Econ 202 Test

If the government decides to set a price ceiling at price P1 in this market, how much of this good do you expect will be sold (legally)? a. 38 b. 50 c. 68 d. 80 e. 100

b. 50

If the government wants to create a price floor that has a binding impact on the market, they need to set the price floor: a. Above the market equilibrium price b. Below the market equilibrium price c. Exactly at the market equilibrium price d. Any of the above would set a binding price floor in the market

a. Above the market equilibrium price

Holding all else constant, when the price of a good decreases a. Consumer surplus increases b. Producer surplus increases c. Both consumer surplus and producer surplus will increase d. Neither consumer surplus nor producer surplus will increase

a. Consumer surplus increases

Moving production from a low‐cost producer to a high‐cost producer will a. Decrease total surplus b. Increase total surplus c. Increase producer surplus d. Decrease producer surplus but increase consumer surplus

a. Decrease total surplus

If a negative externality is associated with burning firewood, then according to economic theory, for a market without government intervention: a. For the last unit of firewood purchased, the social costs of the purchase are greater than the social benefits b. For the last unit of firewood purchased, the social costs of the purchase are less than the social benefits c. For the last unit of firewood purchased, the social costs of the purchase are equal to the social benefits d. All of the above

a. For the last unit of firewood purchased, the social costs of the purchase are greater than the social benefits

Public television (PBS, for example) stations occasionally run pledge drives to raise money. Only a small percentage of people who watch these stations usually pay. What is the economic term for these people who do not pay? a. Free riders b. Deadweight losers c. Adverse selectors d. Hillbillies

a. Free riders

Suppose the market for a good is in equilibrium, and then the population in that market increases significantly. In this case, producer surplus will a. Increase b. Decrease c. Remain unchanged d. Might increase, decrease, or remain unchanged

a. Increase

The amount of money you are willing to pay for gasoline to fill up your car is an example of a. Internal (private) benefits b. External benefits c. Internal (private) costs d. External costs

a. Internal (private) benefits

The idea of using government policy to make individuals and business"internalize an externality" is meant to achieve what goal? a. Maximizing total surplus in the market b. Maximizing tax revenue in the market c. Minimizing the number of shortages in the market d. Minimizing the size of the government

a. Maximizing total surplus in the market

Based on our discussion in class, if a labor union is able to successfully negotiate higher wage, then economic theory predicts that in that labor market: a. Producer surplus will increase b. Consumer surplus will increase c. Total surplus will increase d. All of the above

a. Producer surplus will increase

A binding price ceiling will likely cause what outcome in the market? a. Shortage b. Surplus c. No impact on the market outcomes d. Anarchy

a. Shortage

In our discussion in class,the case of a Florida man being charged with"gouging"customers for generators after a hurricane is an example of enforcing what market intervention? a. Temporary price ceiling b. Temporary price floor c. Temporary quantity restriction d. Third‐party payer market

a. Temporary price ceiling

According to our, which of the following is true in the U.S.economy? a. The number of occupations that require licensing has increased over time b. The number of occupations that require licensing has decreased over time c. The number of occupations that require licensing has remained relatively constant over time d. There is no formal licensing of occupations in the U.S. economy

a. The number of occupations that require licensing has increased over time

Which situation is depicted in the graph above? a. A negative externality b. A positive externality c. A common resource good d. An increase in the sales tax rate

b. A positive externality

When a country enters into trade, we know that for a particular good a. Either producer or consumer surplus will increase, and the other will not change b. Either producer or consumer surplus will increase, and the other will decrease c. Both producer and consumer surplus will increase d. Both producer and consumer surplus will decrease

b. Either producer or consumer surplus will increase, and the other will decrease

