Econ Exam Practice 2

*Figure 4-1 shows Arnold's demand curve for burritos. Refer to Figure 4-1. What is the total amount that Arnold is willing to pay for 3 burritos? A. $1.50 B. $6.00 C. $7.00 D. $10.00

A. $1.50 B. $6.00 C. $7.00 D. $10.00

Which of the following statements refers to rent seeking? A. "The role of the federal government in the U.S. economy grew significantly after the Great Depression. Government spending and taxes are a much greater proportion of total income today than they were in 1929." B. "The federal government should spend more money on programs that help low income citizens and less money on national defense." C. "There is an opportunity cost whenever the federal government spends tax revenue. For example, an additional $1 billion spent on national defense means there will be less revenue for highway construction and maintenance or some other program." D. "Laws passed by the federal government often provide benefits for a small number of individuals. These individuals, in turn, have an incentive to contribute to the campaigns of politicians who pass these laws."

A. "The role of the federal government in the U.S. economy grew significantly after the Great Depression. Government spending and taxes are a much greater proportion of total income today than they were in 1929." B. "The federal government should spend more money on programs that help low income citizens and less money on national defense." C. "There is an opportunity cost whenever the federal government spends tax revenue. For example, an additional $1 billion spent on national defense means there will be less revenue for highway construction and maintenance or some other program." D. "Laws passed by the federal government often provide benefits for a small number of individuals. These individuals, in turn, have an incentive to contribute to the campaigns of politicians who pass these laws."

Figure 4- 1 shows Arnold's demand curve for burritos. Refer to Figure 4 -1. Arnold's marginal benefit from consuming the second burrito is A. $1.00. B. $1.50. C. $2.00. D. $4.50.

A. $1.00. B. $1.50. C. $2.00. D. $4.50.

The figure illustrates the market for hot dogs on Big Foot Island. The producer surplus is A. $1.20 a hot dog. B. $240 an hour. C. $60 an hour. D. $180 an hour.

A. $1.20 a hot dog. B. $240 an hour. C. $60 an hour. D. $180 an hour.

Figure 4- 1 shows Arnold's demand curve for burritos. Refer to Figure 4 -1. Arnold's marginal benefit from consuming the third burrito is A. $1.25. B. $1.50. C. $2.50. D. $6.00.

A. $1.25. B. $1.50. C. $2.50. D. $6.00.

* The above figure shows the U.S. market for replacement cell phone batteries. When there is no international trade, the equilibrium price is ________ per battery and when there is international trade the equilibrium price is ________ per battery. A. $14; $12 B. $16; $14 C. $12; $14 D. $16; $12 E. $12; $16

A. $14; $12 B. $16; $14 C. $12; $14 D. $16; $12 E. $12; $16

Figure 4- 8 shows the market for beer. The government plans to impose a unit tax in this market. Refer to Figure 4 -8. How much of the tax is paid by buyers? A. the change in taxes due divided by the change in taxable income B. total taxable income divided by total taxes due C. the change in taxable income divided by the change in taxes due D. total taxes due divided by total taxable income

A. $2 B. $5 C. $7 D. $12

The figure tells us about the market for red roses. The consumer surplus is ________ a day. A. $20 B. $1,000 C. $200 D. $800

A. $20 B. $1,000 C. $200 D. $800 Formula to know: 1/2*Base*height

Figure 4- 8 shows the market for beer. The government plans to impose a unit tax in this market. Refer to Figure 4 -8. For each unit sold, the price sellers receive after the tax (net of tax) is A. $20. B. $22. C. $27. D. $32.

A. $20. B. $22. C. $27. D. $32.

A used car was recently priced at $20,000.00. Seeing the car, Bobby thought, "It's nice, but if I have to pay more than $19,500 for this car, then I would rather do without it." After negotiations, Bobby purchased the car for $19,250.00. His consumer surplus was equal to A. $250.00. B. $19,500.00. C. $1,750.00. D. $0.00.

