econ 202 exam 2

The price elasticity of demand for a particular life-saving drug is zero, and the price elasticity of supply is 0.50. If a $10 tax is levied on producers, how much of this tax will eventually be paid by consumers? $0 $7.50 $5.00 $10.00

$10.00

The marginal cost of producing 40 units of a public good is $200. There are two individuals in the society. Person A is willing to pay $80 for 40 units of the public good. If 40 units of the public good are provided, how much must Person B be willing to pay? $120 $0 $150 $80

$120

Assume there are two people in a society. Person A is willing to pay $140 to have one unit of a public good produced and Person B is willing to pay $160 to have one unit of a public good produced and $140 to have two units produced. As a result, society would be willing to pay a price of ________ of this public good. $200 for 1 unit $200 for 3 units $160 for 5 units $300 for 1 unit

$300 for 1 unit

The marginal social benefit from the production of the last unit of a good is $4,800. If the willingness to pay for that unit is $3,900, what is the external benefit from its production? $4,100 $8,700 $900 $3,800

$900

If Mary can bake a cake at a lower opportunity cost than Sarah can, then: Sarah has a comparative advantage in baking cakes. Mary can bake more cakes than Sarah can in a given amount of time. Mary has a comparative advantage in baking cakes. Mary should not bake cakes.

Mary has a comparative advantage in baking cakes.

If the social benefit of consuming a good or a service exceeds the private benefit a positive externality exists. the market achieves economic efficiency. the sum of consumer surplus and producer surplus is maximized. a negative externality exists.

a positive externality exists.

A binding price ceiling would result in a(n): surplus of the good. shortage of the good. quantity control. equilibrium price.

shortage of the good.

Price ceilings create ________ if they are set ________the equilibrium price. b. Which of the following are price ceilings? the minimum wage an agricultural price support rent control price controls on prescription drugs

shortages; below rent control price controls on prescription drugs

John receives a marginal benefit of $80 from one missile. Nick receives a marginal benefit of $50 from one missile. Christina receives a marginal benefit of $65 from one missile. John, Nick, and Christina are the only people in the economy. What is the economy's marginal social benefit from one missile? $50 $80 $65 $195

$195

Suppose that Michelle buys a cappuccino from Paul's Cafe and Bakery for $5.75$5.75. Michelle was willing to pay up to $8.25$8.25 for the cappuccino, and Paul's Cafe and Bakery was willing to accept $1.75$1.75 for the cappuccino. Based on this information, answer the following questions. Michelle's consumer surplus: Paul's Cafe and Bakery's producer surplus:

$2.50 $4

Gary Parker is willing to pay $700 for a new iPad. Apple (the producer of iPads) is selling a new iPad for $600. It costs Apple $400 to produce this iPad. How much economic surplus does Apple receive if Gary purchases this iPad? $600 $700 $200 $100

$200

Kevin Williamson goes to a local coffee shop and orders a medium-sized latte. His willingness to pay for that latte is $6. The price of the latte is $2. The cost to the coffee shop to produce the latte is $1. How much economic surplus does Kevin gain when he purchases the latte? $4 $6 $2 $1

$4

The average tax on a professor's income of $100,000 is 18%, and the marginal tax rate above $100,000 is 45%. If the professor teaches during the summer and earns an additional $10,000 (bringing her total earnings for the year to $110,000), how much of the summer income does she keep after paying taxes? $1,800 $4,500 $5,500 $6,300

$5,500

Suppose that the world price of TVs is $400, and the government imposes a $100 tariff. The new price domestic consumers pay for a TV is: $700. $400. $500. $600.

$500

Amanda Mendez goes to a local café and orders a sandwich. Her willingness to pay for that sandwich is $10. The price of the sandwich is $4. The cost to the cafe to produce that sandwich is $1. How much economic surplus does Amanda receive when she purchases the sandwich? $4 $6 $3 $10

$6

Which statement is TRUE? A competitive market pushes the quantity produced to its efficient level. When the efficient quantity is produced, consumer surplus is minimized. When the efficient quantity is produced, producer surplus is minimized. When supply is greater than demand, producer surplus is less than consumer surplus.

A competitive market pushes the quantity produced to its efficient level.

Which of the following best represents the misallocation of resources that would occur under a price ceiling on bottled water following a major hurricane? Bottles of water sit on the shelves because nobody can afford them. Families in the hurricane area brush their teeth with bottled water but cannot find enough to drink. A family in a distant state takes time off work to bring bottled water to the hurricane-ravaged area. A family in a distant state gives bottled water to its dog, but a family in the hurricane area cannot find bottled water to drink.

A family in a distant state gives bottled water to its dog, but a family in the hurricane area cannot find bottled water to drink.

Which of the following statements supports the idea that price changes are not externalities? Prices are a side effect of decisions making. A change in price adversely affects all suppliers in the market. A drop in price is a clear signal that the market was negatively impacting buyers. A price change redistributes costs and benefits but does not generate new costs or benefits.

A price change redistributes costs and benefits but does not generate new costs or benefits.

Which of the following is NOT an example of a corrective tax or subsidy used to address an externality problem? Marlo's customers have been bothered by the noisy, midday deliveries at the business next door. She arranges to cover part of the delivery costs in order to have the neighbor's deliveries arrive early in the morning rather than at midday. The government charges Ku's company a tax equal to the difference between the marginal social cost and the marginal private cost of emissions. The government covers part of the cost of a particular immunization. The government discourages the production of paper products in a suburban community by imposing a unit tax on the production of such products, limiting paper companies' emissions of carcinogenic toxins.

Marlo's customers have been bothered by the noisy, midday deliveries at the business next door. She arranges to cover part of the delivery costs in order to have the neighbor's deliveries arrive early in the morning rather than at midday.

Which of the following statements describes the occurance of a positive externality resulting from the production of a good by a new technology? When people who neither paid for developing the technology nor the good produced by the new technology are better off from the advancement When income is received by the developer for selling the good made by the new technology When the customer resells the good to his neighbor When the company that pays for developing new technology benefits from the advancement in its production of other goods When pollution is produced during the development of the new technology

When people who neither paid for developing the technology nor the good produced by the new technology are better off from the advancement

Producers have an incentive to lower the quality of a good when the government imposes: any price control. an excise tax. a binding price floor. a binding price ceiling.

a binding price ceiling.

Efficient production occurs when: output is minimized and cost is falling. the marginal cost curve is downward sloping. a given level of output is produced at the lowest possible cost. a given level of cost is able to produce a higher output level than before.

a given level of output is produced at the lowest possible cost.

An externality is NOT: positive or negative. a side effect. an unintended impact on bystanders. a price change.

a price change

A family that earns $20,000 a year pays $200 a year in city wage taxes. A family that earns $40,000 a year pays $1,600 a year in city wage taxes. The city wage tax is a regressive tax. a proportional tax. a progressive tax. a benefits-received tax.

a progressive tax.

A negative externality is: a reduction in demand that occurs when agents outside a market influence market participants. a side effect of an activity when the side effect harms bystanders. a change from a positive relationship between two variables to an inverse relationship. an unintended consequence of an action that harms the decision maker.

a side effect of an activity when the side effect harms bystanders.

Which of the following would be both nonrival and nonexcludable? a siren tornado warning system a museum an immunization a road

a siren tornado warning system

Marginal external costs of pollution are the additional positive effects imposed on others due to one more unit of pollution. sum of the marginal private cost and marginal social cost of pollution. additional negative effects imposed on others due to one more unit of pollution. sum of the marginal private benefit and marginal external benefits of pollution.

additional negative effects imposed on others due to one more unit of pollution.