According to our discussion in class, the minimum wage has increased consistently along with the prices of other goods over time. a. True b. False

b. False

Goods with a negative externality will have a deadweight loss in a market without government intervention, but goods with a positive externality will not. a. True b. False

b. False

In the case of a public good, economic theory predicts that the market (with no government intervention) will produce too high of a quantity. a. True b. False

b. False

Compared to a person with no health insurance, we expect that an individual with health insurance will (according to economic theory): a. Decrease his or her quantity demanded for health care b. Increase his or her quantity demanded for health care c. Decrease his or her quantity supplied of health care d. Increase his or her quantity supplied of health care

b. Increase his or her quantity demanded for health care

According to our discussion in class (and economic theory), which of the following should be the most efficient way to correct for a negative pollution externality? a. Regulations that place the same limit on each producer b. Providing producers with tradable pollution permits c. Subsidizing the pollution activities of producers d. All of the above are equally effective

b. Providing producers with tradable pollution permits

In the case of a positive externality, economists generally feel the most efficient form of intervention is a. Regulation b. Subsidies c. Corrective taxes d. Letting the market work without intervention

b. Subsidies

A price ceiling will have a larger effect on the market when a. Supply and demand are both inelastic b. Supply and demand are both elastic c. Supply is elastic, demand is inelastic d. Supply is inelastic, demand is elastic

b. Supply and demand are both elastic

Suppose Chris and Laura attend a charity benefit and participate in a silent auction. Each has in mind a maximum amount that he or she will bid for an oil painting by a locally famous artist. This maximum is called a. Deadweight loss b. Willingness to pay c. Consumer surplus d. Producer surplus

b. Willingness to pay

Based on the information in Table 1, if there is only 1 ticket left and buyers bid against each other in an auction to purchase it, which of the following is the most likely price? a. $10 b. $21 c. $51 d. $61

c. $51

At Nick's bakery, the cost to make a chocolate cake is $3 per cake. On a particular day, Nick sells three cakes and experiences a producer surplus of $18. Nick must be selling cakes for a. $6 each b. $7 each c. $9 each d. $10 each

c. $9 each

If the government decides to set a price floor at price P1 in this market, how much of this good do you expect will be sold (legally)? a. 38 b. 50 c. 68 d. 80 e. 100

c. 68

In the figure above, which of the areas represents the deadweight loss from a negative externality? a. A b. B c. C d. BandC e. There is no deadweight loss from a negative externality

c. C

Which of the following is the best example of a club good? a. A fireworks display b. A car c. Cable television d. Fish in a river

c. Cable television

In a market with a negative externality, if the market is allowed to operate without any government interference, the equilibrium quantity will be a. The socially optimal quantity b. Less than the socially optimal quantity c. Greater than the socially optimal quantity d. Any of the above are possible

c. Greater than the socially optimal quantity

If a city imposes rent control for apartments,which of the following is not used by land lords to choose tenants a. Bribes b. Discrimination c. Price d. Waiting lists

c. Price

The discussion of taxi medallions in New York City is meant to provide a practical example of what type of market intervention? a. Price ceiling b. Price floor c. Quantity restriction d. Third‐party payer market

c. Quantity restriction

Imposing regulations and licensing in a market are an informal way of creating which type of market intervention? a. Price ceilings b. Price floors c. Quantity restrictions d. Third‐party payer markets

c. Quantity restrictions

A supply curve can be used to measure producer surplus because it reflects a. The actions of buyers b. Willingness to pay c. Seller's costs d. The amount that will be purchased by consumers in the market

c. Seller's costs

In the case where a price ceiling is binding, what generally determines who gets to purchase the good in the market? a. Market price - anyone that is willing to pay the price gets to buy b. Buyers - they decide amongst themselves who values the good the most c. Sellers - they ration the good to buyers based on their preferences d. Any of the above are equally likely to determine who gets to purchase the good with the price ceiling.

c. Sellers - they ration the good to buyers based on their preferences

When a binding price floor is imposed in the market: a. All sellers in the market benefit b. The quantity demanded will increase c. Some buyers will likely leave the market d. All of the above

c. Some buyers will likely leave the market

What happens to tax revenue if the government continues to increase the sales tax rate on a particular good? a. Tax revenue will increase as the government increases the sales tax rate b. Tax revenue will decrease as the government increases the sales tax rate c. Tax revenue will initially increase, and then decrease as the government continues to increase the sales tax rate d. Tax revenue will initially decrease, and then increase as the government continues to increase the sales tax rate

c. Tax revenue will initially increase, and then decrease as the government continues to increase the sales tax rate

