Econ exam 2

ou buy a pair of sunglasses from a manufacturer for $55. You would have been willing to pay $65 for them. It cost the manufacturer $15 to make them. What is the manufacturer's producer surplus? $10 $15 $50 $40

$40

You make a pizza for $6 and sell it to a customer for $10. The customer would have been willing to pay $15 dollars for the pizza. What is customer's consumer surplus? $15 $9 $5 $4

$5

consumer surplus,

- The economic surplus you get from buying something. - Consumer surplus is your marginal benefit, less the price. Marginal benefit- price This reveals that total consumer surplus in a market is the area under the market demand curve and above the price, out to the quantity sold. The area of a triangle is half the base, times the height. When the demand curve is a straight line, consumer surplus is a right triangle You earn consumer surplus on all but your last purchase.

economic surplus

- measures the benefits that follow from a decision, less the costs you incur. It measures the gains generated whenever something is bought or sold. - The total benefits minus total costs flowing from a decision; it measures how much a decision has improved your well-being.

Ch. 6 For the government-run health insurance program for seniors (Medicare), you pay _____ tax on your paycheck, and your employer pays _____. 1.45%; 1.45% 1.45%; 6.2% 6.2%; 1.45% 6.2%; 6.2%

1.45%; 1.45%

equity

A measure of fairness. An outcome yields greater equity if it results in a fairer distribution of economic benefits.

binding price ceiling

A price ceiling that prevents the market from reaching the market equilibrium price, meaning that the highest price sellers can charge is set below the equilibrium price.

subsidy

A subsidy is a payment made by the government to those who make a specific choice. For example, a Pell Grant is a subsidy that the government provides to people with low incomes to help them pay for college.

ch.8 A manager of an advertising company was just assigned a new project to create a website and produce a video presentation. She must assign these tasks to her team. Alexa can write the content in four hours and edit the video presentation in three hours. Hoshi can write the content in three hours and edit the video presentation in one hour. Who should write the content, and why? Hoshi, because he has an absolute advantage in content writing. Hoshi, because he has the lowest opportunity cost, at 1/3 of a video presentation. Alexa, because she has a comparative advantage in content writing. Alexa, because she has the lowest opportunity cost, at 3/4 of a video presentation.

Alexa, because she has a comparative advantage in content writing

CH.10 Which is NOT true about the government's decisions to fund a public good? The government will provide a public good if social benefits exceed the social cost. The funding decisions depend on the good and community. The policymakers apply the cost-benefit principle for their funding decision. All communities should receive the same amount of each public good per person.

All communities should receive the same amount of each public good per person.

CH.10 Companies A and B have similar marginal costs of production, but company A has a production capability of 300 units/day while company B has a production capability of 150 units/day. Each company receives two permits. One permit allows the firms to produce 100 units/day. Under a cap-and-trade system, which would be the MOST LIKELY scenario? B buys one permit from A. B buys two permits from A. B sells 50 units to A. B sells one permit to A.

B sells one permit to A.

lead(s) to efficient production in which each item is produced at the lowest possible cost. Competitive markets Government intervention Externalities Equity

Competitive markets

Which of these BEST describes the effect of externalities on the economy? Externalities have no impact on market forces. Externalities always impede market forces. Externalities always assist market forces. Externalities can assist or impede market forces.

Externalities can assist or impede market forces.

ch.8 Caymon and Mary want to find out who has a comparative advantage in cutting the grass. Caymon spends five hours cutting the grass and four hours planting the garden. Mary spends three hours cutting the grass and three hours planting the garden. Who has the comparative advantage in cutting the grass and what is their opportunity cost? Caymon; 5/4 Mary; 3 Caymon; 4/5 Mary; 1

Mary; 1

What kind of cooperation is required in competitive markets for there to be efficient production? Cooperation is needed between buyer and seller. No cooperation is required. Cooperation is needed among sellers. Cooperation is needed among buyers.