In a market without prices, where goods are allocated by a central planner, which is likely to happen? Inputs, like workers and raw materials, will not go to the companies that can use them to produce the most value. Consumers will not receive the amount of any given product that they want. Consumers will not receive the products they want, and new products are unlikely to appear. All of the above.

all of the above

A binding price floor is: always below the equilibrium price. always at the equilibrium price. always above the equilibrium price. the maximum price that a seller can charge in a market.

always above the equilibrium price.

Which of these is NOT a typical consequence of rent control? a reduction in the quantity of apartments rented below the efficient level an efficient allocation of apartments among would-be renters wasted time and effort, as people search for apartments poor maintenance of apartments by landlords

an efficient allocation of apartments among would-be renters

Consumer surplus is the amount that consumers: are willing to pay for a good minus what they actually pay for it. are willing to pay for a good plus the amount that they actually pay for it. actually pay for a good. are willing to pay for a good.

are willing to pay for a good minus what they actually pay for it.

The market solves the incentive problem when allocating resources because the: consumers will pay for the good only if its value of use is greater than the price. suppliers will produce the good only if its value of use is less than the cost. suppliers will produce the good only if its cost is less than the value of use. consumers will pay for the good only if its price is greater than the value of use.

consumers will pay for the good only if its value of use is greater than the price.

When the forces of supply and demand lead to an inefficient outcome the economic surplus is maximized. it is a signal that the government needs to take ownership of that market including all the resources involved. economists call this a deadweight loss. economists call this a market failure.

economists call this a market failure.

Which of the following is NOT a source of market failure? excessive information market power irrationality externalities

excessive information

A factor that is NOT a possible reason for market failure is: firms having the capacity to raise the market price. transactions that have side effects on the welfare of others. lack of information about the quality of a second-hand car. extremely high prices for prescription eyewear.

extremely high prices for prescription eyewear.

The incidence of a tax is determined by which group (buyers or sellers) must write the check to the government. True or False b. When the price elasticity of demand is low, and the price elasticity of supply is high, the burden of an excise (or commodity) tax falls mainly on producers. False or True c. The change in the total cost consumers pay and the change in the revenue sellers receive when a tax is introduced is independent of whether it is levied on buyers or sellers. False or True d. When the price elasticity of demand is high, and the price elasticity of supply is low, the burden of an excise tax falls mainly on consumers. False or True e. An excise tax can distort incentives and create missed opportunities for mutually beneficial transactions. True or False

false; false; true; false; true

A ______ is a person who _____ a public good that others ______.

free rider; enjoys; pay for

All of the solutions to externality problems involve: getting buyers and sellers to consider marginal external costs and benefits. converting social costs into private costs. setting regulations that impose the socially optimal price and quantity in the market. turning private costs and benefits into external costs and benefits.

getting buyers and sellers to consider marginal external costs and benefits.

When government policies lead to outcomes that are worse than those that would occur in unregulated markets: liveweight loss occurs. marginal costs occur. government failure occurs. government efficiency occurs.

government failure occurs.

Using a first-come, first-served system to allocate products with long lines is: efficient, since people who are willing to wait the longest get the products. the only way scarce goods can be allocated. necessary when waiting is a costless exercise. inefficient because waiting wastes time.

inefficient because waiting wastes time.

When someone can enjoy the benefits of a good without bearing the cost, the good: is excludable and rival. is attractive to manufacturers. is a nonmarket good. is subject to the free-rider problem.

is subject to the free-rider problem.

For suppliers to sell more than the equilibrium quantity, it would mean that: it costs suppliers less to produce the good than its value to buyers. it costs suppliers more to produce the good than its value to buyers. suppliers gain from trade while buyers are unaffected. the gains from trade increase.

it costs suppliers more to produce the good than its value to buyers.

On a market graph, economic surplus can be identified as the area that is to the: right of the quantity, above the demand curve, and below the supply curve. right of the quantity and between the demand and supply curves. left of the quantity, above the demand curve, and below the supply curve. left of the quantity and between the demand and supply curves.

left of the quantity and between the demand and supply curves.

Minimum wages cause: excessive quality of products. a higher supply of the goods that labor produces. shortages of labor. loss of gains from trade.

loss of gains from trade.

One of the key underpinnings of public choice analysis is the assumption that politicians and bureaucrats make political decisions based primarily on benefiting current generations. act not out of self‑interest but desire to increase the general utility of the public. make political decisions based on self‑interest, just as individuals and firms do. seek only to maximize long term economic growth through increasing GDP.

make political decisions based on self‑interest, just as individuals and firms do.

Two ways to calculate economic surplus are _____ and _____. marginal benefit minus price; marginal cost minus price consumer surplus minus producer surplus; marginal benefit plus marginal cost marginal benefit minus marginal cost; consumer surplus plus producer surplus price minus marginal benefit; price minus marginal cost

marginal benefit minus marginal cost; consumer surplus plus producer surplus

Markets distribute production across companies in a way that: maximizes the number of firms. minimizes costs. maximizes production. minimizes production.

minimizes costs.

Sunday afternoon NFL football games on television are nonrival because: the provider cannot prevent people who do not pay for them from watching them. more than one person can consume the same unit of the good at the same time. individuals ignore the effect of their use on the amount of the resource remaining for others. the market suffers from inefficiently low consumption.

more than one person can consume the same unit of the good at the same time.

A good is characterized as _____ when one person's use of the good does not reduce another person's ability to use the same unit of the good. nonexcludable free shareable nonrival

non rival

The difference between private goods and common resources is that common resources are: more valuable than private goods. nonrival. excludable, and private goods are nonexcludable. nonexcludable, and private goods are excludable.

nonexcludable, and private goods are excludable.

Select the best choice that completes each sentence. normative or positive _________ statements say something about how the world ought to be. _______ statements say something that describes how the world currently is.

normative, positive

A market with negative externalities will tend to _____ compared to a market producing the socially optimal output. overproduce and sell at a higher price underproduce and sell at a lower price underproduce and sell at a higher price overproduce and sell at a lower price

overproduce and sell at a lower price

A corrective or Pigouvian tax leads: people to internalize the external costs and benefits of their actions. to a reduction of external benefits and costs. to a Coase Theorem-based solution that arises from private bargaining. to a need for offsetting subsidies.

people to internalize the external costs and benefits of their actions.

Identify whether each statement is positive or normative. The unemployment rate is 8.2% .At 8%, unemployment in the United States is too high. The richest 1% should be paying more in taxes. The richest 1% of the population earn 24% of the total income.

positive normative normative postitive

A farmer agrees to give a company access to a private road on his property if the company reduces pollution of the farm's water source. This is an example of reducing an externality through: private bargaining. corrective taxes. public goods. cap and trade.

private bargaining.

What type of good is rival and excludable? common resources club goods private goods public goods

private goods

A new tax policy has been passed in the country of Caldeconnia, a constitutional monarchy located high up in the Stap Mountain Range. This new policy states that 66% of the wages of every worker must go to taxes, regardless of how much they earn. This tax is an example of a(n) corporate income tax. proportional tax. excise tax .progressive tax.

proportional tax.

Over a six-month period in 2007, the price of corn increased by almost 70% as a result of increased demand for ethanol biofuel. a. As a result of the price increase in corn, the -quantity or quantity supplied- of corn would -increase. or decrease- At the same time, the amount of acreage used in corn production would -increase. or decrease- b. Which of the following would be the most likely cause of the change in the amount of acreage used in corn production? The government mandates that U.S. corn producers increase the acreage they devote to corn production to keep up with demand. Consumers directly inform suppliers of the increased demand for corn. The higher price signals suppliers that corn is becoming more valuable. Economists publish reports in trade magazines informing farmers of the increased demand for corn.

quantity supplied; increase; increase b. The higher price signals suppliers that corn is becoming more valuable.

