a problem after one purchases insurance. In this case, the reluctance of young, healthy adults to purchase insurance in the first place leads to an adverse selection problem. C. Agree. The only way for insurance companies to get young, healthy adults to buy insurance is to lower the price. However, this is a form of price discrimination, which is often referred to as a moral hazard problem. D. Agree. We have a moral obligation to be covered by insurance so that in the event we do become sick or injured taxpayers won't be stuck paying our bills.
Disagree. Moral hazard becomes a problem after one purchases insurance. In this case, the reluctance of young, healthy adults to purchase insurance in the first place leads to an adverse selection problem.
Suppose that France and Germany both produce wine and cheese. The table below shows combinations of the goods that each country can produce in a day. Who has the comparative advantage in producing wine and who has the comparative advantage in producing cheese? A. France has a comparative advantage producing wine and Germany has a comparative advantage producing cheese. Your answer is correct. B. Neither has a comparative advantage producing wine or cheese. C. France has a comparative advantage producing wine and cheese. D. France has a comparative advantage producing cheese and Germany has a comparative advantage producing wine. E. Germany has a comparative advantage producing wine and cheese.
France has a comparative advantage producing wine and Germany has a comparative advantage producing cheese.
In England during the Middle Ages, each village had an area of pasture, known as a commons, on which any family in the village was allowed to graze its cows or sheep without charge. Was the common land used optimally? A. The commons was underused due to free riding. B. Grazing created no externality, resulting in the commons being used optimally. C. Grazing created a negative externality, resulting in the commons being overused. D. The commons was used optimally because the commons was a nonexcludable good. E. The commons was overused because the commons was a nonrival good.
Grazing created a negative externality, resulting in the commons being overused.
Consider the figure to the right and assume that it is the market for health-care services. When the "baby boomer" generation retires, the number of people who require health care increases by 30%, and, as a result, the number ofhealth-care providers also increases, but by only 25%. What is the effect on the price of health-care services over time? A. It increases because demand increased by more than supply. Your answer is correct. B. It decreases because demand increased by more than supply. C. It increases because demand increased by less than supply. D. It decreases because demand increased by less than supply.
It increases because demand increased by more than supply.
According to an article in the Economist magazine: "In all rich countries, property rights are secure...Legally recognising land ownership has boosted farmers' income and productivity in Latin America and Asia...More than two-thirds of Africa's land is still under customary tenure, with rights to land rooted in communities and typically neither written down nor legally recognized." Source: "Title to Come: Property Rights Are Still Wretchedly Insecure in Africa," Economist, July 16, 2016. a. Which of the following statements regarding secure property rights is true? A. Property rights provide incentives for people to maintain and increase the value of the property they own. B. Property rights—which include only physical property (not intellectual rights to new products or the processes used to produce goods and services)—refer to the rights of firms and individuals to have exclusive use of their property. C. It is solely the responsibility of the individuals who own the property to ensure that their rights are protected. D. All of the above.
Property rights provide incentives for people to maintain and increase the value of the property they own.
MIT economist Jerry Hausman has estimated the price elasticity of demand for Post Raisin Bran cereal to be −2.5 and the price elasticity of demand for all types of breakfast cereals to be −0.9. The demand for Post Raisin Bran cereal is elastic, and the demand for all types of breakfast cereals is inelastic. Why might the demand for Post Raisin Bran cereal be more elastic than the demand for all types of breakfast cereals? Post Raisin Bran cereal A. is defined more narrowly. B. is more of a necessity. C. has fewer substitutes available. D. is a smaller share of a consumer's budget. E. is consumed over a shorter period of time.
The demand for Post Raisin Bran cereal is elastic and the demand for all types of breakfast cereals is inelastic a. is defined more narrowly.
Briefly explain whether the "safety fee" is a Pigovian tax of the type discussed in this chapter. A. The safety fee is a Pigovian tax because it is designed to make the marginal private cost of crime equal to the marginal social cost. Your answer is correct. B. The safety fee is a Pigovian tax because it is designed to make the marginal private cost of crime equal to the marginal private benefit. C. The safety fee is a Pigovian tax because it is designed to raise government revenue. D. The safety fee is not a Pigovian tax because it does not treat all crimes equally. E. The safety fee is not a Pigovian tax because it is not designed to completely eliminate the externality.
