Micro test 2

Scenario 12-1 Ken places a $20 value on a cigar, and Mark places a $17 value on it. The equilibrium price for this brand of cigar is $15. Refer to Scenario 12-1. Suppose the government levies a tax of $3 on each cigar, and the equilibrium price of a cigar increases to $18. How much tax revenue is collected? A) $3 B) $6 C) $2 D) $0

A) $3

Which of the following scenarios is not consistent with the Laffer curve? A) The tax rate is very high, and tax revenue is very high. B) The tax rate is moderate (between very high and very low), and tax revenue is relatively high. C)The tax rate is very low, and tax revenue is very low. D) The tax rate is very high, and tax revenue is very low.

A) The tax rate is very high, and tax revenue is very high.

The Tragedy of the Commons will be evident when a growing number of sheep grazing on the town commons leads to a destruction of the grazing resource. To correct for this problem, the town could A) auction off a limited number of sheep-grazing permits. B) allow individual shepherds to choose their own flock sizes. C) wait until the market corrects the problem. D) internalize the externality by subsidizing the production of sheep's wool.

A) auction off a limited number of sheep-grazing permits.

Suppose that the market price for pizzas increases. The increase in producer surplus comes from the benefit of the higher prices to A) both existing sellers who now receive higher prices on the pizzas they were already selling and new sellers who enter the market. B) because of the higher prices. Producer surplus does not increase; it decreases. C) only existing sellers who now receive higher prices on the pizzas they were already selling. D) only new sellers who enter the market because of the higher prices.

A) both existing sellers who now receive higher prices on the pizzas they were already selling and new sellers who enter the market.

An increase in the size of a tax is most likely to increase tax revenue in a market with A) inelastic demand and inelastic supply. B) inelastic demand and elastic supply. C) elastic demand and elastic supply. D) elastic demand and inelastic supply.

A) inelastic demand and inelastic supply.

Assume the demand for cigarettes is relatively inelastic, and the supply of cigarettes is relatively elastic. When cigarettes are taxed, we would expect A) most of the burden of the tax to fall on buyers of cigarettes, regardless of whether buyers or sellers of cigarettes are required to pay the tax to the government. B) a large percentage of smokers to quit smoking in response to the tax. C) the distribution of the tax burden between buyers and sellers of cigarettes to depend on whether buyers or sellers of cigarettes are required to pay the tax to the government. D) most of the burden of the tax to fall on sellers of cigarettes, regardless of whether buyers or sellers of cigarettes are required to pay the tax to the government.

A) most of the burden of the tax to fall on buyers of cigarettes, regardless of whether buyers or sellers of cigarettes are required to pay the tax to the government.

Because it is A) neither excludable nor rival in consumption, a tornado siren is a public good. B) rival in consumption but not excludable, a tornado siren is a common resource. C) neither excludable nor rival in consumption, a tornado siren is a common resource. D) excludable but not rival in consumption, a tornado siren is produced by a club good.

A) neither excludable nor rival in consumption, a tornado siren is a public good.

A benevolent social planner would prefer that the output of good x be decreased from its current level if, at the current level of output of good x, A) social value = private value = private cost < social cost. B) social cost = private cost = private value < social value. Incorrect C) private cost < social cost = private value = social value. D) social cost = private cost = private value = social value.

A) social value = private value = private cost < social cost.

Jeff decides that he would pay as much as $3,000 for a new laptop computer. He buys the computer and realizes consumer surplus of $700. How much did Jeff pay for his computer? A) $700 B) $2,300 C) $3,000 D) $3,700

B) $2,300

Which of the following is an example of a positive externality? A) A college student buys a new car when she graduates. B) The mayor of a small town plants flowers in the city park. C) An avid fisherman buys new fishing gear for his next fishing trip. D) Local high school teachers have pizza delivered every Friday for lunch.

B) The mayor of a small town plants flowers in the city park.

