EC 110 2B-2

With free trade, the domestic price and domestic quantity demanded are a.$40 and 800. b.$30 and 800. c.$30 and 1,200. d.$40 and 1,600.

a. $40 and 800.

What is the socially-optimal level of output in this market? a.5 units b.4 units c.3 units d.6 units

a. 5 units

A toll on a congested road is in essence a.a corrective tax. b.an interstate highway tax. c.a Department of Motor Vehicles tax. d.a gasoline tax.

a. a corrective tax.

With free trade, the country a.imports 30 units of the good. b.imports 20 units of the good. c.exports 30 units of the good. d.exports 20 units of the good.

b. imports 20 units of the good.

Suppose the cost to run the ferry for each roundtrip is $750. Then total surplus for the 4 business owners is a.$40 if there are 2 ferry trips. b.-$400 if there are 4 ferry trips. c.$750 if there is 1 ferry trip. d.$150 if there are 3 ferry trips.

d. $150 if there are 3 ferry trips.

If this country chooses to trade, the price of calculators in this country will be a.$15 and 130 calculators will be sold domestically. b.$20 and 130 calculators will be sold domestically. c.$15 and 80 calculators will be sold domestically. d.$20 and 80 calculators will be sold domestically.

d. $20 and 80 calculators will be sold domestically.

What causes the Tragedy of the Commons? (i)Social and private incentives differ. (ii)Common resources are not rival in consumption and are not excludable. (iii)Common resources are not excludable but are rival in consumption. a.(i) only b.(i) and (ii) only c.(ii) only d.(i) and (iii) only

d. (i) and (iii) only

Which of the following represents a way that a government can help the private market to internalize an externality? a.taxing goods that have negative externalities b.subsidizing goods that have positive externalities c.The government cannot improve upon the outcomes of private markets. d.Both a and b are correct.

d. Both a and b are correct.

Producer surplus in this market after trade is a.B + C + D. b.C + B. c.A + B + D. d.C.

d. C.

Wally owns a dog whose barking annoys Wally's neighbor, Corrine. Suppose that the benefit of owning the dog is worth $700 to Wally and that Corrine bears a cost of $500 from the barking. Assuming Wally has the legal right to keep the dog, a possible private solution to this problem is that a.Wally pays Corrine $600 for her inconvenience. b.Corrine pays Wally $400 to give the dog to his parents who live on an isolated farm. c.Corrine pays Wally $550 to give the dog to his parents who live on an isolated farm. d.The current situation is efficient.

d. The current situation is efficient.

A positive externality arises when a person engages in an activity that has a.an adverse effect on a bystander who is not compensated by the person who causes the effect. b.a beneficial effect on a bystander who pays the person who causes the effect. c.an adverse effect on a bystander who is compensated by the person who causes the effect. d.a beneficial effect on a bystander who does not pay the person who causes the effect.

d. a beneficial effect on a bystander who does not pay the person who causes the effect.

The sign on a church in your neighborhood reads "All are welcome at Sunday Service." Because the church has limited seating and is usually full, the Sunday Service is a.a private good. b.a club good. c.a public good. d.a common resource.

d. a common resource.

Pay-per-view broadcasts are a.common resources. b.private goods. c.public goods. d.club goods.

d. club goods.

Four friends decide to meet at a Chinese restaurant for dinner. They decide that each person will order an item off the menu, and they will share all dishes. They will split the cost of the final bill evenly among each of the people at the table. A Tragedy of the Commons problem is likely for each of the following reasons except a.there is an externality associated with eating the food on the table. b.when one person eats, he may not take into account how his choice affects his friends. c.each person has an incentive to eat as fast as possible since their individual rate of consumption will not affect their individual cost. d.each dish would be both excludable and rival in consumption.

d. each dish would be both excludable and rival in consumption.

On the Fourth of July, there is no fireworks display in the small town of Yankeeville, even though it would be efficient for such a display to be produced. Which of the following statements is correct? a.The lack of a fireworks display in Yankeeville arises because of an externality. b.The lack of a fireworks display in Yankeeville arises because the free-rider problem does not apply to goods such as fireworks displays. c.In deciding not to produce a fireworks display in Yankeeville, private individuals and private firms made decisions that were privately irrational. d.All of the above are correct.

a. The lack of a fireworks display in Yankeeville arises because of an externality.

A result of this country allowing international trade in crude oil is as follows: a.The well-being of domestic crude-oil producers is now higher in that they now sell more crude oil at a higher price per barrel. b.The effect on the well-being of domestic crude-oil consumers is unclear in that they now buy more crude oil, but at a higher price per barrel. c.The effect on the well-being of the country is unclear in that domestic producer surplus increases, while the effect on domestic consumer surplus is unclear. d.All of the above are correct.

a. The well-being of domestic crude-oil producers is now higher in that they now sell more crude oil at a higher price per barrel.

Examples of goods that are excludable include a.mobile phones and fire protection. b.premium movie channels and streetlights. c.fireworks displays and fire protection. d.internet radio subscriptions and knowledge.

a. mobile phones and fire protection.