No cooperation is required.

ch.8 Ofira and Firuze want to find out who has the lowest opportunity cost of cooking a meal. Ofira spends two hours cooking a meal and one hour cleaning the kitchen. Firuze finishes cooking a meal in two hours and spends two hours cleaning the kitchen. What is the opportunity cost for Ofira and Firuze of cooking a meal? Ofira: 1/2 round of cleaning the kitchen; Firuze: 1 round of cleaning the kitchen Ofira: 1 round of cleaning the kitchen; Firuze: 1 round of cleaning the kitchen Ofira: 2 rounds of cleaning the kitchen; Firuze: 1 round of cleaning the kitchen Ofira: 1 round of cleaning the kitchen; Firuze: 1/2 round of cleaning the kitchen

Ofira: 2 rounds of cleaning the kitchen; Firuze: 1 round of cleaning the kitchen

ch.9 Globalization is transforming the available opportunities and extending them across national borders. Which of these has NOT contributed to this phenomenon? Trade barriers have fallen. Transportation has improved. Opportunity costs have risen. Electronic networks make communication easier.

Opportunity costs have risen.

Efficient production

Producing a given quantity of output at the lowest possible cost, which requires producing each good at the lowest marginal cost.

ch.9 The price of a shirt in the United States is $18. The world price for a shirt is $12. What happens if the government imposes a $4 tariff on shirts in the U.S. market? The price of shirts falls to $12. The price of shirts rises to $18. The price of shirts falls to $14. The price of shirts rises to $16.

The price of shirts rises to $16.

ch.9 Why is there almost no international trade in medical services, and no international trade in houses? Their trade costs are prohibitively expensive, and it is nearly impossible to transport a house. People only consider price and out-of-pocket expenses for these products and services. Their opportunity costs from overseas are relatively lower than our domestic prices. They have low trade costs, and it is virtually impossible to transport a house.

Their trade costs are prohibitively expensive, and it is nearly impossible to transport a house.

ch.10 An externality is: anything that is external or not relevant to the production of a good or service. a cost paid for by the producer of a good or service. a benefit or cost experienced by someone who is not a producer or consumer of a good or service. a benefit realized by the purchaser of a good or service.

a benefit or cost experienced by someone who is not a producer or consumer of a good or service.

ch.8 Buying a book from a friend that you want and selling her a board game that you don't want is: when you can produce something with fewer opportunity costs than someone else. a transaction where your friend receives a board game from you and you receive a book from your friend without paying for the items. a gain from trade. absolute advantage.

a gain from trade.

ch.9 International Trade is based on _____. a trade cost the world price a lower opportunity cost a higher opportunity cost

a lower opportunity cost

ch.8 As two housemates divide chores between them, they have to decide who should sweep the floor and who should mow the lawn. In this case, the opportunity cost of sweeping the floor is the _____. amount of the house that could have otherwise been swept amount of lawn that could have otherwise been mowed number of hours spent sweeping the floor number of hours spent mowing the lawn

amount of lawn that could have otherwise been mowed

ch.10 Normal wear and tear on roads while driving is _____ because it involves side effects on bystanders whose interests aren't fully taken into account. an externality in society's best interest a market failure deadweight loss

an externality

On a graph of marginal benefit and price, the area _____ represents consumer surplus. below marginal benefit and above price below both marginal benefit and price above marginal benefit and below price above both marginal benefit and price

below marginal benefit and above price

ch.10 The owners of Jamal's Diner have lobbied their city council for lower business taxes on small businesses. The ordinance was finally passed, and several other businesses, including SuperSudz Car Wash a few blocks away, also saw their city tax burden lowered. The owners of Jamal's Diner were participants in the action and received a _____ from the tax cuts. The owners of SuperSudz Car Wash were not participants in the lobbying effort and received a _____ from the tax cuts. positive externality; negative externality positive externality; positive externality benefit; negative externality benefit; positive externality

benefit; positive externality

ch.9 "Fair-trade" advocates claim fair trade would yield_____, though at the cost of higher prices in the United States. -better trading deals and more trade agreements for the United States -higher quantities of exported goods from foreign countries -better working conditions and higher incomes for foreign workers -stronger international relationships among trading partners

better working conditions and higher incomes for foreign workers

ch.8 Many buyers use futures contracts to agree to purchase a commodity at a specific time in the future. A futures contract will allow: businesses to obtain useful information about possible future disruptions to input costs. businesses to use opportunity costs to calculate their absolute advantage. businesses to buy and sell commodities in the internal markets. businesses to fully eliminate risk.

