Econ Exam 2
In South Africa, landowners are eligible for government _____ if they keep and protect endangered species
tax breaks
Most goods are:
rival in consumption
If the social benefit is greater than the private benefit in a particular market, then the socially optimal equilibrium will be at a quantity:
greater than the private level.
Which of the following goods is most likely to be overconsumed?
fish in the ocean
Which do you expect to be more sustainable? This outcome is best explained by the following economic concept
Grazing on privately owned pastures. The tragedy of the commons
Tolls that drivers pay to use toll roads, the fares that riders pay on buses and trains, and the tuition that students pay at public universities are examples of the government making a good
excludable
An effective price _____, which is below the equilibrium price, means _____ producers will be willing to sell the good but _____ buyers will be willing to buy.
ceiling fewer more
As compared to countries with similar incomes, intergenerational income mobility in the United States is relatively _____ This means that it takes ____ generations before your ancestors' place in the income distribution to cease to have any predictive power for what your own will be.
low relatively many
For _____ goods, income elasticity is positive.
normal luxury necessity
Which of the following countries has lower income mobility than the United States?
United Kingdom
Fish in the ocean would be considered:
a common resource
One of the difficulties of the government privatizing a common resource is:
compounded the more users there are. deciding which individuals will have to decrease their consumption. figuring out who owns what when many are using the resource. all of these are true
The effect that discrimination has on people's earnings and opportunities is: If people of different sexes or races earn, on average, different amounts of money:
difficult to measure there may be a number of explanations
Bans are applied to:
situations where the optimal quantity of consumption is zero. reduce the inefficiency created by overuse. common-resource problems. All of these statements are true.
Examples of public policy that can use subsidies to solve an externality problem include:
vaccinations education anti-virus software
Some economists have studied the effects of "lookism," or discrimination based on how attractive a person is. Which of the following are positions where the market might encourage lookism?
automobile sales airplane cabin crew hotel and hospitality
Means tested government programs:
define eligibility for benefits based on recipients' income.
When government corrects a market with an externality present by allowing participants to buy up to the point where their net benefit is zero, they must be:
imposing a tax.
When supply and demand are relatively elastic, and a tax is added to the price of the good, the change in quantity is much:
larger than when supply and demand are relatively inelastic
Which of the following statements explains why it is so difficult for private markets to provide the optimal quantity of a public good? Which of the following statements explains why it is so difficult for governments to provide the optimal quantity of a public good?
The efficient price of a public good is zero (free). The marginal benefit of each individual user must be known, and it is often overstated by individuals.
Which of the following concepts are particularly useful in evaluating the costs and benefits of alternative types of taxes?
efficiency revenue incidence
Felix and Oscar are roommates. Oscar is messy and Felix plans to move out unless they can come to an agreement. The roommates can only reach a private solution if Oscar compensates Felix for being messy.
false
Which of the following is not an example of a public good that the government has made excludable?
fire protection
The total amount of surplus lost due to taxation is:
greater than the amount of revenue generated.
Suppose Colombia maintains a price floor for coffee beans. If the price floor encourages new growers to enter the market and produce coffee, the size of the deadweight loss would:
increase because the supply curve would shift right, and the equilibrium price would fall even lower than the original equilibrium price.
If income increases by 4 percent and the quantity demanded of a good then decreases by 8 percent, the good is:
inferior and income-elastic.
If price elasticity of supply is 1.3 and price increases by 2 percent, quantity supplied will _____ by ______
increase >2 percent
Anti-poverty programs
often involve trade-offs between efficiency and equity
At Zooey's elementary school, children are not allowed to trade lunches or components of their lunches with other students. Lunchroom monitors watch closely and strictly enforce this policy. If Zooey prepares an argument about the inefficiency of this policy to her principal, she can say that the school policy is:
preventing a market that would generate mutually beneficial trades.
If a price floor of $23 were placed on the market in the graph shown, which area represents the surplus that is transferred from consumers to producers?