Pollution is a a.negative externality that can be viewed as a common-resource problem. b.problem that cannot be remedied with regulations or corrective taxes. c.negative externality that can be viewed as a public-goods problem. d.problem that is entirely unrelated to the parable called the Tragedy of the Commons.

a. negative externality that can be viewed as a common-resource problem.

The Pennsylvania Turnpike is a tolled freeway running through the state of Pennsylvania. Motorists must pay tolls at various points along the Turnpike based on the distance they traveled on the freeway. Suppose that despite the tolls, many motorists in the urban areas use the Turnpike causing traffic to slow during peak times. What type of good would the Turnpike be classified as in this case? a.private good b.public good c.club good d.common resource

a. private good

The social value of the 4th unit of output that is produced is a.$30. b.$26. c.$10. d.$16.

b. $26.

Which price represents the equilibrium price of the product in this market? a.P' b.P c.Either P or P'. It is necessary to know whether the externality is positive or negative to determine which of these is the equilibrium price. d.Some price between P and P'. The equilibrium price depends on the negotiating skills of the interested parties

b. P

Which graph represents a market with a negative externality? a.Panel (a) b.Panel (b) c.Panel (c) d.Both (b) and (c) are correct.

b. Panel (b)

Which of the following statements is not correct? a.A free rider is a person who benefits from something for which he or she does not have to pay. b.The Tragedy of the Commons illustrates the underuse of a common resource. c.The creation of general knowledge is a public good. d.A gasoline tax is an imperfect solution to the problem of traffic congestion on public roads.

b. The Tragedy of the Commons illustrates the underuse of a common resource.

The privately-owned school system in Smalltown has a virtually unlimited capacity. It accepts all applicants and operates on both tuition and private donations. Although every resident places value on having an educated community, the school's revenues have suffered lately due to a large decline in private donations from the elderly population. Since the benefit that each citizen receives from having an educated community is a public good, which of the following would not be correct? a.A tax increase to pay for education could potentially make the community better off. b.The private market is the best way to supply education. c.The government can potentially help the market reach a socially optimal level of education. d.The free-rider problem causes the private market to undersupply education to the community.

b. The private market is the best way to supply education.

When the social cost curve is above a product's supply curve, a.the distribution of resources is unfair. b.a negative externality exists in the market. c.a positive externality exists in the market. d.the government has intervened in the market.

b. a negative externality exists in the market.

When the country moves from free trade to trade and a tariff, consumer surplus a.decreases by $576 and producer surplus does not change. b.decreases by $576 and producer surplus increases by $192. c.decreases by $792 and producer surplus does not change. d.decreases by $792 and producer surplus increases by $192.

b. decreases by $576 and producer surplus increases by $192.

The world price of a ton of steel is $1,000. Before Russia allowed trade in steel, the price of a ton of steel there was $650. Once Russia allowed trade in steel with other countries, Russia began a.importing steel and the price per ton in Russia increased to $1,000. b.exporting steel and the price per ton in Russia increased to $1,000. c.exporting steel and the price per ton in Russia remained at $650. d.importing steel and the price per ton in Russia remained at $650.

b. exporting steel and the price per ton in Russia increased to $1,000.

When a policy succeeds in giving buyers and sellers in a market an incentive to take into account the external effects of their actions, the policy is said to a.equalize private cost and external cost. b.internalize the externality. c.externalize the actions of the buyers and sellers. d.equalize private value and private cost.

b. internalize the externality.

When the country for which the figure is drawn allows international trade in crude oil, a.consumer surplus changes from the area A + B + D to the area A. b.producer surplus changes from the area C to the area B + C + D. c.total surplus decreases by the area D. d.All of the above are correct.

b. producer surplus changes from the area C to the area B + C + D.

Private markets fail to reach a socially optimal equilibrium when positive externalities are present because the a.private cost exceeds the private benefit at the private market solution. b.social value exceeds the private value at the private market solution. c.private benefit equals the social benefit at the private market solution. d.private cost exceeds the social benefit at the private market solution.

b. social value exceeds the private value at the private market solution.

When good X is produced, some people benefit. A free-rider problem arises when a.the number of beneficiaries is small and it is possible to prevent some people from benefiting. b.the number of beneficiaries is large and it is impossible to prevent anyone from benefiting. c.the number of people who benefit is small and it is impossible to prevent anyone from benefiting. d.the number of beneficiaries is large and it is possible to prevent some people from benefiting.

b. the number of beneficiaries is large and it is impossible to prevent anyone from benefiting.

A lighthouse might be considered a private good if a.there is a second lighthouse nearby, thus preventing a monopoly. b.the owner of the lighthouse is able to exclude beneficiaries from receiving the benefits of the lighthouse. c.ships are able to enjoy the benefits of the lighthouse without paying for the benefit. d.a nearby port authority is able to avoid paying any fees to the lighthouse owner.

b. the owner of the lighthouse is able to exclude beneficiaries from receiving the benefits of the lighthouse.