When benefits are concentrated and costs are diffused: resources get wasted on projects with low benefits and high costs. fewer projects with low benefits and high costs get developed. more projects with high benefits and low costs get developed. resources get devoted to projects with high benefits and low costs.

resources get wasted on projects with low benefits and high costs

A negative externality exists when ________ exceed ________ social costs and benefits private costs and benefits b. What is the net effect of a negative externality? It decreases the market equilibrium output. only consumer surplus. both producer and consumer surpluses. only producer surplus.

social costs; private costs both producer and consumer surpluses.

Irrational decision making in markets results in: evidence that the rational rules do not lead to their claimed outcomes. externalities. some supply decisions not matching marginal costs, and some demand decisions not reflecting marginal benefits. consistent overproduction.

some supply decisions not matching marginal costs, and some demand decisions not reflecting marginal benefits.

Specialized electronic batteries, such as those for laptops, are hard to dispose of safely, yielding excess pollution when one gets thrown away. Suppose that producing these batteries creates a social cost of approximately $150 per battery. Please shift the appropriate curve or curves to reflect this social cost.

supply curve shifts up

The graph shows the private supply and demand curves for spaceships in Spacelandia. The craft are quite popular, but unfortunately produce pollutants as a by‑product when Spacelandians fly about. Suppose the government of Spacelandia places a per unit tax on the production of spaceships equal to the marginal damage cost (MDC). Demonstrate the effect of the tax by shifting the appropriate curve or curves.

supply shifts to the left

Select the correct definition of the term "comparative advantage." the ability to produce a good or service at a lower opportunity cost than another the ability to produce a good or service at a higher opportunity cost than another the ability to produce more of a good or service than another over a specified time period a nation offering more favorable trade policy with its allies than with other countries the ability to produce less of a good or service than another over a specified time period

the ability to produce a good or service at a lower opportunity cost than another

A familiar example of a negative externality is loud music in a busy park on a weekend. In principle, it should be possible to solve this externality by permitting park visitors to negotiate rights to play music in particular locations or at specific times. The most likely reason these negotiations do NOT occur is that: most people are unfamiliar with the Coase theorem. the bargaining costs of identifying and establishing communications between all affected parties would be high. music is an experience, not a good. some park goers do not view loud music as a negative externality.

the bargaining costs of identifying and establishing communications between all affected parties would be high.

An employer has work that can be done in the same time by one high-skilled worker paid $50.00 an hour or by eight low-skilled workers paid $5.00 an hour each, and the minimum wage is $7.25 an hour. In this scenario, who benefits from the minimum wage, the high-skilled worker or the low-skilled workers? (Hint: Whom would you hire for the job?) Both benefit equally. the low-skilled workers It is impossible to say who benefits more. the high-skilled worker

the high-skilled worker

The free-rider problem results from: the inability to prevent individuals who do not pay for a good from consuming it. average cost pricing. monopoly pricing. the horizontal summing of supply curves.

the inability to prevent individuals who do not pay for a good from consuming it.

A knowledge problem exists when the information needed to make a good decision is not available to a decision-maker. so much information is available to decision-makers that it is difficult to process all the relevant information. the information available to a decision-maker is not accurate and based on opinion. a decision-maker refuses to believe or make use of available information.

the information needed to make a good decision is not available to a decision-maker.

Competitive markets do NOT result in: goods produced at the lowest possible marginal cost. the largest possible economic profit for firms. the largest possible economic surplus. goods going to the consumers who will receive the highest marginal benefit from the good.

the largest possible economic profit for firms.

Many people who own dogs do not pick up after them in public places. This is an example of: a public good. forced riders. the tragedy of the commons. free riders.

the tragedy of the commons.

Which statement best illustrates a cause of government failure as it relates to economics and markets? One cause is when the incentives of government officials do not allign with public interest a situation in which rebels overtake an established government. the cessation of government business due to lack of funding. a failure of governments to meet budgetary needs.

when the incentives of government officials do not allign with public interest

Carlos buys six new plants for his garden. If he has purchased according to the rational rule, his consumer surplus on the sixth plant is equal to: price minus marginal cost. zero. total benefit minus price. price plus marginal benefit.

zero

Alice, Amber, and Andi make and sell pottery. Alice is willing to sell a 5 inch pot for $25$25, Amber is willing to sell a 5 inch pot for $28$28, and Andi is willing to sell a 5 inch pot for $52$52. If each of the ladies is able to sell one 5 inch pot for $55$55, what is their combined producer surplus? combined producer surplus: $ If the price of a 5 inch pot is $35$35, which of the ladies will sell their pots? Alice and Amber Andi only Alice, Amber, and Andi Alice only

$60 Alice and Amber

If the government guarantees sugar farmers a price of $1 per pound when the market equilibrium price is actually $0.50 per pound, which of the following will occur? A shortage of sugar will occur, decreasing inefficiency. A surplus of sugar will occur, increasing inefficiency. A surplus of sugar will occur, decreasing inefficiency. A shortage of sugar will occur, increasing inefficiency.

A surplus of sugar will occur, increasing inefficiency.

Which of the following statements is true? Economists believe that marginal and average tax rates influence behavior to the same extent. Economists believe that average tax rates have a greater influence on behavior than marginal tax rates. Economists believe that neither marginal nor average tax rates have any influence on behavior. Economists believe that marginal tax rates have a greater influence on behavior than average tax rates.

Economists believe that marginal tax rates have a greater influence on behavior than average tax rates.

Which statement is NOT an important function of an efficient market? It allocates consumption of the good to the potential buyers who most value it, as indicated by the fact that they have the highest willingness to pay. It allocates sales to the potential sellers who most value the right to sell the good, as indicated by the fact that they have the lowest cost. It ensures that every consumer who makes a purchase values the good less than every seller who makes a sale, so that all transactions are mutually beneficial. It ensures that every potential buyer who doesn't make a purchase values the good less than every potential seller who doesn't make a sale, so that no mutually beneficial transactions are missed.

It ensures that every consumer who makes a purchase values the good less than every seller who makes a sale, so that all transactions are mutually beneficial.

The price of celery rises, but nothing has changed on the supply side of the market. What does this mean to celery farmers? It is a signal that they should reduce celery production because it is too expensive for consumers. Celery production should be increased because the number of producers has fallen. Celery production should be reduced because the number of producers has risen. It is a signal that celery is more valuable to consumers than it was before.

It is a signal that celery is more valuable to consumers than it was before.

Classify each of the statements as an example of positive or normative analysis. The sugar quota in the United States costs consumers $6.08 billion a year. Higher tariffs on imported automobiles would decrease the demand for foreign made cars. International trade should be be limited because it can cause some workers to lose their jobs. International trade makes some people better off and some people worse off. The U.S. should impose import quotas in the market for consumer electronics to help domestic workers. The sugar quota in the U.S. is good public policy and should be made stronger.

Positive Positive Normative Positive Normative Normative

The market demand curve of a good that is rival in consumption and excludable is the horizontal sum of the individual demand curves. However, the marginal social surplus curve of a public good is the vertical sum of the individual marginal benefit curves. What aspect of a public good causes the demand curves to be summed vertically instead of horizontally? Whether we sum vertically or horizontally depends on whether the government, as opposed to the free market, usually provides the good. Whether we sum vertically or horizontally depends only on whether the good is excludable. Whether we sum vertically or horizontally depends only on whether the good is rival in consumption. Whether we sum vertically or horizontally depends on both whether the good is excludable and whether it is rival in consumption. A vertical sum of individual demand curves is the same thing as a horizontal sum of individual demand curves.

Whether we sum vertically or horizontally depends only on whether the good is rival in consumption.