B
Deficits and surpluses are commonly calculated as:
a percentage of national GDP.
Traffic lights would be considered:
a public good
In general, increasing price above the market equilibrium price will ____ consumer surplus and _____ prodcuer surplus. Total surplus will _____ Reducing price below market equilibrium will _____ consumer surplus and _____ producer surplus. Total surplus will _____. Thus regulators _____ Correctincrease benefits to one group or the other, but the market _____ be efficient.
decrease, increase, decrease increase, decrease, decrease can, will not
For any given tax, the revenue generated is:
smaller in markets with price-elastic demand and supply.
An absolute poverty line is usually set based on:
the cost of certain essential goods.
The Lorenz curve maps:
the cumulative percentage of the population against the cumulative percentage of income earned by those people.
A network externality is:
the effect that an additional user of a good or participant in an activity has on the value of that good or activity for others.
Lump-sum taxes reduce the total amount of revenue that can be raised because:
the size of the tax is limited by the poorest citizens' ability to pay.
Which of the following has a more elastic demand in the short run? a. Pomegranate juice or drinking water: b. Cereal or Rice Krispies cereal: c. Speedboats or gourmet chocolate:
a. pomegranate juice b. rice krispies c. Speedboats
For each of the following pairs, predict whether the cross-price elasticity of demand will be positive or negative: a. soap and hand sanitizer b. CDs and MP3s c. Sheets and pillowcases
a. positive b. positive c. negative
If it's possible to eliminate the problems created by externalities, why do they persist?
It is difficult to measure external benefits and costs.
The type of good that is most likely to be subject to market failure is:
a public good
Which of the following has a more elastic supply in the short run? a. Hospitals or mobile clinics: b. Purebred dogs or mixed-breed dogs: c. On-campus courses or online courses:
a. mobile clinics b. mixed-breed dogs c. Online courses
Deadweight loss is minimized when a tax is levied on something for which people:
are not likely to change their behavior much in response to a price change
A tax on sellers:
causes equilibrium price to increase and equilibrium quantity to decrease.
Elasticity along a demand curve:
changes when the demand curve is linear.
Community-wide poverty:
creates problems beyond those faced by poor individuals living in wealthier communities.
Which of the following statements explain(s) why the government may need to subsidize loans for a college education?
- individuals are unable to offer up collateral for a student loan - students from low-income families often cannot borrow from their parents
You would expect ____ to be more likely to give up their seat on a bus to an elderly person.
locals
Which of the following could cause there to be a missing market?
Lack of information Public policy that prevents a market from existing The lack of technology needed to make exchanges Inability of buyers and sellers to communicate All of these could create missing markets
With reference to the graph above, if the intended aim of the price ceiling set at $6 was a net increase in the well-being of consumers, then positive analysis would consider:
whether the surplus transferred from producers to consumers is larger than the consumer surplus lost to deadweight loss
The market to buy and sell organs:
would increase the well-being of those who interacted in it.
In much of the United States and Canada, logging takes place in both privately owned and government-owned forests. a. Privately owned forests are: b. Suppose that anyone is legally allowed to enter a government-owned forest and start logging. These forests are: c. The rate of logging in a government-owned forest would be _____ the efficient level.
a. private, rival, and excludable. b. common resources c. faster than
When the price is artificially low and some transactions no longer take place:
consumer surplus may rise or fall producer surplus falls
The factors that determine the price elasticity of demand include:
relative need and relative cost time needed to adjust to price changes availability of substitutes
In considering the decision to adopt a dog, indicate which of the following is an example of a private cost, a private benefit, an external cost, and an external benefit that may result from the decision: The food for the dog is a _____ The dog discouraging intruders and trespassers from the neighborhood is The enjoyment from a new companion is Barking disturbing the neighbors' sleep is
a private costs an external benefit a private benefit an external cost
Consider a policy to help struggling farmers by setting a minimum trade price for wheat. Which of the following statements is true?
