Econ 201 exam 2: Hall WVU

*Figure 6-2 illustrates the four possibilities of the structure of production and consumption for a good or service. In which case is the incentive of producers and consumers to economize the strongest?

A

*Refer to Figure 4-18. The price of the good would continue to serve as the rationing mechanism if

All of the above

Which of the following is a major disadvantage of setting the price of a good below equilibrium and using waiting in line rather than price to ration the good?

Both waiting in line and higher prices are costly to consumers, but unlike the payment of a higher price, waiting in line does not provide suppliers with an incentive to expand future output.

*Given the demand and supply conditions shown in Figure 4-2, if the government imposes a price ceiling of a, indicate the quantity consumers would like to buy and the amount producers would be willing to supply.

Consumers would want to buy t; producers would be willing to sell r.

*Figure 6-2 illustrates the four possibilities of the structure of production and consumption for a good or service. In which case is the incentive of producers to be efficient and the incentive for consumers to economize the weakest?

D

Which of the following explains why pork-barrel spending is often approved, even when the spending is inefficient?

Each representative has little incentive to oppose pork-barrel spending since the tax savings would accrue to taxpayers throughout the nation. General opposition to pork-barrel spending by a legislator would make it more difficult for the legislator to arrange for pork-barrel projects that provide concentrated benefits for his district. Logrolling increases the likelihood that pork-barrel projects will be approved. all over the above^

Which of the following most clearly indicates why the franchiser of a product has a strong incentive to monitor the quality of the product among all of the franchised sellers?

If quality is not maintained, the franchiser will be limited in his ability to sell other franchises and collect franchise fees.

Which of the following statements is true?

In both black markets and legal markets, supply and demand determine price.

Which one of the following is a major difference between market and collective action through government?

In the market sector, there is generally a one-to-one link between payment and consumption; this link is often absent in the government sector.

Which of the following statements about rent control in New York City is accurate?

Many well-to-do people live in rent-controlled apartments

Does economic efficiency indicate that all pollution should be eliminated?

No, at some point, the benefits of still lower levels of pollution will not be worth the additional cost.

Current tax rates are insufficient to finance the benefits promised by both the Social Security and Medicare programs. Are these unfunded promises surprising according to economic theory?

No, the unfunded promises reflect the shortsighted nature of the political process.

Joella is a third-grade public school teacher who doesn't own a car and uses public transportation. According to public choice theory, which of the following four politicians for a public office would Joella be most likely to vote for in the upcoming election?

Politician A proposes increasing the property tax on personal automobiles and using the money to increase teacher salaries by 10 percent.

Which of the following is a valid reason for government provision rather than market provision of certain economic goods and services?

Public goods tend to be undersupplied through the market since it is difficult for potential suppliers to withhold such goods from nonpaying consumers, while the government can use taxes to overcome this problem.

Rent controls tend to cause persistent imbalances in the market for housing because

Quantity demanded exceeds quantity supplied but price cannot rise to remove the shortage.

*Figure 5-3 illustrates the market for a product that generates an external benefit. D1 is the private market demand curve, while D2 is the demand curve including the external benefit. Which of the following is true?

Relative to economic efficiency, output will be too small and the price too low.

Which of the following is most likely to lead to the underpricing and overuse of an economic resource?

The absence of an enforceable property right.

How does an additional individual's consumption of a public good, such as an aerial fireworks display, affect the amount of the good available to other consumers?

The amount available to others is unaffected.

Suppose external costs are present in a market which results in the actual market price of $84 and market output of 320 units. How does this outcome compare to the efficient, ideal equilibrium?

The efficient price would be higher than $84.

Suppose that an MBA degree creates no externality because the benefits of an MBA are captured by the student in the form of higher wages. If there are no government subsidies for MBAs, then which of the following statements is correct?

The equilibrium quantity of MBAs will equal the efficient quantity of MBAs.

Which of the following correctly describes the external benefit resulting from an individual's purchase of a winter flu shot?

The flu shot reduces the likelihood others will catch the flu.

Suppose paper pulp mills are permitted to emit harmful pollutants, free of charge, into the air. How will the price and output of paper in a competitive market compare with their values under conditions of ideal economic efficiency?

The price will be too low, and the output will be too large.

Other things constant, how will a decrease in the wages of teenagers affect the market for fast food hamburgers?

The supply of fast food hamburgers will increase, leading to a reduction in the price of hamburgers.

Suppose the market equilibrium price of corn is $5 per bushel, and the government sets a price ceiling of $4 per bushel. What is the most likely result of this action?

There will be a shortage of corn.

Which of the following is true?

