Econ Exam 2

You are offered a free ticket to see the Chicago Cubs play the Chicago White Sox at Wrigley Field. Assume the ticket has no resale value. Willie Nelson is performing on the same night, and his concert is your next-best alternative activity. Tickets to see Willie Nelson cost $40. On any given day, you would be willing to pay up to $50 to see and hear Willie Nelson perform. Assume there are no other costs of seeing either event. Based on this information, at a minimum, how much would you have to value seeing the Cubs play the White Sox to accept the ticket and go to the game?

$10

Look at the figure below The social optimal price and quantity are:

$2.80 and 48 units, respectively

Look at the figure below: If the supply curve is S, the demand curve is D, and the equilibrium price is $100, what is the producer surplus?

$2500

Consider the town of Springfield with only three residents, Sophia, Amber, and Cedric. The three residents are trying to determine how large, in acres, they should build the public park. The following table shows each resident's willingness to pay for each acre of the park. Refer to Table 11-1. Suppose the cost to build the park is $24 per acre and that the residents have agreed to split the cost of building the park equally. If the residents vote to determine the size of park to build, basing their decision solely on their own willingness to pay (and trying to maximize their own surplus), what is the largest park size for which the majority of residents would vote "yes?"

2 acres

Government can improve market outcomes for

both public goods and common resources

If the government were to limit the release of air pollution produced by a glue factory to 75 parts per million, the policy would be considered a

command-and-control policy

The demand curve for gasoline slopes downward and the supply curve for gasoline slopes upward. The production of the 200th gallon of gasoline entails the following: -a private cost of $3.03; -a social cost of $3.23; -a value to consumer of $3.39. The production of the 200th gallon of gasoline entails an:

external cost of $0.20

On hot summer days, electricity-generating capacity is sometimes stretched to the limit. At these times, electric companies may ask people to voluntarily cut back on their use of electricity. An economist would suggest that

it would be more efficient if the electric company raised its rates for electricity at peak times

A television broadcast is an example of a good that is

not rival in consumption

A free rider is a person who

receives the benefit of a good but avoids paying for it

If a sawmill creates too much noise for local residents,

the government can raise economic well-being through noise-control regulations

Look at the figure below At Q3

the marginal consumer values this product less than the social cost of producing it

the maximum price that a buyer will pay for a good is called

willingness to pay

Two firms, A and B, each currently emit 100 tons of chemicals into the air. The government has decided to reduce the pollution and from now on will require a pollution permit for each ton of pollution emitted into the air. The government gives each firm 40 pollution permits, which it can either use or sell to the other firm. It costs Firm A $200 for each ton of pollution that it eliminates before it is emitted into the air, and it costs Firm B $100 for each ton of pollution that it eliminates before it is emitted into the air. After the two firms buy or sell pollution permits from each other, we would expect that Firm A will emit

20 fewer tons of pollution into the air, and Firm B will emit 100 fewer tons of pollution into the air

The Occupational Safety and Health Administration (OSHA) has determined that the probability of a worker dying from exposure to a hazardous chemical used in the production of fertilizer is 0.008. The cost of imposing a regulation that would ban the chemical is $31 million. If the value of a human life is equal to $8 million, how many people must the policy affect in order for the benefits to exceed the costs?

485

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

Look at the table below If the price of the product is $110, then who would be willing to purchase the product?

Calvin, Sam, and Andrew

Which of the following statement is not correct?

Corrective taxes set the maximum quantity of pollution, whereas tradable pollution permits fix the price of pollution

For each of the three potential buyers of apples, the table displays the willingness to pay for Bob, Sasha, and Ava, who are the only three buyers of apples. Assume that only three apples can be supplied per day. If the market price of an apple increases from $0.80 to $1.05, then consumer surplus

Decreases by $0.95

Look at the figure below: When the price falls from P2 to P1, producer surplus

Decreases by an amount equal to A+B

In which of the following cases is the Coase theorem most likely to solve the externality?

Ed is allergic to his roommate's cat

Erin would be willing to pay as much as $100 per week to have her house cleaned. Ernesto's opportunity cost of cleaning Erin's house is $70 per week. Assume Erin is required to pay a tax of $40 when she hires someone to clean her house for a week. Which of the following is correct?

Erin will now clean her own house

Ashlyn installed a wooden sculpture in her front yard. A positive externality arises if the sculpture

Increases the value of other properties in the neighborhood

Which of the following is usually true about government-provided goods?

People do not have to pay an explicit fee to enjoy these goods

The Pennsylvania turnpike is a tolled freeway running through the state of Pennsylvania. Motorists must pay tolls at various points along the turnpike based on the distance they traveled on the freeway. Suppose that despite the tolls, many motorists in the urban areas use the turnpike causing traffic to slow during peak times. What type of good would the turnpike be classified as in this case?

Private good

Look at the figure below: Suppose the government imposes a tax of (P1-P111). The area measured by K+L represents

Tax revenue

Which of the following is a disadvantage of government provision of a public good?

The government lacks information about the value people place on the good

Which of the following will cause a decrease in consumer surplus?

The imposition of a binding price floor in the market

What happens to the total surplus in a market when the government imposes a tax?

Total surplus decreases

Which of the following is not a typical solution to the "Tragedy of the Common?"

Turning the common resource into a club good