Which of the following goods is rival in consumption and excludable? A) a fireworks display B) a box of sparklers C) national defense D) a parade

B) a box of sparklers

When a good is rival in consumption, A) everyone will be excluded from obtaining the good. B) one person's use of the good diminishes another person's ability to use it. C) an unlimited number of people can use the good at the same time. D) people can be prevented from using the good.

B) one person's use of the good diminishes another person's ability to use it.

State and local governments receive the largest portion of their tax revenues from A) payroll taxes and income taxes. B) property taxes and sales taxes. C)sales taxes and income taxes. D) income taxes and property taxes.

B) property taxes and sales taxes.

When a tax is imposed on a good for which the demand is relatively elastic and the supply is relatively inelastic, A) buyers and sellers will each bear 50 percent of the burden of the tax. B) sellers of the good will bear most of the burden of the tax. C) buyers of the good will bear most of the burden of the tax. D) the effective price paid by buyers will decrease as a result of the tax.

B) sellers of the good will bear most of the burden of the tax.

A minimum wage that is set above a market's equilibrium wage will result in an excess A) demand for labor, that is, unemployment. B) supply of labor, that is, unemployment. C) supply of labor, that is, a shortage of workers. D) demand for labor, that is, a shortage of workers.

B) supply of labor, that is, unemployment.

Welfare economics is the study of how A) the government helps poor people. B) the allocation of resources affects economic well-being. C) a price ceiling compares to a price floor. D) a consumer's optimal choice affects her demand curve.

B) the allocation of resources affects economic well-being.

Donald produces nails at a cost of $350 per ton. If he sells the nails for $500 per ton, his producer surplus is A) $850. B) $500. C) $150. D) $350.

C) $150.

A dentist shares an office building with a radio station. The electrical current from the dentist's drill causes static in the radio broadcast, causing the radio station to lose $10,000 in profits. The radio station could put up a shield at a cost of $30,000; the dentist could buy a new drill that causes less interference for $6,000. Either would restore the radio station's lost profits. What is the economically efficient outcome? A) The radio station puts up a shield, which the dentist pays for. B) Neither the radio station nor the dentist purchase additional equipment. C) The dentist gets a new drill; it does not matter who pays for it. D) The radio station puts up a shield, which it pays for.

C) The dentist gets a new drill; it does not matter who pays for it.

Consider a public road that anyone is allowed to drive on. If the road is often congested, the road would be considered a A) private good. B) club good. C) common resource. D) public good.

C) common resource.

If the government levies a $1,000 tax per boat on sellers of boats, then the price paid by buyers of boats would A) decrease by an indeterminate amount. B) increase by exactly $1,000. C) increase by less than $1,000 D) increase by more than $1,000.

C) increase by less than $1,000

Markets are often inefficient when negative externalities are present because A) production externalities lead to consumption externalities. B) externalities cannot be corrected without government regulation. C) social costs exceed private costs at the private market solution. D) private costs exceed social costs at the private market solution.

C) social costs exceed private costs at the private market solution.

Producer surplus is A) represented on a graph by the area below the demand curve and above the supply curve. B) All of the answers listed are C) the amount a seller is paid minus the cost of production. D) also referred to as excess supply.

C) the amount a seller is paid minus the cost of production.

Pat calculates that for every extra dollar she earns, she owes the government 40 cents. Her total income now is $44,000, on which she pays taxes of $11,000. Determine her average tax rate and her marginal tax rate. A) Her average tax rate is 40 percent and her marginal tax rate is 25 percent. B) Her average tax rate is 40 percent and her marginal tax rate is 40 percent. C) Her average tax rate is 25 percent and her marginal tax rate is 25 percent. D) Her average tax rate is 25 percent and her marginal tax rate is 40 percent.

D) Her average tax rate is 25 percent and her marginal tax rate is 40 percent.