A. $250.00. B. $19,500.00. C. $1,750.00. D. $0.00.

*Nick can purchase each milkshake for $2. For the first milkshake purchased Nick is willing to pay $4, for the second milkshake $3, for the third milkshake $2 and for the fourth milkshake $1. What is the value of Nick's consumer surplus for the milkshakes he buys? A. $3 B. $10 C. $2 D. $9

A. $3 B. $10 C. $2 D. $9

Table 4-6 Demand Supply P = 80 - Q^D P= 50 + 1/2 Q^S Q^D = 80 - P Q^S = 2P - 100 Refer to Table 4-6. The equations above describe the demand and supply for Chef Ernie's Sushi-on-a-Stick. What are the equilibrium price and quantity (in thousands) for Chef Ernie's sushi? A. $40 and 50 thousand B. $50 and 100 thousand C. $60 and 20 thousand D. $80 and 80 thousand

A. $40 and 50 thousand B. $50 and 100 thousand C. $60 and 20 thousand D. $80 and 80 thousand Steps: -Find Consumer Surplus: 1. Calculate price when Qd equals zero 2. Consumer surplus = 1/2 * (Price when Qd equals zero - Equilibrium Price) * Equilibrium quantity -Find Producer Surplus: 1. Calculate Price when quantity equals zero 2. Producer Surplus = 1/2 * (Equilibrium price - Price when quantity equals zero) * Equilibrium quantity -Find Economic Surplus 1. Economic surplus = Consumer surplus + Producer surplus = $200 million + $100 million = $300 million Thus, the value of economic surplus in this market is $300 million.

John receives a marginal benefit of $80 from one missile. Nick receives a marginal benefit of $50 from one missile. Christina receives a marginal benefit of $65 from one missile. John, Nick, and Christina are the only people in the economy. What is the economy's marginal social benefit from one missile? A. $65 B. $195 C. $80 D. $50

A. $65 B. $195 C. $80 D. $50

Figure 4-3 shows the market for tiger shrimp. The market is initially in equilibrium at a price of $15 and a quantity of 80. Now suppose producers decide to cut output to 40 in order to raise the price to $18. Refer to Figure 4-3. What is the value of producer surplus at the equilibrium price of $15? A. $80 B. $160 C. $240 D. $400

A. $80 B. $160 C. $240 D. $400 Formula to know: 0.5*(base)*(height)

Suppose there are four firms that are each willing to sell one unit of a good. Each firm has a different minimum price that they are willing to sell for: Firm A $6, Firm B $7, Firm C $10, and Firm D $12. If the market price is $11, then the total producer surplus is A. $9. B. $33. C. $10. D. $11.

A. $9. B. $33. C. $10. D. $11.

Q (Lamps) MB for Mike MB for Joe MB for Sam T 0 1 4 8 5 17 2 3 6 4 13 3 2 4 3 9 4 1 2 2 5 5 0 0 0 0 Mike, Joe, and Sam are roommates. They need lamps for their common living room. Lamps in their living room are a public good for these roommates. The marginal benefit that each individual receives from varying numbers of lamps in the living room is given in the table above. If the marginal cost of a lamp is 9, what is the efficient number of lamps for the roommates to purchase? A. 1 B. 2 C. 3 D. 4

A. 1 B. 2 C. 3 D. 4 Do a total column of Marginal Benefit

Mr. Smith pays $20,000 annually as tax. If his annual income is $100,000, what is his average tax? A. 20% B. 12% C. 5% D. 2%

A. 20% B. 12% C. 5% D. 2%

The figure above shows the market for college education. The efficient quantity of education is A. 6 million students. B. 0 students. C. 4 million students. D. more than 6 million students. E. more than 4 million students and less than 6 million students.

A. 6 million students. B. 0 students. C. 4 million students. D. more than 6 million students. E. more than 4 million students and less than 6 million students.

Refer to Figure 4 -2. What area represents the increase in producer surplus when the market price rises from P1 to P2? A. A + C + E B. A + B C. B + D D. C + E

A. A + C + E B. A + B C. B + D D. C + E

A rent ceiling results in a shortage. As a result, which of the following do you expect? A. A black market for apartments whereby higher rents are obtained through various other charges. B. Discrimination as landlords choose their tenants, possibly based on race, age, or gender. C. The shortage will persist as long as the ceiling is in effect. D. All of the above would be expected.

A. A black market for apartments whereby higher rents are obtained through various other charges. B. Discrimination as landlords choose their tenants, possibly based on race, age, or gender. C. The shortage will persist as long as the ceiling is in effect. D. All of the above would be expected.

Figure 4- 8 shows the market for beer. The government plans to impose a unit tax in this market. Refer to Figure 4 -8. As a result of the tax, is there a loss in consumer surplus? A. Yes, because consumers pay a price above the economically efficient price. B. No, because consumers are charged a lower price to cover their tax burden. C. No, because the market reaches a new equilibrium D. No, because the producer pays the tax.