Some farmers would gain surplus at a higher price but fewer trades would occur and some farmers will be unable to trade.
If a good has an income elasticity of 1.83, then it:
is a luxury
The city of Seattle limits each household to one can of free garbage collection per week. There are fees for any extra garbage collected from the curb. This type of quota policy is a ______ efficient way of reducing waste than charging a set price per can because:
less the marginal benefit of having a can of garbage collected varies among households.
An automobile manufacturing plant is likely to have a ______________ price elasticity of supply than a bread bakery due to _________________.
less elastic; a less flexible production process
Many people are concerned about the rising price of gasoline. Suppose that government officials are thinking of capping the price of gasoline below its current price. Which of the following outcomes do you predict will result from this policy?
quantity demanded for gasoline will increase. Long lines will develop at gas stations
Bob got laid off six months ago. He used to go to the movies once a month, but he's only been twice because he lost his job. This type of behavior can be measured using:
the income elasticity of demand.
You have noticed that the price of tickets to your university's basketball games keeps increasing but the supply of tickets remains the same. Supply might be unresponsive to changes in price because:
there a fixed number of stadium seats.
A decrease in price:
does not cause a quantity effect when demand is perfectly inelastic.
To describe the overall benefits that sellers received in a market, we can add up:
each seller's producer surplus.
A problem that occurs when the non-excludability of a public good leads to under-supply is a:
free-rider problem
Jackie Robinson broke baseball's color barrier in 1947, which precipitated integration in all major league teams after 12 years. Which of the following statements explains how market forces might have acted to eliminate discrimination in this example?
Non-segregated teams could outperform segregated ones by taking advantage of both the talents of African-American and white players, forcing segregated teams out of the league
Government attempts to set prices below market equilibrium can:
reduce the total surplus in the market.
Johnston Forest in Rhode Island has a cave that houses thousands of fruit bats. Bat droppings are highly acidic and have ruined the paint on many Rhode Island cars. The flying radius of the Johnston Forest bats encompasses two towns, Johnston and Foster. The residents of Johnston collectively value bat removal at $400,000. Foster residents collectively value bat removal at $500,000. Pest control experts estimate that the cost of bat removal would be $450,000. Which of the following scenarios would lead to removal of the bats? Check all that apply.
- Foster pays Johnston $50,000 to contribute to bat removal - Foster and Johnston evenly split the cost of bat removal - Johnston contributes nothing toward bat removal
If the price elasticity of demand for used cars priced between $3,000 and $5,000 is -1.1 (using the mid-point method), what will be the percent change in quantity demanded when the price of a used car falls from $5,000 to $3,000?
55 percent
Jackie Robinson broke baseball's color barrier in 1947, which precipitated integration in all major league teams after 12 years. Which of the following statements explains how market forces might have acted to eliminate discrimination in this example?
Non-segregated teams could outperform segregated ones by taking advantage of both the talents of African-American and white players, forcing segregated teams out of the league.
Suppose that for health reasons, the government of the nation of Ironia wants to increase the amount of broccoli citizens consume. Which of the following policies could be used to achieve the goal?
a subsidy paid to shoppers who buy broccoli a subsidy paid to farmers who grow broccoli.
If those who consumed common resources were subject to a tax that was equal to the external costs that they imposed due to the negative externality created:
individuals would consume less. total surplus would be maximized for the whole society. an efficient level would be reached. All of these statements are true.
If the revenues from a Pigovian tax are not directed to those who are affected by the externality, the outcome:
is efficient and maximizes surplus.
All other things being equal, which of the following explains why taxing several goods at a modest rate is better than taxing one good at a very high rate?
When taxing one good at a very high tax rate, the deadweight loss becomes much larger in comparison to taxing many goods.
Over the last 50 years, the rich have:
become richer, and the poor have become richer, too.
The tragedy of the commons arises from the
combination of rivalry and nonexcludability.