A corrective or Pigouvian subsidy: incentivizes a reduction in the output when negative externalities exist. incentivizes an increase in the output when positive externalities exist. removes choice by requiring production to change for goods with externalities. provides more alternatives so that satisfaction rises with few units sold.

incentivizes an increase in the output when positive externalities exist.

Over time, housing shortages caused by rent control _____ because the supply of housing is _____ elastic in the long run. increase; more increase; less decrease; less decrease; more

increase; more

Determine if the items represent an example of positive economics or normative economics. The richest 11% of Americans should pay more taxes than the rest of the 9999%. A decrease in the supply of coconut will increase the price of German chocolate cake, a good which requires coconut shavings as a key ingredient. As minimum wage increases, the prices of all goods and services also tends to increase. Social welfare spending in Sweden occupies too large a portion of the national budget.

normative positive positive normative

Use the line segment in each accompanying graph to show a binding price floor on the first graph and a binding price ceiling on the second graph.

price floor line above equilibrium price ceiling line below equilibrium

The minimum wage is an example of a(n): efficient policy. price ceiling. wage subsidy. price floor.

price floor.

The producer surplus on a unit sold equals: price minus marginal cost. (price minus marginal cost) multiplied by (1/2 quantity sold). marginal benefit minus price. 1/2 (price times quantity minus marginal cost).

price minus marginal cost.

Which of the following problems occurs when some participants in a market have information that other participants in the market do not have? excessive trust excessive surplus overproduction private information

private information

Sweater Dress Mary. 50. 10 Kate. 90. 45 Kate has a comparative advantage in ________, and Mary has a comparative advantage in __________ .

sweaters; dresses

A tariff is a: tax on exported products. tax on imported products. limit on the quantity of a good that can be exported. limit on the quantity of a good that can be imported.

tax on imported products.

The incentive to dedicate private resources to maintaining a common resource is low because: maintenance is very expensive. there is no benefit from maintenance of a common resource. entrepreneurs have not found a way to profit from common resources. the benefits of maintenance are external, not private benefits.

the benefits of maintenance are external, not private benefits.

A positive externality causes the marginal private benefit to exceed the marginal social cost of the last unit produced. the marginal social benefit to be less than the marginal private cost of the last unit produced. the marginal social benefit to exceed the marginal private cost of the last unit produced. the marginal social benefit to be equal to the marginal private cost of the last unit produced.

the marginal social benefit to exceed the marginal private cost of the last unit produced.

The minimum wage causes unemployment mainly among poor, unskilled workers. False True

true

Play song. Tax return Fazio. 18 9 Gabriella. 10 8 Fazio's opportunity cost of learning the song is _____, and Gabriella's opportunity cost is _____. .8 of an hour; .5 of an hour .5 of a tax return; .8 of a tax return nine hours; two hours two tax returns; 1.25 tax returns

two tax returns; 1.25 tax returns

Suppose that a small company is thinking of putting plants in their lobby for employees to view and enjoy. Since the plants are to be viewed by employees, the plants are non-excludable (it is infeasible to move a plant each time a specific individual walks by) and non-rival in consumption (if one worker looks at the plant, it does not prevent another from doing so as well). The company employs three workers: Robin, Alex, and Sharon. The company is thinking about buying up to three plants, and wants to know how much workers would enjoy each plant. For Robin, the first plant has a benefit of $47$47 per day, the second plant has a benefit of $37$37 per day, and the third plant has a benefit of $13$13 per day. For Alex, the first plant has a benefit of $41$41 per day, the second has a benefit of $28$28 per day, and the third has a benefit of $6$6 per day. For Sharon, the first plant has a benefit of $31$31 per day, the second has a benefit of $19$19 per day, and the third has a benefit of $2$2 per day. Given that no one else will see the plants, no one else values the plants in the lobby. What is the marginal social benefit of the first plant? What is the marginal social benefit of the second plant? What is the marginal social benefit of the third plant?

119 84 21

The Edict on Maximum Prices, established by the Roman emperor Diocletian, created price ceilings on various jobs and goods in a failed effort to curb inflation. For example, legal pay for a farm laborer could be no more than $0.108 a day (payment set in modern currency). If the market rate of farm labor was $0.12 a day, which would be a plausible consequence of this law? A laborer would work less hard than he otherwise would. Unemployment for farm hands would increase. Nothing unusual would happen. Farms would produce more food than they otherwise would.

A laborer would work less hard than he otherwise would.

What conditions must be met for private bargaining to be effective in resolving an externality? Property rights must be clear, and production must begin at a socially optimal level. There must be trade in public goods. Taxes must be low, and regulations must be minimal. Bargaining costs must be low, and property rights must be clear.

Bargaining costs must be low, and property rights must be clear.

Which of the following statements about rent seeking is false? Because rent seeking redistributes society's resources, anyone engaging in such behavior is violating the law. A person is engaging in rent-seeking behavior when he uses the political process to acquire ownership of a resource that belongs to the public. If a firm can benefit from government intervention in the economy, it is more likely to spend resources attempting to secure this intervention than toward innovating its product to gain a competitive edge in the market. Rent seeking often involves governments because governments transfer huge amounts of funds that economic agents must compete for.

Because rent seeking redistributes society's resources, anyone engaging in such behavior is violating the law.

Which scenario describes the operation of a tariff? Ireland taxes the import of potatoes in order to keep domestic farmers in business. Consumers in Turkey, who pay $4 per cup of tea, demand that the government open up trade with the world market because they know the world price is $2 per cup. Norway becomes an exporter of fireworks after it opens up trade with the world market and realizes its market price is lower than the world price. Angola opens up trade with the world corn market and decides to maintain its previous market price. Which is NOT an effect of a tariff? decreased imports deadweight loss increased demand a domestic market price above world market price

Ireland taxes the import of potatoes in order to keep domestic farmers in business. increased demand

Which of the following is NOT a problem that occurs when rules and regulations are used to control externalities? Rules and regulations may stifle innovation and discovery of how to achieve the rule's goal. Rules and regulations may focus on an easy-to-monitor way to achieve a goal rather than the best way to achieve it. Rules and regulations tend to focus on the most extreme cases of an externality rather than the most common. Rule and regulations tend to eliminate rather than reduce externalities when reduction might be the better option.

Rules and regulations tend to focus on the most extreme cases of an externality rather than the most common.

Place each example in the appropriate category. Typical of market economies or nonmarket Self‑interest motivates people. Prices are flexible. Firms attempt to satisfy consumers' desires. The planners' interests dominate. Prices are fixed. Consumers cannot make theirwishes known to businesses.

Typical of market economies Self‑interest motivates people. Prices are flexible. Firms attempt to satisfy consumers' desires. Typical of nonmarket economies The planners' interests dominate. Prices are fixed. Consumers cannot make their wishes known to businesses.

Which of the following is an example of rent seeking behavior? U.S. sugar firms convinced Congress to impose a quota on imports of sugar. Recent increases in cigarette taxes faced little opposition from voters, many of whom were rationally ignorant with respect to the tax. Apple earned large profits from the development and sale of the iPhone. Amazon introduced the Kindle to compete with Sony's Digital Reader. Amazon was motivated by the desire to earn profits from the Kindle but also increased the choice of digital music players available to consumers.

U.S. sugar firms convinced Congress to impose a quota on imports of sugar.

If the demand curve is downward-sloping, and supply is relatively elastic, then the burden of a tax is: borne mostly by consumers. borne mostly by producers. shared by consumers and producers, with the burden falling mainly on consumers. shared by consumers and producers, with the burden falling mainly on producers.

borne mostly by consumers.