A. Yes, because consumers pay a price above the economically efficient price. B. No, because consumers are charged a lower price to cover their tax burden. C. No, because the market reaches a new equilibrium D. No, because the producer pays the tax.

Which of the following statements about rent seeking is false? A. A person is engaging in rent-seeking behavior when he uses the political process to acquire ownership of a resource that belongs to the public. B. Because rent seeking redistributes society's resources, anyone engaging in such behavior is violating the law. C. Rent seeking often involves governments because governments transfer huge amounts of funds that economic agents must compete for. D. If a firm can benefit from government intervention in the economy, it is more likely to spend resources attempting to secure this intervention than toward innovating its product to gain a competitive edge in the market.

A. A person is engaging in rent-seeking behavior when he uses the political process to acquire ownership of a resource that belongs to the public. B. Because rent seeking redistributes society's resources, anyone engaging in such behavior is violating the law. C. Rent seeking often involves governments because governments transfer huge amounts of funds that economic agents must compete for. D. If a firm can benefit from government intervention in the economy, it is more likely to spend resources attempting to secure this intervention than toward innovating its product to gain a competitive edge in the market.

Consumer: Willingness to Pay: Anya $24 Basil $20 Celeste $15 Dralon $12 Esther $7 The table above lists the highest prices five consumers are willing to pay for a theater ticket. If the price of one of the tickets is $18 A. Celeste, Dralon, and Esther will receive a total of $34 of consumer surplus since they will buy no tickets. B. Basil will receive $2 of consumer surplus from buying one ticket. C. Anya and Basil will each buy two tickets. D. Anya and Basil receive a total of $26 of consumer surplus from buying one ticket each. No one else will buy a ticket.

A. Celeste, Dralon, and Esther will receive a total of $34 of consumer surplus since they will buy no tickets. B. Basil will receive $2 of consumer surplus from buying one ticket. C. Anya and Basil will each buy two tickets. D. Anya and Basil receive a total of $26 of consumer surplus from buying one ticket each. No one else will buy a ticket.

Which of the following statements is true? A. Consumer surplus measures the total benefit from participating in a market. B. Consumer surplus measures the net benefit from participating in a market. C. Producer surplus measures the total benefit received by producers from participating in a market. D. When a market is in equilibrium consumer surplus equals producer surplus.

A. Consumer surplus measures the total benefit from participating in a market. B. Consumer surplus measures the net benefit from participating in a market. C. Producer surplus measures the total benefit received by producers from participating in a market. D. When a market is in equilibrium consumer surplus equals producer surplus.

Business leaders often say that there is a "shortage" of skilled workers, and so they argue that immigrants need to be brought in to do these jobs. For example, an AP article entitled "New York farmers fear a shortage of skilled workers," pointing out that a special U.S. visa program, the H-2A program, "allows employers to hire foreign workers temporarily if they show that they were not able to find U.S. workers for the jobs." (Source: Thompson, Carolyn. May 13, 2008. N.Y. farmers fear a shortage of skilled workers Associated Press.) How do unregulated markets cure a "labor shortage" when there are no immigrants to boost the labor supply? A. Expand production. B. Contract production. C. Let the price of labor decrease. D. Let the price of labor increase.

A. Expand production. B. Contract production. C. Let the price of labor decrease. D. Let the price of labor increase.

________ is an example of a common pool resource. A. Food B. Water C. Wi-Fi D. National defense

A. Food B. Water C. Wi-Fi D. National defense

Between 2000 and 2008, the price of oil increased from $30 per barrel to $140 per barrel, and the price of gasoline in the United States rose from about $1.50 per gallon to over $4.00 per gallon. Unlike in the 1970s when oil prices spiked, there were no long lines outside gas stations. Why? A. Government intervened to enact gasoline rations. B. There was no price control on gasoline at the time. C. Government intervened to prevent lines.

A. Government intervened to enact gasoline rations. B. There was no price control on gasoline at the time. C. Government intervened to prevent lines.

Which of the following is true? A. If consumption of a good gives rise to a positive externality, it can be internalized by taxing the producers of the good. B. If consumption of a good gives rise to a negative externality, it can be internalized by subsidizing the purchase of the good. C. If production of a good gives rise to a positive externality, it can be internalized by taxing the consumers of the good. D. If production of a good gives rise to a negative externality, it can be internalized by taxing the producers of the good.