In general, the more equitable the incidence of a tax system is the:
more complicated and less efficient is its design.
Coke and Pepsi probably have a:
more elastic cross-price elasticity of demand than do Coke and bananas.
Consider a proposal to privatize street lighting. This would ______, because street lighting is _____ Based on your answer above, street lighting suffers from a tragedy of the commons problem.
not be feasible nonexcludable false
Private goods are:
rival in consumption and excludable.
A binding price ceiling:
will cause quantity demanded to exceed quantity supplied.
Suppose you turn on the television to find an ad by a local politician accusing car dealers of making too much money off of consumers. As a remedy for this abuse, the official proposes to tax the dealers at a higher rate and reward car buyers with the proceeds of the tax. Which of the following would explain why this tax may not benefit consumers after all?
- some of the economic incidence of the tax might fall on the consumers - some of the tax revenue will go to administrative costs - the tax might cause higher car prices as some of the tax is passed on to the consumers
If the price of a good increases by 10 percent, its quantity demanded drops by 50 percent. The price elasticity of demand is:
-5.0
In an election debate, two candidates for governor are debating about whether to raise the general sales tax from 5 to 7 percent. Candidate A argues that this would increase tax revenues, enabling the state to maintain essential services. Candidate B argues that the tax would hurt retailers and consumers, slowing down the economy so much that it would decrease tax revenues too. What assumptions must the candidates be making in order to justify their position?
Candidate A assumes that the price effect would be larger than the quantity effect
Imagine a person who makes $400 per week working 40 hours per week for 45 weeks of the year. She is currently eligible for a welfare program, available to people with income equal to or less than $18,000, that gives her $800 a year. No such program is available to people with income above $18,000 per year. Her boss offers her a promotion that would increase her wage by $0.25 per hour. a. Her total income before the promotion is b. Her total income if she accepts the promotion is c. She ____ accept the promotion if she wants to have higher income.
a. $18,800 b. $18,450 c. should not
The poverty rate dropped from 84 percent in 1981 to 11.2 percent in 2010 in what country?
china
In the United States, public schools are often funded by property taxes levied on the property in surrounding areas. Which of the following statements explains how this can result in a poverty trap? Select all that apply.
- individuals must buy a higher-priced home in order to attend a school that receives more property taxes - schools in areas with cheaper housing will receive less funding
A market has four individuals, each considering buying a grill for his backyard. Assume that grills come in only one size and model. Abe considers himself a grill-master, and finds a grill a necessity, so he is willing to pay $400 for a grill. Butch is a meat-lover, honing his grilling skills, and is willing to pay $350 for a grill. Collin just met the girl of his dreams, and she loves a good grilled steak, so in his effort to impress her he is willing to pay $320 for a grill. Daniel loves grilled shrimp and thinks it might be cheaper in the long run if he buys a grill instead of eating out every time he wants grilled shrimp, so he is willing to pay $200 for a grill. If the market price of grills increases from $300 to $325, given the scenario described:
Collin would drop out of the market
The U.S. government is concerned about the huge numbers of people converging on Yellowstone National Park every year. Government officials are worried that the park might be getting overused and the natural beauty will be ruined as a result. Suppose someone suggests dividing the park into private lots and selling them to individuals. Which of the following statements correctly describes how this solution might address the tragedy of the commons that is occurring?
Each land owner would have to bear all of the costs and benefits of their choices about how many people to allow on the land each year.
Are the workings of the free market likely to encourage or discourage discrimination in the following examples? a. The musical director of a symphony orchestra that records but never performs in front of an audience refuses to hire female musicians. b. b. In apartheid South Africa (where racial discrimination was legal and popular among white voters for many decades), a white business owner refuses to hire black candidates to work in management positions dealing with white customers. c. In a Martian culture in which blue hair is considered the most beautiful, a Martian modeling agency preferentially hires blue-haired models.
a. The workings of the free market are likely to discourage discrimination b. The workings of the free market are likely to encourage discrimination c. The workings of the free market are likely to encourage discrimination
Suppose there has been a long-standing price ceiling on housing in your city. Recently, population has declined and demand for housing has decreased. The decrease in demand could cause the efficiency of the price ceiling to:
become non-binding so there would be no shortage or deadweight loss.