To remain in office, a politician must try to enact policies that gain him votes for his reelection and increase the support coming from contributors.

Senator Blacklung represents a state that grows a significant amount of tobacco. Not only do many of his constituents work for businesses in this industry, but the tobacco firms also make generous contributions to his reelection campaign. According to public choice theory, which of the following bills would Senator Blacklung be most likely to support?

a bill that would provide substantial subsidies for tobacco growers

Which of the following is the most likely result of an increase in the minimum wage?

a decrease in the employment of unskilled workers

Other things constant, if a labor union is able to successfully increase the wages of autoworkers, there will be

a decrease in the supply of automobiles causing the price of automobiles to rise.

*Refer to Figure 4-18. In this market, which of the following price controls would be binding?

a price ceiling of $2.00, and it would cause a shortage

*39

a. $1.00

*38

a. $125.00

Other things constant, if both the benefits and costs of a public-sector activity are widespread among voters, the political process will generally result in the

acceptance of productive activities and rejection of unproductive activities.

Economic efficiency requires that

all economic activity generating more benefits than costs be undertaken.

Which of the following is a source of information that helps consumers acquire information about the quality of a good or service?

all of the above brand names, franchising, consumer ratings magazines

Which of the following would tend to increase the price of lumber?

an increase in the demand for newly constructed homes

Which of the following would tend to increase the wage of coal miners?

an increase in the price of oil, a substitute for coal

An increase in the number of students graduating with a major in engineering would result in

an increase in the supply of engineers that would decrease the wage of engineers and increase the number employed.

From the viewpoint of economic efficiency, when competitive forces in an industry are weak, market allocation will often lead to

an output of the product that is less than the amount consistent with ideal economic efficiency.

The laws that make it illegal for firms to collude or attempt to monopolize a market are known as

anti-trust laws

*40

b. $1.50

*37.2

b. $1.80 and 35 units, respectively.

*36

b. $3.50

*35.2

b. external costs

Brand names such as "Nabisco" or "Sony"

benefit consumers by assuring them of a known quality level when they buy a product that they have little previous first-hand knowledge about.

The more elastic the supply of a product, the more likely it is that the

burden of a tax on the product will fall on buyers.

*36.2

c. $1.60 and 42 units, respectively.

*37

c. $2.50

*34

c. $5.00

*Refer to Figure 5-4. If the government uses a pollution tax, how much of a tax must be imposed on each unit of production?

d. $0.30

*35

d. $6.00

Other things constant, a decrease in the demand for computer will

decrease the demand for computer manufacturing workers

Suppose that a tax is placed on textbooks. If the buyers end up bearing most of the tax burden, this indicates that the

demand is more inelastic than the supply.

Taxes create deadweight losses because they

distort incentives.

*Refer to Figure 4-16. Some policymakers have argued that the government should establish a "living wage." A living wage would provide workers a reasonable standard of living in their city or region. If a living wage of $10 per hour is established in the market pictured here, we would expect

employment will decrease to 8 million.

When a nuclear-powered electrical plant is permitted to dump radioactive waste at no cost into a recreational waterway lowering the value boaters receive from the waterway, the

firm's cost of producing electricity will be lower than the community's true opportunity cost.

The government sometimes provides public goods because

free-riders make it difficult for private markets to supply the efficient quantity.

A car sells at different prices at different dealerships in a local market. If a consumer has imperfect information about the price of a car at each dealership, he should

gather information about prices until the expected marginal benefit of more information equals the marginal cost of gathering it.

After a natural disaster, such as a hurricane, the increased demand for certain items (like lumber, electric generators, and chainsaws) causes their prices to rise. These higher prices

help to direct the items toward their highest valued uses.

Markets may have difficulty providing the proper quantity of a public good because

individuals will tend to become free riders, and private firms will have difficulty generating enough revenue to produce an efficient quantity of the good.

A good is considered to be a public good if it

is both nonrival-in-consumption and nonexcludable.

The term pork-barrel legislation refers to

legislation that bundles together a number of projects, each benefiting local interests at the expense of general taxpayers.

Because of price controls in the former Soviet Union, people often waited in long lines for food and other necessities. Modern economic theory would indicate that, relative to price rationing, waiting in line is

less efficient because the time spent waiting in line imposes an opportunity cost on the buyer that does not generate revenue for the seller.

if production of a good creates external benefits, a competitive market may produce

less output than if efficient

The market pricing system corrects an excess supply by

lowering the product price & increasing producer profits

Which of the following is the best example of a public good?

national defense

A free-rider problem exists when a good that has the following characteristic?

non excludable

When a price ceiling prevents a higher market price from rationing a good,

non-price factors will play a more important role in the rationing process.

