ECON Exam 2
in the market for widgets, the supply curve is the typical upward-sloping straight line, and the demand curve is the typical downward-sloping straight line. The equilibrium quantity in the market for widgets is 200 per month when there is no tax. Then a tax of $5 per widget is imposed. The price paid by buyers increases by $2 and the after-tax price received by sellers falls by $3. The government is able to raise $750 per month in the revenue from the tax. The deadweight loss from the tax is
$125
Suppose a tax of $5 per unit is imposed on a good, and the tax causes the equilibrium quantity of the good to decrease from 200 units to 200 units. The tax decreases consumer surplus by $450 and decreases producer surplus by $300. The deadweight loss from the tax is
$250
Christine created a new video game she is willing to sell fro $30. she sell her first copy and enjoys a producer surplus pf $25. What is the price paid for the software?
$55
Suppose the government imposes a tax of 10 percent on the first $40,000 of income and 20 percent on all income above $40,000. What are the tax liability and the marginal tax rate for a person whose income is $50,000?
$6,000 and 20 percent, respectively
Sarah purchases a smoothie for $6, and her consumer surplus is $2. How much is Sarah willing to pay foe the smoothie?
$8
Suppose the government imposes a tax of 20 percent on the first $50,000 of income and 30 percent on all income above $50,000. What is the average tax rate when income is $60,000?
21.7 percent
Most economists prefer corrective taxes to regulation as a way to correct the problem of pollution because
All of the above are correct
Taxes cause deadweight losses because taxes
All of the above are correct.
Suppose buyers of fountain drinks are required to send $0.50 to the government for every fountain drink they buy. Further, suppose this tax causes the effective price received by sellers of fountain drinks to fall by $0.20 per drink. Which of the following statements is correct?
All the possible answers are correct
Flu shots provide a positive externality. Suppose that the market for vaccinations is perfectly competitive. Without government intervention in the vaccination market, which of the following statements is correct?
At the current output level, the marginal social benefit exceeds the marginal private benefit.
Which of the following is an example of the free-rider problem?
Bruce owns Buster, a large dog who barks whenever anyone walks near his house. Betty lives next to Bruce, and Buster's barking can be heard whenever anyone walks near her house, too. Thus, Betty receives free protection from burglars because of Buster's barking.
Why has the value of ivory threatened the extinction of the elephant, whereas the value of beef has enhanced the survival of the cow?
Elephants are a common resource, whereas cows are privately owned
The Ogallala aquifer is a large underground pool of fresh water under several western states in the United States. Any farmer with land above the aquifer can at present pump water out of it. Which of the following statements about the aquifer is correct?
The aquifer is a common resource which will be overused if no one owns it.
Suppose that flu shots create a positive externality equal to $8 per shot. Further suppose that the government offers a $6-per-shot subsidy to producers. What is the relationship between the equilibrium quantity and the socially optimal quantity of flu shots produced?
The equilibrium quantity is less than the socially optimal quantity.
If T represents the size of the tax on a good and Q represents the quantity of the good that is sold, total tax revenue received by government can be expressed as
TxQ
What is consumer surplus equal to?
Value buyers - amount paid by buyers
Four roommates share an off-campus house and equally share the cost of rent. Everyone says that she values a clean house, yet the house is usually dirty. To an economist, a clean house in this case represents
a common resource problem
If an objective of public policy is to allocate pollution to those factories that face the highest cost of reducing it, then that objective could be achieved by
a corrective tax, but not by regulation
Because elephants roam freely in many countries in Africa, each individual African elephant poacher has
a strong incentive to kill as many elephants as he can find.
Suppose that the equilibrium price in the market for widgets is $5. If a law increased the minimum legal price for widgets to $6,
any possible increase in producer surplus would be smaller than the loss of consumer surplus.
Each of the following is likely to be a successful way for the government to solve the problem of overuse of a common resource except
asking individuals to voluntarily reduce their use of the resource.
A price ceiling is binding when it is set
below the equilibrium price, causing a shortage.