A. If consumption of a good gives rise to a positive externality, it can be internalized by taxing the producers of the good. B. If consumption of a good gives rise to a negative externality, it can be internalized by subsidizing the purchase of the good. C. If production of a good gives rise to a positive externality, it can be internalized by taxing the consumers of the good. D. If production of a good gives rise to a negative externality, it can be internalized by taxing the producers of the good.

Which of the following is FALSE about public-sector decision making? A. Incentives play a role in decision making. B. The price charged to consumers is often less than its full opportunity cost. C. Decisions are based on majority rule. D. Decisions involve no opportunity cost.

A. Incentives play a role in decision making. B. The price charged to consumers is often less than its full opportunity cost. C. Decisions are based on majority rule. D. Decisions involve no opportunity cost.

For certain public projects such as building a dam on a river or a bridge to an island, what procedure is a government likely to use to determine what quantity of a public good should be supplied? A. It evaluates the costs and benefits of producing the good. B. It hires economists to estimate the market demand for the product. C. It conducts public surveys to determine if consumers want the product. D. It takes a vote in Congress.

A. It evaluates the costs and benefits of producing the good. B. It hires economists to estimate the market demand for the product. C. It conducts public surveys to determine if consumers want the product. D. It takes a vote in Congress.

Which of the following is an example of a common resource? A. a college education B. lions in a zoo C. elephants in the wild D. public transportation

A. a college education B. lions in a zoo C. elephants in the wild D. public transportation

What is regulatory capture? A. It is a situation in which a regulatory agency uses its authority to force actions that are not favored by the regulated firms but are in the public's interest. B. It is a situation in which a policymaker seeks to improve his election prospects by aligning himself with a powerful special interest group which will finance his political campaign. C. It is the exchange of political support between a regulatory agency and the regulated firm resulting in both parties capturing economic rents. D. It is a situation in which a firm being regulated successfully influences the regulatory agency's actions to benefit the interests of the firm, rather than the public interest.

A. It is a situation in which a regulatory agency uses its authority to force actions that are not favored by the regulated firms but are in the public's interest. B. It is a situation in which a policymaker seeks to improve his election prospects by aligning himself with a powerful special interest group which will finance his political campaign. C. It is the exchange of political support between a regulatory agency and the regulated firm resulting in both parties capturing economic rents. D. It is a situation in which a firm being regulated successfully influences the regulatory agency's actions to benefit the interests of the firm, rather than the public interest.

Which of the following activities can give rise to a positive externality? A. Jogging every morning B. Getting a flu vaccination C. Consuming herbal products D. Buying a pair of gloves

A. Jogging every morning B. Getting a flu vaccination C. Consuming herbal products D. Buying a pair of gloves

New York City, which has had a rent ceiling law for more than sixty years, has many abandoned apartment buildings throughout the city. Which of the following explains this? A. Landlords have no incentive to finance maintenance and remodeling of apartment buildings. B. No building permits for new apartment buildings have been issued for over fifty years. C. Rent ceilings make the construction of new buildings so profitable that old buildings are simply abandoned. D. Once any building gets so old, it is abandoned. E. Few workers with jobs in the city want to live in there because of pollution.

A. Landlords have no incentive to finance maintenance and remodeling of apartment buildings. B. No building permits for new apartment buildings have been issued for over fifty years. C. Rent ceilings make the construction of new buildings so profitable that old buildings are simply abandoned. D. Once any building gets so old, it is abandoned. E. Few workers with jobs in the city want to live in there because of pollution.

If the quantity of fishing poles demanded is represented by the equation Q D = 60 - P then the corresponding price of fishing poles is represented by the equation A. P = 60 - QD. B. P = QD + 60. C. P = 0.6QD + 10. D. P = -60 + QD.

A. P = 60 - QD. B. P = QD + 60. C. P = 0.6QD + 10. D. P = -60 + QD.

Refer to Figure 5-7. What is the incremental cost of increasing the quantity of pollution reduction from Q B to Q E units? A. PE B. the value of the area QBBEQE C. the value of the area BEF D. PE × QE

A. PE B. the value of the area QBBEQE C. the value of the area BEF D. PE × QE

________ refers to the reduction in economic surplus resulting from not being in competitive equilibrium. A. Producer atrophy B. Marginal cost C. Economic shortage D. Deadweight loss

A. Producer atrophy B. Marginal cost C. Economic shortage D. Deadweight loss

The following figure illustrates the demand and supply curves for a good. Refer to the figure above. Which of the following is likely to happen if a price control below the equilibrium price is imposed? A. Quantity supplied will exceed quantity demanded. B. Quantity demanded will exceed quantity supplied. C. Consumer surplus will decrease. D. Producer surplus will increase.