The safety fee is a Pigovian tax because it is designed to make the marginal private cost of crime equal to the marginal social cost.
A few years ago, Governor Deval Patrick of Massachusetts proposed that criminals would have to pay a "safety fee" to the government. The size of the fee would be based on the seriousness of the crime (that is, the fee would be larger for more serious crimes). Source: Michael Levenson, "Patrick Proposes New Fee on Criminals," Boston Globe, January 14, 2007. Is there an economically efficient amount of crime? Briefly explain. A. No. No amount of crime is efficient. B. Yes. The economically efficient amount of crime is where the total social cost equals zero. C. Yes. The economically efficient amount of crime is where the total social benefit is maximized. D. Yes. The economically efficient amount of crime is where the total social benefit equals the total social cost. E. Yes. The economically efficient amount of crime is where the marginal social benefit equals the marginal social cost.
Yes. The economically efficient amount of crime is where the marginal social benefit equals the marginal social cost.
The author of a newspaper article remarks that many economists "support Pigovian taxes because, in some sense, we are already paying them." Source: Adam Davidson, "Should We Tax People for Being Annoying?" New York Times, January 8, 2013. A Pigovian tax is a government tax intended to A. bring about an efficient level of output in the presence of externalities. B. reduce producer surplus. C. bring in revenue. D. reduce the national debt. In a sense, consumers in a market might be "paying" a Pigovian tax even if the government hasn't imposed an explicit tax if there are A. negative externalities in that market so that consumers are experiencing an external benefit. B. negative externalities in that market so that consumers are experiencing an external cost. C. positive externalities in that market so that consumers are experiencing an external benefit. D. positive externalities in that market so that consumers are experiencing an external cost.
a. bring about an efficient level of output in the presence of externalities. b. negative externalities in that market so that consumers are experiencing an external cost.
Suppose the figure to the right illustrates the market for toilet paper, where S1 represents the marginal private cost of production and D1 represents the marginal private benefit from consumption. Companies that produce toilet paper bleach the paper to make it white. Some paper plants discharge the bleach into rivers and lakes, causing substantial environmental damage. Assume that S2 represents the marginal social cost of producing toilet paper (incorporating theexternality). What could the government do to internalize the externality? In the presence of a negative externality, the government could tax toilet paper production. In particular, the government should set a Pigovian taxLOADING... of $150 per ton of toilet paper produced.
a. the government could tax toilet paper production. b. $150 per ton of toilet paper produced
The "lemons problem" refers to the observation that the presence of asymmetric information in the used car market leads to the problem of adverse selection, causing the cars offered for sale to be predominantly poor in quality. In the case of health insurance, a lemons problem exists since those more likely to want health insurance are sick people.
adverse selection; poor; sick
Suppose a new recreational neighborhood park would cost $20,000, including opportunity costs, to construct and maintain. If built, the park would be a public goodLOADING.... For simplicity, assume the neighborhood park would be used by three families, each of whom would derive a marginal benefit equivalent to $8,000 from the park. Should the neighborhood park be built? It would (blank) be optimal for the park to be built. If left to the private market, without private bargaining or government intervention, would the park be built? Without private bargaining or government intervention, the park (blank) would not be built.
be optimal would not be built.
A student makes the following argument: A price floor reduces the amount of a product that consumers buy because it keeps the price above the competitive market equilibrium. A price ceiling, on the other hand, increases the amount of the product that consumers buy because it keeps the price below the competitive market equilibrium. Do you agree with the student's reasoning? To address this, first, determine a binding price floor and a binding price ceiling A binding price floor will be above the equilibrium price. A binding price ceiling will be below the equilibrium price. A price ceiling A. increases the amount of the product that consumers buy because it lowers the price. B. increases the amount of the product that consumers buy because it creates a surplus. C. does not increase the amount of the product that consumers buy because it creates a shortage. D. does not increase the amount of the product that consumers buy because it creates a surplus. E. both a and b.
binding price floor- above binding price ceiling- below c. does not increase the amount of the product that consumers buy because it creates a shortage.