A large farming operation which uses a potent fertilizer is located up river from a trout farmer. If property rights of the river exist and transactions costs are low, the amount of pollution will be inefficient if the farming operation owns the river. efficient only if the trout farmer owns the river. efficient if either the farming operation or the trout farmer own the river.

efficient if either the farming operation or the trout farmer own the river.

The difference between a club good and a public good is that a club good is _____ and a public good is _____. excludable and nonrival; excludable and rival nonexcludable and rival; nonexcludable and nonrival excludable and nonrival; nonexcludable and nonrival nonexcludable and rival; excludable and rival

excludable and nonrival; nonexcludable and nonrival

A tariff _____ the price received by domestic producers and _____ the price paid by domestic consumers. decreases; increases increases; decreases decreases; decreases increases; increases

increases; increases

Price ceilings impose costs on society because they: ensure that everybody who wants the good will get it. may result in black markets, where prices are lower than the market-determined price would be. lead to a smaller quantity offered in the market. lead to a higher quantity offered in the market.

lead to a smaller quantity offered in the market.

To maximize economic surplus, keep increasing output as long as. marginal benefits exceed marginal costs. marginal benefits equal marginal costs. total benefits exceed total costs. total benefits equal total costs.

marginal benefits exceed marginal costs

Common resources have: characteristics of being nonrival and nonexclusive. shared gains but private costs. Common resources have: characteristics of being nonrival and nonexclusive. shared gains but private costs. private gains but shared costs. characteristics of being rival and exclusive. characteristics of being rival and exclusive.

private gains but shared costs.

For Uber rides, which have a highly elastic supply and a downward-sloping demand curve: producers will bear most of the burden of a tax. producers will bear only a small proportion of the burden of a tax. consumers and producers will split the burden of a tax in half. consumers will not bear any of the burden of a tax.

producers will bear only a small proportion of the burden of a tax.

The marginal tax rate shows the deductions which are permitted for child care and medical expenses. the percentage of income which a typical family pays in tax. the extra tax due on an extra dollar of income. the average rate of taxation in the economy.

the extra tax due on an extra dollar of income.

Government sometimes supports protectionist tariffs because: the losses are spread over millions of consumers so the cost per consumer is small. producers lose less than what consumers gain. producers always gain much more than what consumers altogether lose. the losses are spread over millions of producers, so the cost per producer is small.

the losses are spread over millions of consumers so the cost per consumer is small.

The efficient quantity prevails in a market when the market costs exceed benefit by the largest margin. yields the largest possible economic surplus. has benefit equal to cost. has the lowest average cost.

yields the largest possible economic surplus.

Some researchers estimate that all saltwater fish will be extinct by 2048, in large part due to overfishing. But surveys also show that more households eat chicken and beef than fish; however, neither chickens nor cattle are in danger of extinction. Which of the following best explains these observations? The supply of fish has always been less than the supply of chicken and beef. Fish tend to be nonexcludable resources, whereas chicken and beef are excludable. Fish tend to be nonrival resources, whereas chicken and beef are rival. The price of fish is much higher than the price of chicken and beef.

Fish tend to be nonexcludable resources, whereas chicken and beef are excludable.

Suppose that instead of each farmer in an area owning a specific parcel of land, all farmland is pooled together. The profits that remain from all of the pooled farmland is divided among all of the participating farmers equally. Which is the most likely consequence of a property right system like this being used? Free riding would occur from various farmers on the land. Farmers will undertake increased investment in human and physical capital. Technological innovations will occur that will help the farmers become more productive. The farmers would develop a sense of altruism and work hard to accomplish as much as possible as a group.

Free riding would occur from various farmers on the land.

In economics, what is the meaning of the phrase 'the tragedy of the commons?' Goods that are not rivalrous but are excludable are under‐produced by private markets, often with consequences that reduce social welfare. In decisions involving intellectual property rights, policy-makers must compromise in order to reach common ground among competing interest groups. In market economies products are often similar and common, so the government must actively attempt to create variety in goods and services. It serves the common good to produce items that are neither rivalrous nor excludable, but profit‑maximizing firms will not produce such products. People will overuse or misuse a common resource that is not excludable but is rivalrous.

People will overuse or misuse a common resource that is not excludable but is rivalrous.

When a tax is imposed on consumers, the demand curve shifts downward, so that the vertical distance between the original demand curve and the new demand curve that incorporates the tax equals the: tax multiplied by the price elasticity of demand. tax multiplied by the price elasticity of supply. tax relative to the deadweight loss generated. amount of the tax per unit.

amount of the tax per unit.

When the market produces and sells nine teddy bears, the deadweight loss is represented by the: rectangle between prices $6.50 and $2 and quantities of zero to 5. rectangle between prices of $6.50 and $2 and quantities of 5 and 9. area between the demand and supply curves between quantities of 5 and 9. area between the demand and supply curves to the left of a quantity of 5.

area between the demand and supply curves between quantities of 5 and 9.

People gain consumer surplus when they purchase an item: at a price above marginal revenue but lower than the cost of production. at an equitable price. with a marginal benefit below the price of the item. at a price below the value of the benefit they receive from the item.

at a price below the value of the benefit they receive from the item.

A tax is levied on consumers. The incidence of the tax: falls more on the consumer than on the producer. falls more on the producer than the consumer. is shared between consumers and producers. cannot be determined without more information.

cannot be determined without more information.

For a medical procedure which has a highly inelastic demand and an upward-sloping supply curve: consumers will bear most of the burden of a tax. consumers will not bear an insignificant portion of the burden of a tax. consumers and producers will split the burden of a tax in half. producers will not bear any of the burden of a tax.

consumers will bear most of the burden of a tax.

The Coase theorem implies that: private individuals will not produce the socially optimal outcome because bargaining costs are generally quite high. given low bargaining costs, private individuals can achieve a socially optimal solution without the involvement of the government. given external costs, the government must intervene to achieve the socially optimal output. all goods that generate an external cost (or benefit) should be produced up to the point where the marginal social benefit equals the marginal social cost of the good.

given low bargaining costs, private individuals can achieve a socially optimal solution without the involvement of the government.

The higher the minimum wage is above the equilibrium wage, the: smaller is the labor surplus among teenagers. smaller is the number of low-skilled unemployed workers. more likely it is for students to stay in high school and receive their diploma. greater is the number of low-skilled unemployed workers.

greater is the number of low-skilled unemployed workers.

Simon and Sean both manage factories that produce dog biscuits for DB International. Simon's factory is in Eugene, Oregon, whereas Sean's factory is in Saginaw, Michigan. Suppose that, due to transportation costs, Simon's marginal cost of production is higher than Sean's. Suppose Sean is currently producing 600 tons of dog biscuits a year and Simon is producing 900 tons. How should DB International manage production so as to minimize the cost of producing 1500 tons of dog biscuits? DB international should have Sean produce more and Simon produce less. conclude the two producers are likely already minimizing costs. have Simon and Sean should each produce 750 tons. have Sean produce all 1500 tons, since he has the lower marginal cost, and Simon should cease production.

have Sean produce more and Simon produce less.

If you can complete a task at a lower opportunity cost than anyone else, then you have an absolute advantage in that task. have a comparative advantage in that task. produce the good using fewer inputs than anyone else. produce the good using more inputs than anyone else.

have a comparative advantage in that task.

Suppose that the government wants to support local organic farmers with a price support system. If so, we would expect a market price support policy that establishes a binding price floor to: decrease the price paid by consumers. push the price paid by consumers to the equilibrium level. increase the price received by farmers. decrease the price received by farmers.

increase the price received by farmers

A nonexcludable good is a good in which: it is difficult to prevent someone from using or having access to the good. one person consuming or using the good cannot prevent others from using or consuming the same unit of the good. the good has no cost of production and so is available to consumers at no cost. there is a regulation that the good must be provided to everyone.

it is difficult to prevent someone from using or having access to the good.