A. Quantity supplied will exceed quantity demanded. B. Quantity demanded will exceed quantity supplied. C. Consumer surplus will decrease. D. Producer surplus will increase.

Which of the following is an example of the unfairness of rent ceilings? A. Racial discrimination in renting is discouraged by rent ceilings. B. Too many people rent apartments. C. Newcomers have a more difficult time finding apartments. D. Voluntary exchange is encouraged by rent ceilings. E. Rich people do not get apartments in these markets.

A. Racial discrimination in renting is discouraged by rent ceilings. B. Too many people rent apartments. C. Newcomers have a more difficult time finding apartments. D. Voluntary exchange is encouraged by rent ceilings. E. Rich people do not get apartments in these markets.

Which of the following exemplifies the tragedy of the commons? A. Residents on the northern coast of California receive only one public broadcasting signal which may be eliminated altogether if government funding is cut. B. The Pleasant Hill community is growing so fast that the city's only post office is not able to keep pace with the population growth in the community. C. The Malaysian tapir, distinguished for its unusual coloration, is a target for poachers who hunt it for its tough and leathery hide. D. Canadian citizens receive free universal health care administered by provincial governments.

A. Residents on the northern coast of California receive only one public broadcasting signal which may be eliminated altogether if government funding is cut. B. The Pleasant Hill community is growing so fast that the city's only post office is not able to keep pace with the population growth in the community. C. The Malaysian tapir, distinguished for its unusual coloration, is a target for poachers who hunt it for its tough and leathery hide. D. Canadian citizens receive free universal health care administered by provincial governments.

Price controls distribute resources in many unintended ways. In the following cases below, who will probably spend more time waiting in line to get scarce, price-controlled goods? Choose one from each pair: A. Retired people B. Working people

A. Retired people B. Working people

Why might a politician start a costly spending program if its costs exceed its social benefits? A. The costs cannot be measured therefore the politicians focus on the benefits which are explicit. B. The politician is trying to find ways to raise more money for the next election. C. Voters do not care about the costs of programs, as long as their taxes do not go up. D. The politician gains prestige and voters are not well informed of the benefits and costs.

A. The costs cannot be measured therefore the politicians focus on the benefits which are explicit. B. The politician is trying to find ways to raise more money for the next election. C. Voters do not care about the costs of programs, as long as their taxes do not go up. D. The politician gains prestige and voters are not well informed of the benefits and costs.

Which of the following is true if the production of a good gives rise to a positive externality? A. The demand curve for the good shifts to the left in the presence of positive externalities. B. The marginal private benefit from production exceeds the marginal social benefit. C. The demand curve for the good shifts to the right in the presence of positive externalities. D. The marginal social benefit from each level of output exceeds the consumers' willingness to pay.

A. The demand curve for the good shifts to the left in the presence of positive externalities. B. The marginal private benefit from production exceeds the marginal social benefit. C. The demand curve for the good shifts to the right in the presence of positive externalities. D. The marginal social benefit from each level of output exceeds the consumers' willingness to pay.

Which of the following leads to the demanders paying all of a tax? A. The demand is perfectly elastic. B. The demand is perfectly inelastic. C. The supply is unit elastic. D. The supply is perfectly inelastic.

A. The demand is perfectly elastic. B. The demand is perfectly inelastic. C. The supply is unit elastic. D. The supply is perfectly inelastic.

The U.S. government has frequently used a "command-and-control" approach in dealing with pollution. Which of the following describes this approach? A. The government uses subsidies to encourage firms to use new technology that reduces pollution. B. The government distributes information to consumers and producers on how to reduce pollution. C. The government imposes quantitative limits on the amount of pollution firms are allowed to generate. D. The government uses taxes in order to internalize the externalities caused by pollution.

A. The government uses subsidies to encourage firms to use new technology that reduces pollution. B. The government distributes information to consumers and producers on how to reduce pollution. C. The government imposes quantitative limits on the amount of pollution firms are allowed to generate. D. The government uses taxes in order to internalize the externalities caused by pollution.