businesses to obtain useful information about possible future disruptions to input costs.

ch.8 South American chicken farmers no longer feed their livestock quinoa, and substitute quinoa with cheaper grains instead. These farmers conserve quinoa because the high price is an incentive for: sellers to decrease the quantity supplied. producers to stop production altogether. buyers to increase the quantity demanded. buyers to decrease the quantity demanded.

buyers to decrease the quantity demanded.

Ch. 6 Taxi fares, which are often set by the local government, are a form of price ceiling floor elasticity of supply elasticity of demand

ceiling

ch.8 The three-step recipe allows you to determine who has the _____ in a task by determining how long it takes each person to complete a task, determining the opportunity cost of each person, and by evaluating who has the lowest opportunity cost of the required task. comparative advantage absolute advantage lower fixed costs lower total costs

comparative advantage

In order to cut costs, a factory dumps chemical waste into a nearby river instead of disposing of it properly. This is an example of an _____ that leads to market failure. irrationality private information externality market power

externality

Ch. 6 Price ceilings on prescription drugs in Canada result in: fewer new drugs being available in Canada. more new drugs being available in Canada. fewer generic drugs being available in Canada. more generic drugs being available in Canada.

fewer new drugs being available in Canada.

ch.10 Positive externalities create the _____ problem when people cannot be excluded from using something. nonexcludable Coase Theorem excludable free-rider

free-rider

ch.10 The externality issue that arises when someone can enjoy the benefits of a good or service without paying for it is known as the _____. free-rider problem Coase Theorem tragedy of the commons marginal social cost

free-rider problem

ch.10 All these examples have negative externalities, EXCEPT: having an outdoor party at your house. getting a flu shot. smoking outside a restaurant. driving a big SUV instead of a smaller hatchback.

getting a flu shot.

ch.10 Marginal social benefits are _____ marginal private benefits. always equal to less than greater than greater than or equal to

greater than or equal to

ch.9 Fair trade would yield better working conditions and better income for foreign workers, which would lead to _____ prices and _____ in the United States. higher; lower quantity demanded lower; higher quantity demanded higher; lower quantity supplied lower; higher quantity supplied

higher; lower quantity demanded

Two firms have marginal costs of $3.75 and $4.05. The marginal benefit to consumers is $5.65. To increase economic surplus, the firms should _____ production, and the firm with the marginal cost of _____ will see a greater change in marginal cost. decrease; $4.05 decrease; $3.75 increase; $4.05 increase; $3.75

increase; $3.75

Enthusiastic to finish your college education, you sign up for six classes for next semester. Halfway through the semester, you realize that you really only had time to invest in four of the classes. This is an example of _____ that lead(s) to market failure. private information market power externalities irrationality

irrationality

ch.9 The five arguments for limiting international trade that are the discussed in the chapter all argue whether or not international trade: provides sufficient income from exports. is good for the United States. increases collaboration among governments. is a part of globalization.

is good for the United States.

ch.10 Mail delivery _____ a public good because it is _____. is not; nonexcludable is not; excludable is; excludable is; nonexcludable

is not; excludable

ch.9 China imported some airplanes from the United States. In turn, the United States also imported shirts produced in China. Even though laborers in the United States and China don't directly compete with each other, their labor does compete because: laborers in the United States and China compete in the same national labor market. the United States' exported goods embody the labor of workers from China. labor is embodied in the goods that are traded between countries. China's exported goods embody the labor of workers from the United States.

labor is embodied in the goods that are traded between countries.

