TCU MICRO EXAM 3

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: Suppose the government levies a tax of $3 on each cigar, and the equilibrium price of a cigar increases to $18. What is the total consumer surplus after the tax is levied?

$2

Figure: With trade, producer surplus in China is

$2,700

Table: assume that the price of a weekend ski pass is $45 and the price reflects the actual unit cost of providing a weekend of skiing. Suppose the government imposes a tax of $12 on skiing, which raises the price of a weekend ski pass to $57. How much tax revenue is collected from these four skiers?

$36

Figure: Equilibrium price and equilibrium quantity without trade are

$42 and 1,200

how much additional tax revenue would be created with the Congressional Budget Office's proposed $0.35/gallon excise tax increase over the next 10 years?

$452 billion

figure: "The social cost of the last unit produced exceeds the value to buyers of the last unit produced by $3." This statement is correct at which quantity of output?

140 units

Table: harry is a single person whose taxable income is $35,000 a year. What is the marginal tax rate in 2012?

28%

Why do some policymakers support a consumption tax rather than an earning tax?

A consumption tax would encourage people to save earned income

Figure: total surplus in this market trade is

A+B+C

Scenario 12-3: Suppose Roger and Regina receive great satisfaction from their consumption of cheesecake. Regina would be willing to purchase only one slice and would pay up to $8 for it. Roger would be willing to pay $11 for his first slice, $9 for his second slice, and $5 for his third slice. The current market price is $5 per slice. Refer to scenario 12-3: Assume that the government places a $4 tax on each slice of cheesecake and that the new equilibrium price is $9. What is Regina's consumer surplus from cheesecake?

zero

Figure: Suppose the cost to plant each tree is $340 and the 4 homeowners have agreed to split all tree-planting costs equally. Which homeowner(s) would be in favor of planting at least 1 tree?

Adams, Benitez, Chen, and Davis

Figure: Suppose Isoland changes from a no-trade policy that allows international trade. If the world price of peaches is $5, then the policy change results in

All of the above are correct

Which of the following is not a characteristic of pollution permits?

Allowing firms to trade their permits reduces the total quantity the total quantity of pollution beyond the initial allocation.

Figure: Producer surplus in this market after trade is

B+C+D

When the social cost curve is above a product's supply curve,

a negative externality exists in the market

The before-trade price of fish in Denmark is $10.00 per pound. The world price of fish is $6.00 per pound. Denmark is a price-taker in the fish market. If Denmark begins to allow trade in fish, its consumers of fish will become

better off, its producers of fish will become worse off, and on balance the citizens of Denmark will become better off.

Figure: an increase in output from 120 units to 160 units would

move the market from a socially efficient outcome to a socially inefficient outcome

Both public goods and common resources are

non-excludable

The Coases theorem asserts that, in the presence of externalities

private economic actors sometimes can reach a bargain that produces an efficient outcome

The theory that the wealthy should contribute more to police protection than the poor because they have more to protect is based on

the benefits principle

if education produces positive externalities and the government does not intervene in the market, we would expect

the equilibrium quantity to be lower than the optimal level

The benefits principle of taxation can be used to argue that wealthy citizens should pay higher taxes than poorer ones on the basis that

the wealthy benefit more from services provided by government the poor

A payroll tax is also referred to as a social insurance tax.

true

Horizontal equity can be difficult to assess because it is difficult to compare the similarity of tax payers

true

Individual income taxes and social insurance taxes generate the highest tax revenue for the federal government.

true

One solution to the "Tragedy of the Commons" is to turn the common resources into a private good

true

Patent protection is one way to deal with technology spillovers

true

Under the Congressional Budget Office 2013 proposal (reading assignment) to raise Federal Excise Taxes on motor fuels, the stated primary goal would be to increase budget surpluses (i.e. deficit reduction)?

true

When firms internalize a negative externality, the market supply curve shifts to the left.

true

which of the following is not a typical solution to the "tragedy of the commons?"

turning the common resource into a club good

The larger budgetary expense for the federal government in 2011 was

income security

The free-rider problem exists with

knowledge

All externalities

Cause markets to fail to allocate resources efficiently

Which of the following is not correct?

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

According to the Principles and Guidelines governing Federal water and land planning projects, the U.S. Army Corps of Engineers is exempt from considering contributions to the nation output of good and services (NED) and environmental statutes and laws when planning navigation projects?

False

The small-economy assumption is necessary to analyze the gains and losses from international trade

False

The federal healthcare spending program that specifically targets the poor called

Medicaid

When the nation of Mooseland first permitted trade with other nations, domestic producers of sugar experienced a decrease in producer surplus of $5 million and total surplus in Mooseland's sugar market increased by $2 million. We can conclude that

Mooseland became an exporter of sugar

Assume for Guatemala that the domestic price of coffee without international trade is higher than the world price of coffee. This suggests that

Other countries have a comparative advantage over Guatemala in the production of coffee, and Guatemala will import coffee.

Figure: Which quantity represents the socially-optimal quantity of output in this market?

Q'

When a country takes a multilateral approach to free trade, it

Reduces its trade restrictions while other countries do the same

Import quotas and tariffs produce some common results. Which of the following is not one of those common results?

Revenue is raised for the domestic government

Mike Miller is the town manager of Medfield, a town with 50,000 residents. At a recent town meeting, several citizens proposed building a larger public swimming pool in the center of town for all the residents to enjoy. A survey of all 50,000 residents revealed that the pool would be worth $50 to each of them. The cost to build the swimming pool is $1,000,000. Which of the following is the most efficient option?

The pool should be built and paid for by the town government and paid for with a tax on the residents because all residents would benefit from it but some residents would not donate if they were asked.

Suppose that electricity producers create a negative externality equal to $5 per unit. Further suppose that the government imposes a $5 per-unit tax on the producers. What is the relationship between the after tax equilibrium quantity and the social optimal quantity of electricity to be produced?

They are equal

The best remedy for market failure is often

a market-based solution

Negative externalities occur when one person's actions

adversely affect the well-being of a bystander who is not a party of the action

Total taxes paid divided by total income is called the

average tax rate

Goods that are rival in consumption include both

common resources and private goods

Trade among nations is ultimately based on

comparative advantage

36. If the world price of coffee is higher than Colombia's domestic price of coffee without trade, then Colombia

comparative advantage and should export

Market failure can be cause by

externalities

A lump-sum tax would take different amounts from the poor and the rich

false

A tariff increases the quantity of imports and moves the market farther from its equilibrium without trade

false

Although regulation and corrective taxes are both capable of reducing pollution, regulation accomplishes this goal more efficiently.

false

European arrivals in 1722 AD resulted in importation of diseases and unsustainable fishing pressure that led to the collapse of the Easter Island society?

false

Free trade allows firms to realize economics of scale, resulting in higher costs of production

false

GATT is an example of a successful unilateral approach to achieving free trade.

false

The U.S. tax burden is high compared to many European countries.

false

Without free trade, the domestic price of a good must be equal to the world price of a good

false

Economists believe that the optimal level of pollution is zero.

fasle