Suppose the government imposes a tariff of $10 per unit. With trade and a tariff, consumer surplus is a.$625 and producer surplus is $25. b.$1,225 and producer surplus is $225. c.$625 and producer surplus is $225. d.$1,225 and producer surplus is $25.

c. $625 and producer surplus is $225.

Who among the following is a free rider? a.Oscar goes to Elmo's house to watch a football game on the local television channel. b.Grover sends his 5 children to a private school rather than to the public school in his neighborhood. c.Ernie listens to National Public Radio, but does not contribute to any fundraising efforts. d.Bert takes the commuter rail to work, but he purchases the discounted monthly passes rather than buying tickets each day.

c. Ernie listens to National Public Radio, but does not contribute to any fundraising efforts.

The installation of a scrubber in a smokestack reduces the emission of harmful chemicals from the smokestack. Therefore, the market for smokestack scrubbers is shown in a.Panel (a). b.Panel (b). c.Panel (c). d.Both (b) and (c) are correct.

c. Panel (c).

A result of the tariff is that, relative to the free-trade situation, the quantity of saddles imported decreases by a.Q2 - Q1. b.Q3 - Q2. c.Q4 - Q3 + Q2 - Q1. d.Q4 - Q3.

c. Q4 - Q3 + Q2 - Q1.

This market is characterized by a.government intervention. b.a positive externality. c.a negative externality. d.None of the above is correct.

c. a negative externality.

The impact of one person's actions on the well-being of a bystander is called a.a multi-party problem. b.an economic dilemma. c.an externality. d.deadweight loss.

c. an externality.

When the country for which the figure is drawn allows international trade in crude oil, a.domestic crude-oil producers sell less crude oil. b.the losses of the domestic losers outweigh the gains of the domestic winners. c.consumer surplus for domestic crude-oil consumers decreases. d.the demand for crude oil by domestic crude-oil consumers decreases.

c. consumer surplus for domestic crude-oil consumers decreases.

The imposition of a tariff on roses a.decreases the number of roses imported by 400. b.increases the number of roses imported by 200. c.decreases the number of roses imported by 200. d.increases the number of roses imported by 100.

c. decreases the number of roses imported by 200.

If the world price of coffee is higher than Colombia's domestic price of coffee without trade, then Colombia a.should import coffee. b.should produce just enough coffee to satisfy domestic demand. c.has a comparative advantage in coffee and should export coffee. d.should produce no coffee domestically.

c. has a comparative advantage in coffee and should export coffee.

Before the tariff is imposed, this country a.exports 200 roses. b.imports 200 roses. c.imports 400 roses. d.exports 400 roses.

c. imports 400 roses.

A mobile phone is a a.public good. b.club good. c.private good. d.common resource.

c. private good.

In class action lawsuits interested parties to the lawsuit are not required to pay attorney fees directly. This is an example of an attempt to a.regulate attorney fees. b.maximize attorney fees. c.reduce the transaction costs of finding a private solution to an externality. d.reduce the incentive of attorneys to file class action lawsuits.

c. reduce the transaction costs of finding a private solution to an externality.

A paper plant produces water pollution during the production process. If the government forces the plant to internalize the negative externality, then the a.supply curve for paper would shift to the right. b.demand curve for paper would shift to the left. c.supply curve for paper would shift to the left. d.demand curve for paper would shift to the right.

c. supply curve for paper would shift to the left.

When the country for which the figure is drawn allows international trade in cars, a.consumer surplus increases by the area B. b.producer surplus decreases by the area B + D. c.total surplus increases by the area D. d.All of the above are correct.

c. total surplus increases by the area D.

The nation of Wheatland forbids international trade. In Wheatland, you can buy 1 pound of corn for 3 pounds of fish. In other countries, you can buy 1 pound of corn for 2 pounds of fish. These facts indicate that a.Wheatland has a comparative advantage, relative to other countries, in producing corn. b.the price of fish in Wheatland exceeds the world price of fish. c.other countries have a comparative advantage, relative to Wheatland, in producing fish. d.if Wheatland were to allow trade, it would import corn.

d. if Wheatland were to allow trade, it would import corn.

When Monique drives to work every morning, she drives on a congested highway. What Monique does not realize is that when she enters the highway each morning she increases the travel time of all other drivers on the highway. In this case, the external cost of Monique's highway trip a.lowers the social cost below the private cost. b.increases the social value above the private benefit. c.decreases the social value below the private benefit. d.increases the social cost above the private cost.

d. increases the social cost above the private cost.

According to the Coase theorem, in the presence of externalities a.government assistance is necessary to reach an efficient outcome. b.the assignment of legal rights can prevent externalities. c.the initial distribution of property rights will determine the efficient outcome. d.private parties can bargain to reach an efficient outcome.

d. private parties can bargain to reach an efficient outcome.

The horizontal line at the world price of tricycles represents the a.level of inefficiency in the domestic market caused by trade. b.demand for tricycles from the rest of the world. c.surplus in the domestic tricycle market. d.supply of tricycles from the rest of the world.

d. supply of tricycles from the rest of the world.