Ch.6 If a new tax on buyers of $0.40 per candy bar is introduced, the demand curve shifts _____ until it lies $0.40 _____, as measured on the vertical axis. left; higher left; lower right; lower right; higher

left; lower

Ch. 6 Quantity regulations for immigration quotas effectively: increase the supply of workers. limit the supply of workers. decrease the wages of workers. limit the demand for workers.

limit the supply of workers.

Ch. 6 A _____ requires you to buy or sell a minimum amount of a good. price regulation quantity regulation quota mandate

mandate

A wireless service market consists of few service providers, each with a substantial share of the market. The service providers raise the price, leading to consumers buying fewer services than the efficient quantity. This is an example of _____, which lead(s) to market failure. market power irrationality private information externalities

market power

Ch. 6 Quantity regulation is a(n) _____ quantity that can be sold. equilibrium maximum minimum or maximum minimum

minimum or maximum

Ch. 6 Many governments have set _____ for alcohol in order to _____ alcohol consumption. maximum prices; increase maximum prices; reduce minimum prices; increase minimum prices; reduce

minimum prices; reduce

Market failure

occurs when the forces of supply and demand lead to an inefficient outcome.

ch.10 The government sets a quota to solve _____ caused by _____. underproduction; negative externalities overproduction; positive externalities underproduction; positive externalities overproduction; negative externalities

overproduction; negative externalities

ch.8 In a salon, hairdressers focus on hair coloring and let their assistants do the hair washing. Allocating the washing task to assistants allows hairdressers to: perform a task in which they are less productive and hold an absolute advantage. perform a task in which they are more productive and hold a comparative advantage. perform a task in which they are less productive and hold a comparative advantage. assign higher paying tasks to their assistants.

perform a task in which they are more productive and hold a comparative advantage.

ch.10 Goods that have _____ externalities could run the risk of being overconsumed by _____. positive; market participants negative; bystanders negative; market participants positive; bystanders

positive; bystanders

You are looking to buy a new house and your realtor takes you to a house that seems so nice that you wonder why it doesn't cost more. Worried that there may be hidden issues with the house that only the seller is aware of, you decline to purchase the house. This is an example of the _____ that lead(s) to the market failure. market power externalities private information irrationality

private information

ch.9 A counter argument for _____ is that sometimes trade limitations actually undermine this. For example, limiting exports of encryption software actually helped foreign competitors develop encryption technology, by reducing the competition from superior U.S. products. preventing unfair competition saving jobs protecting national security enforcing minimum standards

protecting national security

ch.10 Which displays these two characteristics: nonrivalry and non-excludability in consumption? private goods public goods quasi-public goods common resources

public goods

Ch. 6 A _____ requires you to buy or sell a maximum amount of good. price regulation quantity regulation quota mandate

quota

Ch. 6 Governments typically set minimum wages in order to _____ the wages received by the lowest-wage workers. The fact that the quantity _____ declines is an undesirable side effect. reduce; supplied reduce; demanded raise; supplied raise; demanded

raise; demanded

ch.9 As trade costs fall, foreign demand for U.S. software will increase. In this case, globalization _____ workers in the United States. reduces the incomes of low‐skilled raises the incomes of high‐skilled reduces the incomes of high‐skilled raises the incomes of low‐skilled

raises the incomes of high‐skilled As trade costs fall, foreign demand for these goods increases. This also increases the demand for workers who can perform this skill-intensive work. Consequently, globalization has raised the incomes of highly educated workers in the United States, because it increased the demand for the goods and services they create.

ch.10 Speed limits are laws designed to _____, or to _____. reduce negative externalities; lower the danger toward other motorists reduce positive externalities; lower the danger toward other motorists increase negative externalities; increase the safety of motorists increase positive externalities; increase the safety of motorists

reduce negative externalities; lower the danger toward other motorists

ch.8 When quinoa became popular, the _____ in demand led the _____ of quinoa to more than triple in just a few years. sharp decrease; price sharp decrease; gains from trade sharp increase; gains from trade sharp increase; price

sharp increase; price

ch.8 Because Helen is slower in performing all the household chores than her roommate Jamie, Helen asks Jamie to do all the chores. Helen says that it is more efficient to give tasks to those who are best at them. However, Helen's conclusion is dead wrong for economists because: she's focusing too much on the lowest opportunity cost. she's not thinking about costs in the way an economist would. she is seeking to gain from trade. she's considering the comparative advantage.

she's not thinking about costs in the way an economist would.

ch.10 An example of a public good would be: college classes. street lights. movie tickets. home electricity.

street lights.