The advantage of using command and control to solve an externality problem is that: it is a very flexible approach. it solves the problem efficiently without the government requiring very much information. it is inflexible, and some problems require an inflexible approach. it is usually the least costly approach.

it is inflexible, and some problems require an inflexible approach.

The long-run effect of laws that raise the minimum wage is that labor-saving devices are quickly adopted to replace labor. labor-saving devices and management practices are slowly adopted. any short-run effect disappears and there is no long-run impact. the demand for minimum wage workers rises and more minimum wage workers are hired.

labor-saving devices and management practices are slowly adopted.

Some economists compare the destructiveness of rent control to that of aerial bombardment because it causes: landlords to neglect their buildings, allowing them to deteriorate over time. high search costs in apartment hunting. apartments to go to renters who do not have the highest-valued use of the apartments. there to be unexploited gains from trade.

landlords to neglect their buildings, allowing them to deteriorate over time.

Price ceilings: improve the allocation of resources because consumers are prevented from bidding up the price of products. misallocate resources because they allow consumers to compete against one another by offering sellers higher prices. improve the allocation of resources because consumers with the greatest need for the product are more likely to be able to afford the product. misallocate resources because consumers who buy the product may not be the ones who value it the most.

misallocate resources because consumers who buy the product may not be the ones who value it the most.

According to public choice theory, the main reason for some politicians' ability to build support for policies that generate more costs than benefits is that: the public is always ignorant about the costs and benefits of any policy. the political process has flaws, so the public is always misinformed. rational ignorance is higher in the situation of concentrated benefits and diffuse costs. the government always misleads the public with biased information.

rational ignorance is higher in the situation of concentrated benefits and diffuse costs.

When producers produce more than the equilibrium quantity: sellers have an incentive to reduce their price. resources are wasted because goods are produced at a higher cost than consumers are willing to pay. the market is operating at an abnormally high level of efficiency. buyers have an incentive to offer a higher price.

resources are wasted because goods are produced at a higher cost than consumers are willing to pay.

One question that economics students often ask is, "In a market with a lot of buyers and sellers, who sets the price of the good?" There are two possible correct answers to this question: "Everyone" and "No one." Make selections to fill in the blanks to make sense of both answers. a. Everyone sets the price because everyone has -small or large- influence in the market. b. No one sets the price because all suppliers want a -higher or lower- price and all consumers want a -higher or lower- price.

small; higher lower

Montgomery owns a nuclear power plant in the town of Springfield. His power plant dumps substantial quantities of radioactive waste into the local pond, which has given rise to a mutant guppy fish population with three eyes. The town decides to have Montgomery do something about the externality. Which method would NOT result in Montgomery accounting for the social cost of running the power plant? It would not work tohave the government give Montgomery a permit to allow a limited amount of pollution but no more. subsidize Montgomery for every three‑eyed fish found in the pond. charge Montgomery $1,000 for every barrel of toxic waste his nuclear reactors produce. define property rights clearly to identify Springfield as the owner of the pond with the right to compensation from Montgomery for damages from the pollution.

subsidize Montgomery for every three‑eyed fish found in the pond.

Canada is considering imposing a tax on imports of Chinese solar panels. This action would be best described as a subsidy. quota. tariff. voluntary export restraint. In general, which of the statements is most likely to occur as a result of the proposed tax on imported solar panels? Consumers in Canada will face higher prices for solar panels. Canadian consumers will benefit from cheaper solar panels. Canadian workers in solar panel manufacturing will be laid off. Solar panel producers in Canada will face more competition.

tariff; Consumers in Canada will face higher prices for solar panels.

Your college roommate has the right to practice her tuba during the day. You, however, find that studying during the day is most conducive to good grades, and her tuba-playing makes it difficult for you to concentrate. You make a deal with your roommate: you will clean the dorm room once a week if she will practice her tuba at other times or elsewhere. This is an example of emission permits. a corrective tax. a corrective subsidy. the Coase theorem.

the Coase theorem.

Traffic congestion is a common example of a negative externality. In principle, it should be possible for drivers to negotiate the right to drive at particular times, thereby compensating those who would prefer not to drive at peak times and solving the externality. The most likely reason these negotiations do NOT occur is that: individuals are unfamiliar with the Coase theorem. the bargaining costs of such negotiations would be prohibitive, as there are (in large cities) many interested parties. such an agreement could not be enforced, since all individuals have free access to all public roads. the punitive nature of the negotiations for those not involved would ensure it cannot come to pass.

the bargaining costs of such negotiations would be prohibitive, as there are (in large cities) many interested parties.

Aurora Township is asking all of its citizens to chip in and donate money to build a new library. Tommy thinks he already pays enough money in taxes, so he chooses not to donate. He knows that even if he does not contribute he will be able to use the library once it is built. This is an example of the tragedy of the commons. moral hazard. adverse selection. the free rider problem. asymmetric information.

the free rider problem

Daniel is a baker who has decided to create his own brand of chain restaurants, Short and Sweet. He negotiates with three suppliers for weeks and ultimately signs contracts with these suppliers. Francis, who owns a new sugar plantation, agrees to sell Daniel freshly refined sugar on the condition that Daniel helps him advertise his brand of sugar. Diana runs an orchard and provides Daniel with fruit. She enters into the partnership knowing that she can dramatically increase her profits if she can sell fruit to Daniel. Lastly, Ryan, who owns a mill, decides to purchase a new piece of machinery so that he can sell Daniel flour at a lower price than his competitor. The end result of Daniel's interactions with his suppliers is that folks in his neighborhood have a chance to buy delicious baked goods at reasonable prices. Daniel's situation with his suppliers is an example of a: command economy .market failure. the invisible hand. a recession.

the invisible hand

It is Valentine's Day and Pierre wants to buy his girlfriend Madeline a dozen long‑stemmed roses to show his love for her. He walks into a new neighborhood flower store and reads a plaque next to the roses. Apparently, the roses were grown by farmers in Nairobi, Kenya. What was not mentioned on the plaque was that a shipping company packed them, a pilot flew them on a refrigerated plane, and a trucking company took them to the floral shop. The flower shop owner thought that since the town did not have a flower shop, she could capitalize on the market. Pierre buys a dozen roses from the shop for $60 and presents them to Madeline, much to her delight. What main principle does this story best illustrate? zero-sum exchanges producer surplus consumer surplus the invisible hand

the invisible hand

In a progressive tax system the marginal tax rate and the average tax rate increase as income levels increase and the marginal tax rate exceeds the average tax rate. the marginal tax rate increase as income increases but the average tax rate does not change as income increases. the marginal tax rate and the average tax rate decrease as income levels increase and the marginal tax rate is less than the average tax rate. the marginal tax rate and the average tax rate are the same for every income level and the same as income increases.

the marginal tax rate and the average tax rate increase as income levels increase and the marginal tax rate exceeds the average tax rate.

A price floor is: any price below the equilibrium price. the maximum price that a seller can charge in a market. the average price that a seller can charge in a market. the minimum price that a seller can charge in a market.

the minimum price that a seller can charge in a market.

Externalities tend to occur because decision makers consider _____ and do NOT consider _____. their own needs as most important; the fact that others also have needs their own income as limitless; their income as limited the welfare of others; their own welfare their own costs and benefits; the effects of their actions on others

their own costs and benefits; the effects of their actions on others

Command and control methods do not always produce the most efficient outcomes because: consumers sometimes are misled regarding their own preferences. they lack the flexibility to allow buyers and sellers to choose the least costly methods to alter their behavior. they reduce consumption in all cases. they do not always allow suppliers to produce the efficient market quantity.

they lack the flexibility to allow buyers and sellers to choose the least costly methods to alter their behavior.