The government of India has made killing Bengal tigers illegal, but poaching continues. In the list below, indicate which statements are possible reasons as to why the ban hasn't been more successful:
enforcement of the poaching law is weak the potential profit from illegal poaching outweighs the risk of being caught the punishment for breaking the law is not very severe
Dead-weight loss is the total surplus at the market equilibrium before the intervention ____ the total surplus after a market intervention.
minus
Mathematically, price elasticity of demand is the percentage change in the:
quantity demanded of a good divided by the percentage change in the price of the good
One reason governments impose taxes is to:
raise government revenues
Suppose the demand for coffee went from 12 million cups at $2 to 15 million cups at $1.50. Using the mid-point formula, the price elasticity of demand is approximately
-0.78
If price elasticity of demand is -1.5 and price increases by 3 percent, quantity demanded will _____ by _______
decrease >3 percent
If companies that were creating pollution had to pay the social cost of production, they would want to supply:
less at any given price.
Situations in which the assumption of efficient, competitive markets fails to hold are called:
market failures
In economics, the concept of surplus:
measures the benefit that people receive when they buy something for less than they would have been willing to pay. measures the benefit that people receive when they sell something for more than they would have been willing to accept. is the best way to look at the benefits people receive from successful transactions. All are correct.
Assume there are three hardware stores, each willing to sell one standard model hammer in a given time period. House Depot can offer their hammer for a minimum of $7. Lace Hardware can offer the hammer for a minimum of $10. Bob's Hardware store can offer the hammer at a minimum price of $13. Given the scenario described, if the market price of hammers increased from $9 to $13:
producer surplus would remain unchanged for Bob's Hardware.
Assume a market has an equilibrium price of $5. If the market price is set at $9, producer surplus:
rises for some producers because of the increased price. decreases for some producers because of fewer transactions taking place
Which of the following are types of public policy approaches related to poverty and inequality?
safety nets redistribution of resources economic development
A three-person town is considering a fireworks display. Jonathan is willing to pay $100 to see the fireworks; Marian is willing to pay $30; and Sam is willing to pay $20. The cost of the fireworks is $120. To maximize efficiency, the town ______ have a fireworks display. Will any one citizen provide the fireworks on his or her own? Suppose the town decides to put the matter to a vote. If at least two people vote in favor of the fireworks display, each person will be taxed $40 and the fireworks display will be held. How many people will vote in favor of the fireworks display?
should No 1
Consider the case of a good with external benefits. If you plant trees in front of your house, the neighborhood is more attractive, and trees create shade, provide oxygen, and a home for birds and squirrels. Thus, the benefits to society are greater than the benefits to you. If the planting of trees is a private choice, you will plant _____ trees relative to the socially optimal quantity, because the private value to you is _____ the social value. Which of the following would help to correct this problem?
too few less than Subsidize the planting of trees.
The Organization for the Promotion of Brussels Sprouts has convinced the government of Ironia to institute a price floor on the sale of Brussels sprouts, at $8 per bushel. Demand is given by: P = 9 - Qand supply by:P = 2Q,where Q is measured in thousands of bushels.
a. At market equilibrium, the price is $6 per bushel, and the equilibrium quantity is 3 thousand bushels b. With the price floor, the price is $8 per bushel, and the quantity sold is 1 thousand bushels. c. The excess supply of Brussels sprouts produced with the price floor is 3 thousand bushels.
A subsidy will increase consumer and producer surplus in a market and will increase the quantity of trades. A subsidy (such as a subsidy for producing corn in the United States) can be considered inefficient because a subsidy results in a quantity:
higher than the market equilibrium quantity where the cost of supplying that unit exceeds the willingness to pay.