Assume that there is rent control in Chicago. Which of the following is true? A. The total surplus will fall because there will be a shortage of apartments. B. Consumer surplus will increase and as a result all consumers in the rental market will benefit. C. All consumers in the rental market will benefit because the rent will be lower. D. The total surplus will rise because consumer surplus will increase.

A. The total surplus will fall because there will be a shortage of apartments. B. Consumer surplus will increase and as a result all consumers in the rental market will benefit. C. All consumers in the rental market will benefit because the rent will be lower. D. The total surplus will rise because consumer surplus will increase.

Table 4 -1 Consumer: Willingness to Pay: Tom $40 Dick $30 Harriet $25 Refer to Table 4 -1. The table above lists the highest prices three consumers, Tom, Dick and Harriet, are willing to pay for a short- sleeved polo shirt. If the price of one of the shirts is $28 dollars A. Tom and Dick receive a total of $70 of consumer surplus from buying one shirt each. Harriet will buy no shirts. B. Harriet will receive $25 of consumer surplus since she will buy no shirts. C. Tom will buy two shirts, Dick will buy one shirt and Harriet will buy no shirts. D. Tom will receive $12 of consumer surplus from buying one shirt.

A. Tom and Dick receive a total of $70 of consumer surplus from buying one shirt each. Harriet will buy no shirts. B. Harriet will receive $25 of consumer surplus since she will buy no shirts. C. Tom will buy two shirts, Dick will buy one shirt and Harriet will buy no shirts. D. Tom will receive $12 of consumer surplus from buying one shirt.

If the government wants to minimize the welfare loss of a tax, it should tax goods with more inelastic demands or supplies. A. True B. False

A. True B. False

The Coase Theorem asserts that government intervention is a prerequisite for addressing externality problems. A. True B. False

A. True B. False

The person or firm that pays a tax bears the burden of the tax. A. True B. False

A. True B. False

When products that create positive externalities are produced, at the market equilibrium output, the social benefit generated by consuming the product exceeds the private benefit. A. True B. False

A. True B. False

A price ceiling is a legally determined maximum price that sellers may charge. A. True B. False

A. True B. False

Suppose that the price of a bottle of soda is $2. Vonda's marginal cost of production is $1.25 for the first bottle, Galiela's marginal cost of production is $1.50 for the second bottle, Gretchen's marginal cost of production is $1.75 for the third bottle, and Matt's marginal cost of production is $2 for the fourth bottle. Which producer gets no producer surplus? A. Vonda B. Matt C. Galiela D. Gretchen

A. Vonda B. Matt C. Galiela D. Gretchen

Figure 4-3 shows the market for tiger shrimp. The market is initially in equilibrium at a price of $15 and a quantity of 80. Now suppose producers decide to cut output to 40 in order to raise the price to $18. Refer to Figure 4-3. At the equilibrium price of $15 consumers are willing to buy 80 pounds of tiger shrimp. Is this an economically efficient quantity? A. Yes, because $15 is the price where the marginal benefit is equal to the marginal cost. B. No, the marginal cost of the 80th unit exceeds the marginal benefit of the 80th unit. C. Yes, because marginal cost is zero at the 80th unit. D. No, the marginal benefit of the 80th unit exceeds the marginal cost of the 80th unit.

A. Yes, because $15 is the price where the marginal benefit is equal to the marginal cost. B. No, the marginal cost of the 80th unit exceeds the marginal benefit of the 80th unit. C. Yes, because marginal cost is zero at the 80th unit. D. No, the marginal benefit of the 80th unit exceeds the marginal cost of the 80th unit.

In the figure above, the demand curve shifts rightward from D 0 to D 1 so that D 1 is the relevant demand curve. Suppose the government imposes a rent ceiling of $300 per month. In the short run there will be A. a deadweight loss created. B. a reduction in renters' search activities. C. an increased number apartments rented. D. an elimination of a black market.

A. a deadweight loss created. B. a reduction in renters' search activities. C. an increased number apartments rented. D. an elimination of a black market.

Suppose the federal government reduced the Social Security tax on workers by 2 percentage points. This will likely cause A. a decrease in the quantity of workers employed and a decrease in deadweight loss. B. no change in the quantity of workers employed since the demand for labor is more elastic than the supply of labor. C. a decrease in the quantity of workers employed and an increase in deadweight loss. D. an increase in the quantity of workers employed and a decrease in deadweight loss. E. an increase in the quantity of workers employed and an increase in deadweight loss.