Ch. 6 A(n) _____ is a payment made by the government to those who make a specific choice. economic burden subsidy tax incidence statutory burden

subsidy

Consumer surplus is important because it: helps you avoid the market failures. tells you the benefits you get from buying something. helps you determine how to fairly distribute the economic benefits. helps you determine the efficient quantity.

tells you the benefits you get from buying something.

ch.9 The U.S. trade policy has been different from what it was over a century ago. The average tariff charged on imports into the United States: tends to decrease over time. tends to increase over time. has been stable most of the time. currently has no tariff.

tends to decrease over time.

ch.9 Ikea sells millions of Billy bookcases each year to buyers all around the world. It sells so many of them because the Billy bookcase is a deal. When you're producing millions of bookcases, you can invest in creating highly specialized production lines that are much more efficient. This virtuous cycle arises because of _____. opportunity costs specialized skills abundance of natural resources the benefits of mass production

the benefits of mass production

ch.10 Laws, rules, and regulations can be used to remove the externalities in all the following situations, EXCEPT: the government charging a cigarette tax of around $2.50 per pack. school rules that require students to be up-to-date on their vaccines. the law that makes unsolicited "spam" calls to your cell phone illegal. laws banning smoking in public places.

the government charging a cigarette tax of around $2.50 per pack.

In a well-functioning market, the supply curve is also _____ and the demand curve is also _____ the marginal cost curve; the marginal benefit curve the marginal benefit curve; the marginal cost curve the marginal cost curve; price the marginal benefit curve; price

the marginal cost curve; the marginal benefit curve

ch.10 When goods are rival and it's easy to exclude people who don't pay, _____. there is a positive externality the government tends to provide these types of goods this leads to a free-rider problem there is no free-rider problem

there is no free-rider problem

ch.10 An example of a rival good would be: tickets to a concert. a movie at a city park. flowers planted on the roadside. cable television.

tickets to a concert.

Which of these is NOT one of the sources of market failure? too much competition government regulations lack of information externalities

too much competition

ch.9 An economist mentions that "if we can import apples at a lower price, we can bake a bigger apple pie; this is the beauty of international trade." This economist believes that: trade is about business. the magic of voluntary exchange is to make cheaper goods. trade reallocates tasks so that they're done more efficiently. trade is disruptive in the long run.

trade reallocates tasks so that they're done more efficiently

ch.10 Because free-riders are bystanders who receive benefits from goods, these types of goods tend to be overproduced. less expensive for the free-riders. underproduced. more expensive for the free-riders.

underproduced.

Markets determine who should get the products by giving the products to customers who: have the most money. create the fewest negative externalities. value the products the most. have gained the least economic surplus.

value the products the most.

When buyers and sellers exchange money for goods only if they both want to, this is known as: efficient production. voluntary exchange. equity. efficient allocation.

voluntary exchange.

voluntary exchange

Buyers and sellers exchange money for goods only if they both want to.

ch.10 Which is NOT true about the solutions to externality problems? A cap-and-trade system raises the opportunity cost of creating externalities. Regulations result in the most efficient resolution of externalities. A corrective tax raises the direct financial cost of creating externalities. Regulations can often blunt the forces of competition.

Regulations result in the most efficient resolution of externalities.

ch.9 What will happen if the world price of T-shirts is drastically above a country's domestic price? The world price will increase to the equilibrium price of the domestic market. Foreign sellers will make up the difference between domestic supply and domestic demand. The country will export T-shirts. The country will import T-shirts.