Taxes result in a lower equilibrium quantity of the good or service being consumed.
true
Suppose that the government imposes a $10 tax on sellers of Humbugs. The pre-tax price of Humbugs was $50. If, at the original equilibrium price, the elasticity of demand was -2 and the elasticity of supply was 1.5, which of the following is true? Now suppose that the elasticity of demand was 0, and the elasticity of supply was 1.5. Which of the following is true?
Sellers will pay relatively more of the tax than buyers. buyers will pay all of the tax the price of Humbugs will rise to $60 the quantity of Humbugs demanded will not change
It is sometimes argued that increases in gasoline prices act as an "income" tax on consumers in the short run. That is, consumers pay more for gasoline but do not change their consumption, and thus they simply have less money to spend on other goods. Which of the following best explains why this occurs? In the long run:
The demand for gasoline is very inelastic in the short run. demand will be more elastic, and consumers will buy less gas.
In comparing a flat tax on all income or a property tax that is charged based on the assessed value of real estate, which of the following is the most likely finding in terms of both deadweight loss and administrative costs (assuming that the price elasticity of income is higher than the price elasticity of property ownership)?
The flat tax on income will mean less administrative cost but more deadweight loss.
The price elasticity ofdemand for insulin is:
likely to be perfectly inelastic over some range of prices.
Free riders enjoy:
positive externalities from others' choices to pay for a good.
As tax rates get higher, at some point, taxes can get so high that the _____ effect dominates the _____ effect, and raising taxes further will _____ total revenue.
quantity price decrease
Bans and quotas ___________ in situations where it is difficult or costly for authorities to monitor and punish rule-breakers.
rarely succeed
There is a road between the suburbs and downtown. The road becomes congested at rush hour. As long as fewer than 100 people use the road at rush hour, the trip takes 30 minutes. When the 101st person enters the road, everyone has to slow down and the trip now takes 31 minutes. People value their time at $6 per hour (i.e., $0.10 per minute) and so a 30 minute trip costs $3.
a. The private cost of one of the 100 individuals using the road is $3.00. The private cost. The total private cost of 100 people using the road is $ 300.00. The total social cost of 100 people using the road is $ 300.00 b. The total social cost of 101 people using the road is $ 313.10. The private cost of using the road for the 101st individual is $ 3.10. The external social cost of the 101st person using the road is $ 10.00
Suppose a market is initially in equilibrium and supply increases. The consumer surplus will:
be higher since the price is lower and equilibrium moves down along the demand curve.
An effective milk price ____ that is above the equilibrium price means ____ producers will be willing to sell milk, but_____ buyers will be willing to buy milk.
floor more fewer
Rent control creates deadweight loss for both consumers and suppliers of housing. Consumers are often in favor of this policy because:
they think they will be able to find an apartment at a lower price.
With the Coase theorem, the private solution yields:
the same amount of efficiency a government solution would.
You need to paint your fence but you really hate this task. You decide to hire the kid next door to do it for you. You would be willing to pay him up to $100, but you start by offering $50, expecting to negotiate. To your great surprise, he accepts your $50 offer. When you tell your friend about the great deal you got, she is shocked that you would take advantage of someone. To assure your friend that you did not cheat the kid next door, you tell her that:
with voluntary exchange both parties are better off, and are satisfied when accepting the exchange price.
Consider a market in which the government imposes a price floor. Assume that neither supply nor demand is perfectly elastic nor perfectly inelastic. Which of the following groups will always gain from a price floor? Which of the following groups will always lose from a price floor?
No group will always gain from a price floor consumers society as a whole, because total surplus will decrease
Consider the market for plane tickets to Hawaii. A bad winter in the mainland United States increases demand for tropical vacations, shifting the demand curve to the right. The supply curve stays constant. Total surplus will:
increase because both consumer and producer surplus increase.