Producer surplus is the area
below the price and above the supply curve
Suppose that the market price for pizzas increases. The increase in producer surplus comes from the benefit of the higher prices to
both existing sellers who now receive higher prices on the pizzas they were already selling and new sellers who enter the market because of the higher prices.
The demand for salt is inelastic, and the supply of salt is elastic. The demand for caviar is elastic, and the supply of caviar is inelastic. Suppose that a tax of $1 per pound is levied on the sellers of salt, and a tax of $1 per pound is levied on the buyers of caviar. We would expect that most of the burden of these taxes will fall on
buyers of salt and the sellers of caviar.
When a tax is levied on buyers of tea,
buyers of tea and sellers of tea both are made worse off
The demand for chicken wings is more elastic than the demand for razor blades. Suppose the government levies an equivalent tax on chicken wings and razor blades. The deadweight loss would be larger in the market for
chicken wings than in the market for razor blades because the quantity of chicken wings would fall by more than the quantity of razor blades.
The Mansfield Public Library has a large number of books that anyone with a library card may borrow. Anyone can obtain a card for free. Because the number of copies of each book is limited, not everyone can have the same book at the same time. What type of good would the library books be classified as in this case?
common resources
Deadweight loss is the
decline in total surplus that results from a tax
Deadweight loss is the
decline in total surplus that results from a tax.
If the government removes a tax on a good, then the price paid by buyers will
decrease, and the price received by sellers will increase.
The mayor of Workerville proposes a local payroll tax to fund a new water park for the city. The mayor proposes to collect half the tax from workers and half the tax from firms. The mayor will be able to successfully divide the burden of the tax equally if the
demand for labor and supply of labor are equally elastic.
A tax imposed on the buyers of a good will lower the
effective price received by sellers and lower the equilibrium quantity
which of the following is correct about a tax burden?
falls more heavily on the side of the market that is less elastic
If the labor supply curve is very elastic, a tax on labor
has a large deadweight loss.
A sidewalk runs across Jermichael's front yard near the street. By law, anyone has the right to use the sidewalk. When Jermichael shovels the sidewalk after a heavy snowstorm,
he is providing a good that is not rival and not excludable
When there is a technological advance in the monitor industry, consumer surplus in the market will
increase
Suppose consumer income increases. If hair products are a normal good, the equilibrium price of hair products will
increase, and producer surplus in the industry will increase
Gretchen is a writer who works from her home. Gretchen lives next door to Randall, the trumpet player for a local band. Randall needs lots of practice to earn his share of the band's profit, which will amount to $350. Gretchen gets distracted by Randall's trumpet playing but she needs to get her writing done to earn $570 for her current article. If Randall owns the right to play his music and Gretchen needs to hire a lawyer to help her reach an agreement with Randall, then what price is Gretchen willing to pay the lawyer?
less than $220
as a result of a decrease in price
new buyers enter the market, increasing consumer surplus
If the government removes $2 tax in buyers of cigars and imposes and the same $2 tax on sellers of cigars, then the price paid by. buyers will
not change, and the price received by sellers will not change
If the government removes a $1 tax on sellers of gasoline and imposes the same $1 tax on buyers of gasoline, then the price paid by buyers will
not change, and the price received by sellers will not change.
The Ogallala aquifer is a large underground pool of fresh water under several western states in the United States. Any farmer with land above the aquifer can at present pump water out of it. We might expect that
over time, the aquifer is likely to be overused.
A good is excludable if
people can be prevented from using it.
a corrective tax
places a price on the right to pollute
Research into new technologies provides a
positive externality, and too few resources are devoted to research as a result.
The minimum wage is an example of a
price floor
According to the Coase theorem, private markets will solve externality problems and allocate resources efficiently as long as
private parties can bargain with sufficiently low transaction costs.
Markets do not ensure that the air we breathe is clean because
property rights are not well established for clean air.
Uf a tax is levied on the sellers of a product, then the supply curve will
shift up
Education is heavily subsidized through public schools and government scholarships. This subsidization of education reflects the fact that
the social value of education exceeds the private value of education
Economists typically measure efficiency using
total surplus
Total surplus in a market is equal to
value to buyers - costs of sellers.