If the minimum wage is a binding price floor: those who want to work will outnumber the jobs available. the equilibrium wage will rise. there will be a job for everyone who is willing to work. business owners will hire the same number of workers as before but at the higher wage.

those who want to work will outnumber the jobs available.

The average tax rate can be calculated by which of the following formulas? total taxes due divided by total taxable income the change in taxable income divided by the change in taxes due the change in taxes due divided by the change in taxable income total taxable income divided by total taxes due

total taxes due divided by total taxable income

Which scenario is the best example of the tragedy of the commons? The best example is when a country experiences widening income inequality. two countries engaged in international trade of a good reach the same equilibrium price, which is higher than it would have been in the absence of trade. a group of farmers forms a collective to coordinate a common pricing strategy. users of a shared shower in a dorm allow the shower to get nasty by failing to clean it often enough. all artists in a mass-media environment face an incentive to create works that are lower quality in order to appeal to the lowest common denominator.

users of a shared shower in a dorm allow the shower to get nasty by failing to clean it often enough.

Every few months, public television asks viewers to contribute to their local public television station. Although they raise money during this time, it often falls short of the amount they wish to raise because: they do not make the pledge period long enough. viewers know they will be able to watch public television, even if they don't contribute. public television free-rides on the viewers. the marginal social cost equals the marginal social benefit of public television viewing.

viewers know they will be able to watch public television, even if they don't contribute.

Juan McDonald is willing to pay $600 for a new iPad. Apple (the producer of iPads) is selling a new iPad for $700. It costs Apple $400 to produce this iPad. A voluntary economic transaction between Juan and Apple _____ occur because ____ would be better off due to the transaction. will; both Juan and Apple will not; only Apple will not; only Juan will; neither Juan nor Apple

will not; only apple

Juan McDonald is willing to pay $900 for a new iPad. He offers to pay $800 for an iPad at the Apple store. It costs Apple $700 to produce this iPad. A voluntary economic transaction between Juan and Apple _____ occur because ____ would be better off due to the transaction. will not; only Juan will not; only Apple will; both Juan and Apple will; neither Juan nor Apple

will; both Juan and Apple

Kevin Williamson goes to a local coffee shop and orders a medium-sized latte. His willingness to pay for that latte is $6. The price of the latte is $2. The cost to the coffee shop to produce the latte is $1. How much economic surplus does the coffee shop receive when Kevin purchases the latte? $2 $1 $6 $4

$1

Which describes the fairness-efficiency trade‑off? -The least efficient economic outcome is the fairest outcome. -Actions intended to make economic outcomes fairer can cause efficiency to decrease. -There is always a more equitable outcome that is also more efficient. -Government intervention can increase efficiency in a market.

Actions intended to make economic outcomes fairer can cause efficiency to decrease.

Which of the following describes a situation with a negative externality? When the price of gasoline rises by 10%, the quantity sold drops by 8%. After a commercial poultry farm opens, neighbors on all sides complain of its smell. The buyer of a skateboard falls when using it and is injured. When 10% more people get a flu shot, the incidence of the flu drops by 20%.

After a commercial poultry farm opens, neighbors on all sides complain of its smell.

Which of the following is a positive externality? After a large stadium is built in a neighborhood, homeowner property values in the neighborhood fall because of noise and traffic. After measles vaccinations increase by 20%, the number of cases of measles falls by 35%. Researchers develop a new drug that effectively treats a devastating disease that previously had no cure. After the price of dental care decreases, more people can afford regular dental check-ups.

After measles vaccinations increase by 20%, the number of cases of measles falls by 35%.

How do rice farmers in rural Indonesian villages figure out that they need to produce more rice when the demand for it has risen in other parts of the world? An increase in the price of rice gives them a signal that rice is more valuable. An increase in sales communicates to them that inventories are rising. A decrease in the price of rice gives them a signal that there is insufficient quantity. A decrease in sales communicates to them that they need to advertise more.

An increase in the price of rice gives them a signal that rice is more valuable.

Which of the following is a FALSE statement about assigning work based on comparative advantage? Workers will be specialists and not generalists. Assign the person who is fastest or best at a task to do that task. The person with the lowest opportunity cost at a task should perform it. The person who has absolute advantage in the task will sometimes be assigned to do it.

Assign the person who is fastest or best at a task to do that task.

Which of these statements explains why price ceilings result in lost gains from trade? Buyers want to trade, but sellers are indifferent at the lower prices. Buyers and sellers want to trade, but the threat of fines or jail time prevents them from doing so. Neither buyers nor sellers want to trade subject to a price ceiling that results in lost gains from trade. Sellers want to trade, but buyers prefer the lower prices.

Buyers and sellers want to trade, but the threat of fines or jail time prevents them from doing so.

Which transaction fails to produce gains from trade for both buyers and sellers? Neighbors Jordan and Chelsea are both working parents. They can hire a single babysitter to care for both of their toddlers for 75 percent of what they would collectively have to pay two separate babysitters. Elijah decides that his family should eat more healthy meals, but they are very pressed for time. He decides to subscribe to a service that sends healthy pre-planned meals to his home three times a week. Charlene's job requires her to work on an oil rig, and she must alternate two weeks on the rig and two weeks off. When she is on the rig, she rents out her apartment through Airbnb. Callie turns down an extra shift at work to take care of household chores.

Callie turns down an extra shift at work to take care of household chores

Which of the following is NOT a result of an efficient market? Goods are produced by the firms that can do so at the lowest marginal cost. Economic surplus is minimized to reduce waste. Goods go to the consumers who will gain the highest marginal benefit from the good. Allocative efficiency is achieved.

Economic surplus is minimized to reduce waste.

If the market output is not efficient, which statement MUST be true? The marginal social benefit exceeds marginal social cost. The marginal social cost exceeds the marginal social benefit. Government intervention is needed. Economic surplus is not maximized.

Economic surplus is not maximized.

Which of the following statements about economic surplus is FALSE? Economic surplus equals marginal benefit minus marginal cost. Economic surplus is the area between the supply curve and the demand curve to the left of quantity sold. Economic surplus is the area below the supply curve, above the demand curve, and to the right of quantity sold. Economic surplus is consumer surplus plus producer surplus.

Economic surplus is the area below the supply curve, above the demand curve, and to the right of quantity sold.

If Mary can bake more cakes in one day than Sarah can bake in one day, then Sarah has a comparative advantage in baking cakes. Mary has an absolute advantage in baking cakes. Mary has a comparative advantage in baking cakes. Sarah should not bake cakes. Neither Mary or Sarah have the absolute advantage in baking cakes.

Mary has an absolute advantage in baking cakes.

Why do economists believe that market‑based strategies are more likely to achieve efficient pollution abatement than regulatory agencies? Regulatory agencies will seek low cost options that will maximize profit and responding to price signals is less likely to be efficient. Firms will seek low cost options that will maximize profit, but responding to price signals is less likely to be efficient. Firms will seek low cost options that will maximize profit and responding to price signals is more likely to lead to an efficient outcome. Regulatory agencies will seek low cost options that will maximize profit and responding to price signals is more likely to lead to an efficient outcome.

Firms will seek low cost options that will maximize profit and responding to price signals is more likely to lead to an efficient outcome.

The government can choose between taxing buyers of grapes at $1.00 per pound or taxing the sellers of grapes at $1.00 per pound. Which of the following statements is TRUE? I. The choice most beneficial to buyers is placing the $1.00 tax on sellers. II. The choice most beneficial to sellers is placing the $1.00 tax on buyers. III. Either choice will have the same effect on both buyers and sellers. I only II only I and II only III only

III only

Suppose resources are directed by means of a central planner who receives information on all the different uses of these resources. Why might sellers have an incentive to not provide truthful information to the central planner? In order to continue producing their product, sellers may overstate the importance of that product. Sellers want to be able to charge the minimum price for their product. The information system is too complex to provide correct information. They want resources to be able to travel to the highest-value uses possible.