Suppose that the government imposes a $10 tax on sellers of Humbugs. The pre-tax price of Humbugs was $50. If, at the original equilibrium price, the elasticity of demand was -2 and the elasticity of supply was 1.5, which of the following is true? Now suppose that the elasticity of demand was 0, and the elasticity of supply was 1.5. Which of the following is true?
Sellers will pay relatively more of the tax than buyers. buyers will pay all of the tax the Price of Humbugs will rise by $60 The quantity of Humbugs demanded will not change
You are working as a private math tutor to raise money during spring break. The price elasticity of demand for math tutoring might be elastic because: The price elasticity of demand for math tutoring might be inelastic because:
the break provides students with more time to look for a substitute tutor. students may need to use the limited break time to catch up on work.
If the price of a good is less than a buyer's willingness to pay:
the buyer will purchase the good because because the opportunity cost of buying the good is less than the benefit from consuming the good.
Consider a market in which the government imposes a price ceiling. Assume that neither supply nor demand is perfectly elastic nor perfectly inelastic. Which of the following groups will always gain from a price ceiling? Which of the following groups will always lose from a price ceiling?
no group will always gain from a price ceiling producers society as a whole, because total surplus will decrease
External costs are those costs:
that are imposed without compensation on someone other than the person who caused them.
Progressive taxation serves which of the following goals of economic welfare policy?
Redistribution of wealth
If price increases by 10 percent and quantity demanded decreases by 12 percent, demand is
elastic
Imagine a person who makes $400 per week working 40 hours per week for 50 weeks of the year. She is currently eligible for a welfare program, available to people with income equal to or less than $20,000, that gives her $800 a year. No such program is available to people with income above $20,000 per year. Her boss offers her a promotion that would increase her wage by 25 cents per hour. a. Her total income before the promotion is b. b. Her total income if she accepts the promotion is c. She ____ accept the promotion if she wants to have higher income.
a. $20,800 b. $20,500 c. should not
If the price of a haircut is $10, the number of haircuts provided is 200. If the price rises to $15 per haircut, barbers will work much longer hours, and the supply of haircuts will increase to 250. The price elasticity of supply for haircuts between $10 and $15 using the mid-point method is
0.56
The graph shown portrays a subsidy to buyers. Before the subsidy is put in place, the producers sold _____ units and received _____ for each of them
100; $30
Suppose that when the price of peanut butter rises from $2 to $3 per jar, the quantity of jelly purchased falls from 20 million jars to 15 million jars. The cross-price elasticity of demand between peanut butter and jelly using the mid-point method is The goods are _____
-0.71 complements
When the price of gasoline is set at $4.00, the gas station sells 1,000 gallons per week. When the price of gasoline falls to $3.80, the station sells 1,050 gallons. The price elasticity of demand is
-0.95
Bill is a professional photographer. His camera is broken and he needs a new one within the next hour or he will miss an important deadline. Lisa is a high school student who doesn't have a camera but wants to get one to take pictures at her prom next month. Who can be expected to have a higher willingness to pay for a particular camera today?
Bill, because he needs the camera for work and has little time to look for alternatives
Economists think about ____ as the practice of making choices using generalizations based on observable characteristics to fill in missing information. Explanation
discrimination
Markets fail to maximize total surplus when:
individual choices impose costs or benefits on others.
When a good is excludable:
it is possible for sellers to prevent its use by those who have not paid for it.
This graph depicts a tax being imposed, causing demand to shift from D1 to D2. According to the graph shown, the tax caused:
positive government revenue and decreased consumption.
The city of Seattle limits each household to one can of free garbage collection per week. There are fees for any extra garbage collected from the curb. Suppose that a neighborhood group in Seattle organizes a group of families so that those who plan to go over their one-can garbage quota can find households that are under their quota and pay them to put out the extra trash.
this policy will increase efficiency
One cost associated with the imposition of taxes is:
deadweight loss.
If the price elasticity of demand for used cars priced between $4,000 and $6,000 is -0.9 (using the mid-point method), what will be the percent change in quantity demanded when the price of a used car falls from $6,000 to $4,000?