The country will export T-shirts.

ch.8 How do Chinese tea farmers learn about a rise in the popularity of tea in the West? They observe internal tea markets. They send messages about the benefits of tea. They learn that Westerners love tea products. They communicate with buyers through price.

They communicate with buyers through price.

Which of these BEST describes efficient outcomes? They always make producers better off. They always make everyone better off. They have the potential to make everyone better off, but usually don't. They always make everyone better off or everyone worse off.

They have the potential to make everyone better off, but usually don't.

ch.10 Which example does NOT involve private bargaining to internalize an externality? Google buys another internet service provider. A health insurance company pays people to exercise. Google builds high-speed wireless internet networks to reach people outside of major cities. To reduce maintenance costs, an electric company replaces overhead wires with underground wires capable of carrying the same load.

To reduce maintenance costs, an electric company replaces overhead wires with underground wires capable of carrying the same load.

ch.9 The losers when the United States institutes trade restrictions to protect an industry include: all U.S. producers of all goods and U.S. exporters. U.S. exporters. U.S. producers of goods that compete with imported goods only. U.S. consumers of imported goods, and, if other countries retaliate, U.S. exporters.

U.S. consumers of imported goods, and, if other countries retaliate, U.S. exporters.

free-rider problem

When someone can enjoy the benefits of a good without bearing the costs. - With nonrival goods, free riders enjoy positive externalities without hurting others. -When goods or services are rival and it's easy to exclude those who don't pay, there's no free-rider problem.

ch.10 Which is NOT an example of a positive externality? You spend your spare time trolling on social media. You work hard in order to earn a pay raise. You exercise regularly to stay healthy. You prepare before your study group meeting.

You spend your spare time trolling on social media.

ch.9 The Occupational Safety and Health Act (OSHA) of 1970 was passed due to the public outcry against rising injuries and death rates on the job. This is an example of _____. enforcing minimum standards helping infant industries preventing unfair competition protecting national security

enforcing minimum standards

ch.10 Private bargaining involves all of these options EXCEPT: side payments. strategic investments. mergers. corrective subsidies.

corrective subsidies.

ch.10 According to the _____ principle, private bargaining can solve externality problems when bargaining costs are low. marginal interdependence opportunity cost cost-benefit

cost-benefit

ch.10 A corrective tax can induce people to consider the external _____ of the _____ externalities they create. cost; negative cost; positive benefit; negative benefit; positive

cost; negative

ch.9 Many people worry that globalization may force U.S. wages down to the low levels seen in countries like China or India. Fortunately, wages aren't going to be equalized anytime soon, because workers in each country have: immigration policies. different productivity. trade barriers. different cultures.

different productivity.

Which concept is most relevant to the question, "Who gets what?" positive analysis producer surplus efficient production efficient allocation

efficient allocation

Which concept is most relevant to the question, "Which businesses should produce a lot, and which should produce only a little?" efficient production efficient allocation equity consumer surplus

efficient production

ch.10 According to the Coase Theorem, Private bargaining can lead to an _____ outcome _____ the need for new government intervention. efficient; with inefficient; with efficient; without inefficient; without

efficient; without

ch.9 The Fair Labor Standards Act of 1938 created a uniform minimum wage, maximum hours, child labor provisions, and created penalties for violators. This exemplifies _____. protecting national security enforcing minimum standards preventing unfair competition helping infant industries

enforcing minimum standards

economic efficiency

which says that the more economic surplus that's generated, the better the outcome.

efficient outcome

yields the largest possible economic surplus.

ch.9 Imagine that you work for Boeing, building airplanes. Each plane from your production line embodies some of your labor, so every time one of these planes is exported to China, this means that _____. you are selling some of your labor to China laborers in the United States and China directly compete with each other China's exported goods embody the labor of workers from the United States laborers in the United States and China compete in the same national labor market

you are selling some of your labor to China

quantity regulation

—a maximum or minimum quantity that can be sold.