A. a decrease in the quantity of workers employed and a decrease in deadweight loss. B. no change in the quantity of workers employed since the demand for labor is more elastic than the supply of labor. C. a decrease in the quantity of workers employed and an increase in deadweight loss. D. an increase in the quantity of workers employed and a decrease in deadweight loss. E. an increase in the quantity of workers employed and an increase in deadweight loss.

An example of a common resource is A. a private beach. B. airline travel. C. college education. D. a public parking lot.

A. a private beach. B. airline travel. C. college education. D. a public parking lot.

The deadweight loss of taxation on a good is higher if ________. A. a progressive tax system is practiced B. there is only one seller in the market C. the demand or the supply of the good is relatively price elastic D. a low rate of tax is imposed on the sale of the good

A. a progressive tax system is practiced B. there is only one seller in the market C. the demand or the supply of the good is relatively price elastic D. a low rate of tax is imposed on the sale of the good

A family that earns $20,000 a year pays $200 a year in city wage taxes. A family that earns $40,000 a year pays $1,600 a year in city wage taxes. The city wage tax is A. a progressive tax. B. a regressive tax. C. a proportional tax. D. a benefits-received tax.

A. a progressive tax. B. a regressive tax. C. a proportional tax. D. a benefits-received tax.

In the figure above, the demand curve shifts rightward from D 0 to D 1 so that D 1 is the relevant demand curve. Suppose the government imposes a rent ceiling of $300 per month. In the short run there will be A. a shortage of 500,000 apartments. B. a shortage of 200,000 apartments. C. a shortage of 400,000 apartments. D. no shortage nor a surplus of apartments.

A. a shortage of 500,000 apartments. B. a shortage of 200,000 apartments. C. a shortage of 400,000 apartments. D. no shortage nor a surplus of apartments.

A rent ceiling results in a shortage. As a result, which of the following do you expect? A. a shortage of applicants for the apartments available B. a black market for apartments whereby higher rents are obtained through various other charges C. discrimination as tenants choose their landlords, possibly based on race, age, or gender D. in the long-run, more and more people will want to become landlords

A. a shortage of applicants for the apartments available B. a black market for apartments whereby higher rents are obtained through various other charges C. discrimination as tenants choose their landlords, possibly based on race, age, or gender D. in the long-run, more and more people will want to become landlords

In the figure above, the demand curve shifts rightward from D 0 to D 1 so that D 1 is the relevant demand curve. Suppose the government imposes a rent ceiling of $300 per month. In the short run there will be A. a surplus and an increase in search costs. B. a surplus and a decrease in search costs. C. a shortage and an increase in search costs. D. a shortage and a decrease in search costs.

A. a surplus and an increase in search costs. B. a surplus and a decrease in search costs. C. a shortage and an increase in search costs. D. a shortage and a decrease in search costs.

The above figure shows the demand and supply curves for housing in City B. What would be the effects of a rent ceiling equal to $1000 per month? A. a surplus equal to 250 apartments B. a shortage equal to 3000 apartments C. a surplus equal to 3000 apartments D. nothing because the rent ceiling has no effect on the equilibrium price and quantity

A. a surplus equal to 250 apartments B. a shortage equal to 3000 apartments C. a surplus equal to 3000 apartments D. nothing because the rent ceiling has no effect on the equilibrium price and quantity

Offering to pay the passenger in front of you to keep her from reclining her airplane seat is an example of A. a tradable exchange contract. B. a Coasian solution to an externality situation. C. command-and-control policy. D. a Pigovian solution to an externality situation.

A. a tradable exchange contract. B. a Coasian solution to an externality situation. C. command-and-control policy. D. a Pigovian solution to an externality situation.

The area ________ the market supply curve and ________ the market price is equal to the total amount of producer surplus in a market. A. above; below B. below; above C. below; below D. above; above

A. above; below B. below; above C. below; below D. above; above

According to public choice theory, policymakers A. act in ways to bring about an equitable distribution of society's wealth. B. act in ways to maximize economic efficiency. C. place the interests of the public above their own self-interest. D. are likely to pursue their own self-interest, even if their self-interest conflicts with the public interest.

A. act in ways to bring about an equitable distribution of society's wealth. B. act in ways to maximize economic efficiency. C. place the interests of the public above their own self-interest. D. are likely to pursue their own self-interest, even if their self-interest conflicts with the public interest.