What do the areas C and E represent in the graph? a. Consumer surplus after the price ceiling is put in place b. Total surplus after the price ceiling is put in place c. The deadweight loss from the price ceiling d. The tax revenue generated by the price ceiling e. The eternal struggle between the forces of good and evil in the universe

c. The deadweight loss from the price ceiling

The incidence of the tax will fall more heavily on consumers when a. The demand for the good is elastic and supply is inelastic b. The demand for the good is inelastic and supply is elastic c. The demand and supply of the good are both elastic d. The demand and supply of the good are both inelastic

c. The demand and supply of the good are both elastic

Based on the information in Table 1, if the box office sells tickets for $20 each, then consumer surplus in this market will be: a. 5 b. 30 c. 60 d. 75

d. 75

Which of the following area(s) represents the decrease in producer surplus from the price ceiling? a. B b. D c. E d. B and E e. C and E

d. B and E

According to economic theory, which of the following is not always correct about a market in equilibrium? a. The price determines which buyers and sellers will participate in the market b. Those buyers who value the good more than the price will choose to buy the good c. Those sellers whose costs are less than the price will choose to produce and sell the good d. Consumer surplus will be equal to producer surplus

d. Consumer surplus will be equal to producer surplus

The amount of harm you cause other people while your car pollutes as you drive is an example of: a. Internal (private) benefits b. External benefits c. Internal (private) costs d. External costs

d. External costs

According to our discussion in class,which of the following would primarily be considered the "third‐party‐payer" in the market for for‐profit higher education? a. Public institutions of higher education b. Students c. Parents of students d. Federal Government

d. Federal Government

Welfare economics is the study of: a. Taxes and subsidies b. How technology is best put to use in the production of goods and services c. Government programs for low‐income individuals d. How the allocation of resources affects economic well‐being

d. How the allocation of resources affects economic well‐being

Suppose the market in the graph is originally in equilibrium at a price of P2. If the government imposes a price floor at P3, what will happen to quantity demanded? a. It will increase by 32 b. It will decrease by 32 c. It will increase by 30 d. It will decrease by 30 e. There will be no change in quantity demanded with this price floor.

d. It will decrease by 30

Externalities, like market power, are an example of a. The efficiency of markets b. Individual incentives leading to efficient outcomes c. The loss of efficiency caused by government intervention in the economy d. Market failure

d. Market failure

According to our discussion in class, the government will most likely be able to improve efficiency in the market for "common resource" goods by: a. Letting the free market work without intervention (no government policy) b. Public provision of the good c. Tasing anyone that questions government intervention d. Monitoring use of the good

d. Monitoring use of the good

According to the information we looked at regarding minimum wages in the U.S.,which of the following statements is true? a. All states in the U.S. use the same minimum wage rate b. The majority of workers that earn at or near the minimum wage in the U.S. are teenagers c. The minimum wage was created in 1825 by General Custer d. The current minimum wage does not provide enough earnings for a family of four to be above the official poverty line with one adult working full time e. All of the above

d. The current minimum wage does not provide enough earnings for a family of four to be above the official poverty line with one adult working full time

Suppose that your neighbor enjoys listening to the"music"of Taylor Swift at very high volumes from 2 to 3 am every night. This hour provides $30 worth of enjoyment to your neighbor each night. You would be willing to pay up to $20 each night to stop this from occurring. If you are the only two people that can hear the music, what is the efficient outcome? a. You pay your neighbor $10 each night to not listen to his music (or turn the volume down) b. You pay your neighbor $20 each night to not listen to his music (or turn the volume down) c. You pay your neighbor $30 each night to not listen to his music (or turn the volume down) d. Your neighbor listens to his music each night

d. Your neighbor listens to his music each night

Suppose the market in the graph is originally in equilibrium at a price of P2. If the government implements a price ceiling at P3, what will be the market outcome? a. Surplus of 32 b. Surplus of 62 c. Shortage of 32 d. Shortage of 62 e. No impact on market outcomes

e. No impact on market outcomes

If the United States begins importing more shampoo from other countries,what will be the welfare outcomes in the shampoo market in the U.S. (according to economic theory)? a. Consumer surplus increases b. Producer surplus decreases c. Total surplus increases d. a and b e. a,b,and c

e. a,b,andc