36.00 percent.
External costs and external benefits are collectively referred to as:
externalities
Price elasticity is a measure of how
much consumers or producers respond to a change in market price.
Supply is more elastic over long periods than over short periods because:
producers can make more adjustments in the long run than in the short run.
The more time people have to adjust to a price change:
the more elastic their demand will be.
The side of the market that is more inelastic:
will bear more of the tax burden
A tax that requires those with low incomes to pay a smaller percentage of their income than high-income earners is a:
progressive tax
The marginal social benefit is the:
sum of the marginal benefit gained by each individual user.
The Laffer curve shows the relationship between: As income tax rates rise, revenues:
tax rates and tax revenues first rise and then fall
Economists tend to see taxing an action that produces a negative externality as:
the second best solution possible but one that is attainable
Research shows programs like unemployment insurance, disability or health insurance, and job training can be effective in fighting:
transient poverty, but not chronic poverty
______ surplus is the net benefit that a consumer receives from purchasing a good or service.
consumer
Which of the following correctly states whether it is possible for two countries to have the same Gini coefficient but different distributions of income?
It is possible, as the Gini coefficient measures income inequality but not how the income is actually distributed.
Julie says, "I am willing to pay $10.00 for a pizza." Which of the following is true?
The benefit that Julie will receive from the pizza is $10.
When the government bans a good it:
is an easy, but often ineffective, solution to the nonexcludability problem.
A cyclically balanced budget: The main reason to balance a budget cyclically rather than annually is:
is balanced over the economic business cycle. to allow the government to use discretionary fiscal policies.
The government could offer a subsidy to offset a:
positive externality
Does a tax on sellers affect the supply curve?
Yes, it shifts up by the amount of the tax.
A carbon tax is an example of:
a Pigovian tax.
In each of the following examples, determine whether the price effect or the quantity effect dominates when the tax is applied.a. The government raises taxes on iPods from $10 per iPod to $20 per iPod. Prior to the tax increase, 10 million iPods were sold each year. The new equilibrium quantity is 9 million iPods. b. In response to concerns about chewing gum in schools, the government raises the tax on packs of gum from $0.20 per pack to $0.30 per pack. Before the tax increase, 50 million packs were sold each year. After the tax increase, 40 million packs are sold each year. c. Worried that Americans are addicted to coffee, the government raises the $0.05 tax on a cup of coffee to $0.10. Before the tax increase, 10 billion cups were sold each year. Afterward, 5 billion cups are sold each year.
a. the price effect dominates b. the price effect dominates c. the price and quantity effects are the same
When two goods are complements, we expect their ____ to be _____
cross-price elasticity negative
Because the U.S. poverty line is an absolute measure rather than a relative one, the official U.S. poverty rate:
fell steadily when there was economic growth that raised the incomes of low-income families.
Suppose there is an economy where 80 percent of people earn more than their parents and 40 percent end up in a different income quintile than their parents. These statistics describe which of the following in terms of the income distribution?
here is high income mobility
Is it possible for sellers to benefit more than consumers from a subsidy to buyers?
Yes, if the supply curve is relatively less elastic than the demand curve.
Governments throughout history have levied some very interesting taxes. Each of the following taxes changed citizens' behavior. Determine whether it's likely that the tax also addressed a market failure. a. The Hat Tax: Adopted by the British government, requiring every hat to bear a stamp on the inside showing it was legal. b. The "Flatulence Tax": Proposed, but ultimately not adopted, in New Zealand to help reduce methane emissions from livestock. c. The Window Tax: Levied by English King William III on the number of windows in a house, which tended to be more numerous in wealthier homes. d. The Cowardice Tax: Introduced in medieval England and applied to people who refused to defend the country at the request of the king.
a. The tax did not address a market failure b. The tax did address a market failure c. The tax did not address a market failure d. The tax did address a market failure