In order to continue producing their product, sellers may overstate the importance of that product.

The table lists the minutes that it will take four people to wash a car and to sort and fold a load of laundry. Use the data to answer the question. Who has a comparative advantage in washing a car? car laundry Jason 150 50 Junko 120 50 Jen 90 45 Asad. 80 45

Jen

In the town of Freedonia, the government declares that all street parking must be free: There can be no parking meters. In an almost identical town of Meterville, parking costs $5 per hour (or $1.25 per 15 minutes). a. Where will it be easier to find parking: in Freedonia or Meterville? It will be easier in b. One town will tend to attract shoppers who hate driving around looking for parking. Which one? Why will the town from part b also attract shoppers with higher incomes? Higher‑income shoppers have _________ and a _______ opportunity cost of time.

Meterville Meterville more money to spend on meters; higher

San Francisco decides to remove a binding price ceiling on rail fares. Which of the following is likely to happen in the market? Train tickets will become cheaper. Overcrowding on trains will go down. The number of available trains will go down. The demand for train tickets will increase.

Overcrowding on trains will go down.

How can the tragedy of the commons be averted? Ownership rights can be assigned. The government can assess corrective taxes. The parties involved can engage in public bargaining. The government can implement a cap and trade policy.

Ownership rights can be assigned.

Which of the following is NOT a reason for government failure? Elected officials are more concerned about reelection than efficiency. Regulators are overly focused on efficiency. Government leaders are focused on enriching themselves. Regulators act in the interest of the industries they regulate.

Regulators are overly focused on efficiency.

Select the best description of "special interest" groups in the context of legislation and politics. Groups of people who care about only one specific issue. Small and well-organized groups that exert a disproportionate political influence. Groups that have special needs. Large groups that advocate for the benefit of society in general. All of these descriptions apply to special interest groups.

Small and well-organized groups that exert a disproportionate political influence.

Why might an efficient outcome be reached even without Coasian bargaining? It is not possible to reach the efficient outcome without bargaining and payments. When many people are involve, the benefits of coming to an agreement are very large. Social norms can lead people to consider the impact on others, even without bargaining and payments.

Social norms can lead people to consider the impact on others, even without bargaining and payments.

A binding price floor in a market is removed. Which of the following is likely to occur as a result? The demand for the item will fall. The supply of the item will rise. The market price will fall. The market price will rise.

The market price will fall.

Which of the following illustrates a positive externality? Ella can buy a shirt at half price because someone else returned it. Artem loses sleep when an airport is built near his home, and planes fly overhead. The value of Maria's house rises when the city builds a park nearby, enhancing her view. Martin's company experiences an increase in profits due to his cost-cutting initiatives.

The value of Maria's house rises when the city builds a park nearby, enhancing her view.

Which is a source of market failure? Market power Externalities Irrationality These are all sources of market failure.

These are all sources of market failure.

Which of the following is an example of a negative externality? When Fazio parks his big truck at the grocery store, people in the cars on each side of his parking space have a hard time opening their car doors. Bae's company has a decrease in profits when the demand for its product falls. Raul loses weight because he wants to feel better, but the weight loss means that he needs new clothes. Rita gains weight while she is on vacation because she eats more than normal.

When Fazio parks his big truck at the grocery store, people in the cars on each side of his parking space have a hard time opening their car doors.

What is the difference between a positive externality and a negative externality? Whether the welfare of bystanders rises or falls. Whether the perspective is the buyer's or the seller's. Whether bystanders have a direct or inverse relationship to the decision maker. Whether the price rises or falls.

Whether the welfare of bystanders rises or falls.

According to the Coase theorem, which situation would MOST likely result in a private bargaining solution and yield an efficient market? People who get flu shots actually end up decreasing the spread of the virus. Your neighbor's dog routinely gets out of his yard and does his "business" in your yard. A railroad train that runs the entire East Coast regularly emits both pollution and loud noises for people living near the tracks. A company recently turned an abandoned factory at the end of your street into a paper mill that now stinks up the entire town.

Your neighbor's dog routinely gets out of his yard and does his "business" in your yard.

In a market graph, consumer surplus is the area: above the price and below the demand curve. between the demand curve and the supply curve. below the demand curve. above the price.

above the price and below the demand curve.

When market forces lead to efficient production, each producer is _____, and the product is produced _____. acting in self-interest; at the lowest possible marginal cost coordinating with others; at a cost equal to price maximizing production; at maximum marginal cost alternating production; at minimum cost

acting in self-interest; at the lowest possible marginal cost

Which of the following goods would be nonrival? an online course toothpaste gasoline a candy bar

an online course

One of the main problems with the Coase theorem is that: bargaining costs are generally not low (or zero). individuals only act in their own self-interest. the consumer evaluation theorem implies that bargaining costs are not sufficiently high. a corrective tax or subsidy is needed to ensure that a social optimum is reached.

bargaining costs are generally not low (or zero).

Consumer surplus is represented by the area _____ the demand curve and _____ the price that the consumer pays. above; below above; above below; above below; below

below; above

A tariff imposed on German imports into the United States tends to _____ American producers and _____ German producers. penalize; benefit. benefit; penalize penalize; penalize benefit; benefit

benefit; penalize

In a voluntary economic transaction between a buyer and a seller, _____ can earn economic surplus from the transaction. both the buyer and the seller only the buyer only the seller neither the buyer nor the seller

both the buyer and the seller

Gains from trade will be maximized at the free market equilibrium price and quantity because the supply of goods is: sold by the sellers with the highest opportunity cost. sold by the sellers that minimize producer surplus. bought by the buyers who have the highest willingness to pay. bought by the buyers who have the lowest willingness to pay.

bought by the buyers who have the highest willingness to pay.

Price ceilings tend to create shortages when used to bring down price in a competitive market. create a price above equilibrium. bring down price to the level of marginal cost. reduce exploitative use of market power.

bring down price in a competitive market.

When the economic surplus in a market is less than it would be if the market were efficient, the market is experiencing: asymmetry problems. a situation in which marginal benefit equals marginal cost. an inverse externality. deadweight loss.

deadweight loss

Total inefficiency caused by a tax is also known as deadweight loss. consumer deficit. consumer surplus. government revenue. Governments that are interested in minimizing the efficiency costs of taxation should only tax goods where demand or supply, or both, are relatively elastic. demand or supply, but not both, are relatively inelastic. demand or supply, but not both, are relatively elastic. producer surplus is larger than consumer surplus. demand or supply, or both, are relatively inelastic.

deadweight loss. demand or supply, or both, are relatively inelastic.

If Ilona wants to live her life based on comparative advantage, then she should do for herself the things for which she has low opportunity cost and trade with others for things she has a high opportunity cost. focus her time on the things she can do. try to earn as much as possible so that she can buy as much as possible. do those things for herself that she can do most quickly and then trade with others.

do for herself the things for which she has low opportunity cost and trade with others for things she has a high opportunity cost.

Efficient allocation of output requires that: consumers will each pay a price equal to the marginal benefit received from the good. output will be distributed evenly across consumers and producers. each unit of output will go to the person who will get the highest marginal benefit from it. each unit of output will be produced at minimum fixed cost.

each unit of output will go to the person who will get the highest marginal benefit from it.

The ______ of an excise tax depends on the _______ of the taxed good's supply and demand curves. The economic entity with the ________ in terms of their production and consumption _______ incur the largest burden of excise taxes.

incidence; price elasticity; least flexibility; substitutes