Scenario 12-5 Senator Filch argues that a tax must be paid by people who benefit from government services. Senator Fudge argues that a tax must be paid in accordance with a person's ability to bear the tax burden. Senator Malfoy argues that people with a greater ability to pay a tax should pay a larger amount. Senator Moody argues that taxpayers with similar abilities to pay should contribute the same amount. Refer to Scenario 12-5. Which Senator is advocating taxes based on a person's ability to pay? A) Senators Malfoy and Moody only B) Senator Filch only C) Senator Moody only D) Senators Fudge and Malfoy only

D) Senators Fudge and Malfoy only

Suppose that the government taxes income in the following fashion: 30 percent of the first $20,000, 50 percent of the next $30,000, and 60 percent of all income over $50,000. Ted earns $40,000, and Robin earns $60,000. Which of the following statements is correct? A) Robin's marginal tax rate is 60 percent, and her average tax rate is 40 percent. B) Ted's marginal tax rate is 60 percent, and his average tax rate is 50 percent. C) Robin's marginal tax rate is 50 percent, and her average tax rate is 45 percent. D) Ted's marginal tax rate is 50 percent, and his average tax rate is 40 percent.

D) Ted's marginal tax rate is 50 percent, and his average tax rate is 40 percent.

The Ogallala aquifer is a large underground pool of fresh water under several western states in the United States. Any farmer with land above the aquifer can at present pump water out of it. Which of the following statements about the aquifer is correct? A) The aquifer is a club good which should be left as it is. B) The aquifer is a private good which must be privately owned to be used efficiently. C) The aquifer is a public good which must be publicly owned to be used efficiently. D) The aquifer is a common resource which will be overused if no one owns it.

D) The aquifer is a common resource which will be overused if no one owns it.

Suppose that flu shots create a positive externality equal to $8 per shot. Further suppose that the government offers a $6-per-shot subsidy to producers. What is the relationship between the equilibrium quantity and the socially optimal quantity of flu shots produced? A) They are equal. B) The equilibrium quantity is greater than the socially optimal quantity. C) here is not enough information to answer the question. D) The equilibrium quantity is less than the socially optimal quantity.

D) The equilibrium quantity is less than the socially optimal quantity.

Which of the following is not true when the price of a good or service falls? A) Buyers who were already buying the good or service are better off. B) Some new buyers, who are now willing to buy, enter the market. C) The total consumer surplus in the market increases. D) The total value of purchases before and after the price change is the same.

D) The total value of purchases before and after the price change is the same.

Under which of the following scenarios would a park be considered a common resource? A) Visitors to the park must pay an admittance fee and frequently all of the picnic tables are in use. B) Visitors to the park must pay an admittance fee, but there are always plenty of empty picnic tables. C) Visitors can enter the park free of charge and there are always plenty of empty picnic tables. D) Visitors can enter the park free of charge, but frequently all of the picnic tables are in use.

D) Visitors can enter the park free of charge, but frequently all of the picnic tables are in use.

Which of the following causes the price paid by buyers to be different than the price received by sellers? A) a binding price ceiling B) a binding price floor C) All of the answers listed are D) a tax on the good

D) a tax on the good

Goods that are rival in consumption include both A) club goods and public goods. B) public goods and common resources. C) private goods and club goods. D) common resources and private goods.

D) common resources and private goods.

A lump-sum tax A) distorts incentives more than any other type of tax. B) is the most fair tax. C) is most frequently used to tax real property. D) does not distort incentives.

D) does not distort incentives.

Because the marginal tax rate rises as income rises, A) a disproportionately large share of the tax burden falls upon the poor. B) lower income families, in general, pay a larger percentage of their income in taxes. C) higher income families pay the same percentage of their income in taxes as lower-income families. D) higher income families, in general, pay a larger percentage of their income in taxes.

D) higher income families, in general, pay a larger percentage of their income in taxes.

The Tragedy of the Commons results when a good is A) excludable and not rival in consumption. B) neither rival in consumption nor excludable. C) both rival in consumption and excludable. D) rival in consumption and not excludable.

D) rival in consumption and not excludable.

The benefit that government receives from a tax is measured by A) the change in the equilibrium price of the good. B) total surplus. C) the change in the equilibrium quantity of the good. D) tax revenue.

D) tax revenue.