In the market for health insurance, asymmetric information problems arise because A. the sellers of health insurance require medical exams that give them more information than the buyers normally have. B. health insurance policies always include clauses that only the companies understand. C. buyers of health insurance policies always know more about the state of their health than do the insurance companies. D. privacy laws prevent the sellers of health insurance from asking buyers pertinent lifestyle questions.
buyers of health insurance policies always know more about the state of their health than do the insurance companies.
Suppose the price of a substitute to LCD televisions falls. What effect will this have on the market equilibrium for LCD TVs? The equilibrium price of LCD TVs will A. not change and the equilibrium quantity will not change. B. decrease and the equilibrium quantity will increase. C. decrease and the equilibrium quantity will decrease. D. increase and the equilibrium quantity will increase. E. increase and the equilibrium quantity will decrease.
decrease and the equilibrium quantity will decrease.
Using the graph to the right, explain why economic surplus would be smaller if Q1 or Q3 were the quantity produced than if Q2 is the quantity produced. Economic surplus at Q1 would be smaller than at Q2 because if Q1 units of output were produced, then some units for which marginal benefit is greater than marginal cost would not be produced. Economic surplus at Q3 would be smaller than at Q2 because if Q3 units were produced, then some units for which marginal cost is greater than marginal benefit would be produced.
greater than; not be produced greater than; would be produced
Compared to a command and control government approach to reducing pollution, a market-based system of tradable pollution allowances is: A. more efficient because the bulk of the pollution reduction is carried out by those who pollute the most. B. less efficient because pollution allowances are "licenses to pollute." C. less efficient because polluters have the same cost of reducing pollution. D. more efficient because polluters that can reduce pollution at low cost do so and sell their allowances. E. less efficient because polluters are not required to reduce pollution by the same amount.
more efficient because polluters that can reduce pollution at low cost do so and sell their allowances.
Porsche is developing all-electric and hybrid electric vehicles, and has announced that by 2025, they expect more than 50 percent of their worldwide sales will be all-electric or hybrid models. The figure shows changes to Porsche's production possibilities frontier at its manufacturing facilities in response to new developments and different strategic production decisions. Assume a technological advancement greatly reduces the cost to produce batteries for its Taycan sports car. This is best represented by the A. movement from H to J in Graph B. B. movement from G to H in Graph B. Your answer is not correct. C. movement from K to L in Graph C. D. movement from E to F in Graph A.
movement from E to F in Graph A.
In an opinion column in the Washington Post, Daniel Morgan of the University of Maryland's School of Medicine described the result of a study he carried out with colleagues: "We found that nearly 90 percent of the patients received at least one unnecessary [medical] test and that, overall, nearly one-third of all the tests were superfluous." Source: Daniel Morgan, "What the Tests Don't Show," Washington Post, October 5, 2018. Are there features of the U.S. health care system that might be encouraging this behavior? The article is referring to the A. prevalence of disease in the United States that results in the principal-agent problem. B. prevalence of patient health insurance in the United States that results in the principal-agent problem. Your answer is correct. C. premium-for-patient aspect of health insurance. D. None of the above.
prevalence of patient health insurance in the United States that results in the principal-agent problem.
If a firm has an incentive to increase supply now and decrease supply in the future, the firm expects that the A. demand for the product will be lower in the future than it is today. B. price of its product will be higher in the future than it is today. C. price of its product will be lower in the future than it is today. D. price of inputs will be lower in the future than they are today.
price of its product will be lower in the future than it is today.
What do economists mean by "an economically efficient level of pollution"? The economically efficient level of pollution is that amount where A. the marginal cost of pollution reduction and the marginal benefit of pollution reduction equal zero. B. the marginal cost of pollution reduction equals the marginal benefit of pollution reduction. C. the total benefit of pollution reduction is maximized. D. the marginal cost of pollution reduction is zero and the marginal benefit of pollution reduction is very high. E. pollution is eliminated.
the marginal cost of pollution reduction equals the marginal benefit of pollution reduction.
The private cost of producing a good will differ from the social cost A. when there is an externality, such as acid rain generated by the production of electricity. B. when there is an externality, such as lower crime rates generated by the consumption of education. C. when there are property rights, where individuals or businesses have exclusive use of their property. D. when there is no externality, such as in the production of ice cream. E. both a and b.
when there is an externality, such as acid rain generated by the production of electricity.