Most voters will likely be concerned with

only a few special issues (those that exert the most impact on the voters' personal welfare).

Relative to a competitive situation, if a market lacks competition, economic theory suggests that

output will be lower and price higher.

Many external costs occur because

people do not pay the true cost of using a resource.

Legislators often gain by bundling a number of projects benefiting local districts at the expense of general taxpayers together on a single bill. Such legislation is called

pork-barrel legislation

If a federal agency requested funds to build a dam on an Idaho river to irrigate nearby farmland used for growing potatoes, the most active support for the project probably would come from

potato farmers who own the land to be irrigated.

If there was an increase in the excise tax imposed on beer suppliers, what would be the effect on the equilibrium price and quantity of beer?

price increases; quantity decreases

When goods are produced privately, but the cost of their purchase is paid for by the taxpayer or some other third party,

private producers of such goods will have little incentive to control costs and provide them at low prices.

Competitive markets generally give consumers and producers correct incentives when

property rights are well-defined and enforced.

Students in a class are assigned to groups to work on a project. A grade will be given for each project, and everyone in the group will receive that grade. For the members of a particular group, the grade is a

public good

When a price floor is above the equilibrium price,

quantity supplied will exceed quantity demanded, so there will be a surplus.

A deadweight loss results from the imposition of a tax on a good because the tax

reduces the quantity of exchanges between buyers and sellers.

In economics, actions by individuals and interest groups designed to influence public policy in a manner that will either directly or indirectly redistribute more income to themselves are known as

rent seeking

Consider two goods - one that generates external benefits and another that generates external costs. The actual market outcome would

result in a price that is lower than the efficient price for both goods.

Rent control applies to about two-thirds of the private rental housing in New York City. Economic theory suggests that the below-equilibrium prices established by rent controls would

result in poor service and quality deterioration of many rental units.

Suppose the demand curve for a good is highly elastic and the supply curve is highly inelastic. If the government taxes this good,

sellers will bear a larger share of the tax burden.

*Refer to Figure 4-18. If the government imposes a price ceiling of $2.00 in this market, the result is a

shortage of 50 units of the good.

if the construction of a new roadway would create $10 billion worth of benefits for citizens and would cost $8 billion to construct, then using the criterion of economic efficiency, the roadway

should be built

if an economic action generates more costs than benefits, the action

should not be undertaken from an efficiency standpoint.

When production of a good generates external costs, the

supply curve for the good will understate the true social cost of producing the good.

Restrictions that limit sugar imports, subsidies for the construction of sports stadiums, and federal spending on programs like the construction of an indoor rain forest in Iowa all provide examples of government programs

that reflect the political attractiveness of special-interest issues.

The large amount of violence associated with the current drug trade is mostly caused by

the fact that drug markets must operate outside the normal legal system.

When consumers cannot tell the difference at the time of sale between high-quality products and those with defects, strong sales of the low-quality products will tend to depress price and drive the high-quality products

the imperfect information problem.

Externalities are fundamentally the result of

the lack of well-defined or enforced property rights.

When a government subsidy is granted to the sellers of a product, buyers can end up capturing some of the benefit because

the market price of the product will fall in response to the subsidy

Suppose the equilibrium price of a physical examination ("physical") by a doctor is $200, and the government imposes a price ceiling of $150 per physical. As a result of the price ceiling,

the quantity demanded of physicals increases and the quantity supplied of physicals decreases.

Sellers will tend to be most concerned with customer satisfaction when

they depend on repeat customers for most of their business.

*Figure 6-1 illustrates the four possibilities of the distribution of costs and benefits among voters for a government project. A tariff on imported steel to protect jobs in the domestic steel industry that raises the cost of many products for consumers would be considered which type of project?

type B

*Figure 6-1 illustrates the four possibilities of the distribution of costs and benefits among voters for a government project. For which type would the government most likely undertake many projects that would be considered inefficient or counterproductive (in other words, do too many of them relative to economic efficiency)?

type B

*Figure 6-1 illustrates the four possibilities of the distribution of costs and benefits among voters for a government project. For which type would the government most likely fail to undertake many projects that would be considered efficient or productive (in other words, do too few of them relative to economic efficiency)?

type C

In which of the following markets are information problems likely to be most serious?

used cars

The fact that voters perceive their votes as unlikely to actually change the outcome of an election causes

voters to have little incentive to become informed about candidates and political issues.

Under rent control, landlords cease to be responsive to tenants' concerns about the quality of the housing because

with shortages and waiting lists, they have no incentive to maintain and improve their property.