An advantage of imposing a tax on the producer that generates pollution is that A. it forces the polluting producer to internalize the external cost of the pollution. B. a producer can pass the cost of the pollution to consumers. C. the government can keep tabs on exactly what is produced in an industry. D. it will eliminate pollution.

A. it forces the polluting producer to internalize the external cost of the pollution. B. a producer can pass the cost of the pollution to consumers. C. the government can keep tabs on exactly what is produced in an industry. D. it will eliminate pollution.

If you burn your trash in the back yard in spite of regulations against it, then you are A. acting economically irrationally and creating a social cost. B. acting rationally and creating a positive externality. C. saving landfill space and creating a social benefit. D. avoiding the private costs associated with disposing your trash some other way and creating a social cost.

A. acting economically irrationally and creating a social cost. B. acting rationally and creating a positive externality. C. saving landfill space and creating a social benefit. D. avoiding the private costs associated with disposing your trash some other way and creating a social cost.

Suppose a negative externality exists in a market. If transactions costs are low and parties are willing to bargain then, according to the Coase theorem A. an efficient solution can be reached regardless of the initial assignment of property rights. B. government intervention is critical to reach an efficient solution. C. an efficient solution can be reached only if property rights are assigned to the polluters. D. an efficient solution can be reached only if property rights are assigned to the victims of the pollution.

A. an efficient solution can be reached regardless of the initial assignment of property rights. B. government intervention is critical to reach an efficient solution. C. an efficient solution can be reached only if property rights are assigned to the polluters. D. an efficient solution can be reached only if property rights are assigned to the victims of the pollution.

The public choice model A. applies economic analysis to the collective decision making of consumers. B. examines the public's role in appointing politicians and ensuring that elected officials act in ways to reflect the public's preferences. C. examines the degree of market power that the public exerts in a market economy. D. applies economic analysis to government decision making.

A. applies economic analysis to the collective decision making of consumers. B. examines the public's role in appointing politicians and ensuring that elected officials act in ways to reflect the public's preferences. C. examines the degree of market power that the public exerts in a market economy. D. applies economic analysis to government decision making.

According to the special-interest theory of government, government officials and policymakers: A. are assumed to maximize the social good. B. manage resources to maximize efficiency. C. tend to listen to small groups of people who contribute money to their political campaigns. D. have a strong incentive to ensure that society's members equally benefit from a project.

A. are assumed to maximize the social good. B. manage resources to maximize efficiency. C. tend to listen to small groups of people who contribute money to their political campaigns. D. have a strong incentive to ensure that society's members equally benefit from a project.

Private costs A. are borne by producers of a good while social costs are borne by government. B. are borne by consumers of a good while social costs are borne by government. C. are borne by producers of a good while social costs are borne by society at large. D. are borne by producers of a good while social costs are borne by those who cannot afford to purchase the good.

A. are borne by producers of a good while social costs are borne by government. B. are borne by consumers of a good while social costs are borne by government. C. are borne by producers of a good while social costs are borne by society at large. D. are borne by producers of a good while social costs are borne by those who cannot afford to purchase the good.

The Coase theorem states that A. assigning property rights is the only thing the government should do in a market economy. B. if transactions costs are low, private bargaining will result in an efficient solution to the problem of externalities. C. government intervention is always needed if externalities are present. D. a free-market equilibrium is the best solution to address externalities.

A. assigning property rights is the only thing the government should do in a market economy. B. if transactions costs are low, private bargaining will result in an efficient solution to the problem of externalities. C. government intervention is always needed if externalities are present. D. a free-market equilibrium is the best solution to address externalities.

Which of the following is an example of a product that is nonexcludable and rivalrous? A. automobiles B. national defense C. flu vaccinations D. free concert (with limited seating) in a park

A. automobiles B. national defense C. flu vaccinations D. free concert (with limited seating) in a park

If the production of a good involves negative externalities, ________. A. average cost of production can be reduced by increasing output above the optimal level B. the quantity of the good supplied in the market is lower than the efficient level C. total welfare can be increased by increasing the production of the good D. the optimal price of the good is higher than the price charged in the market

A. average cost of production can be reduced by increasing output above the optimal level B. the quantity of the good supplied in the market is lower than the efficient level C. total welfare can be increased by increasing the production of the good D. the optimal price of the good is higher than the price charged in the market

A tariff makes the total economy A. better off because it decreases the deadweight loss from international trade. B. worse off because it decreases both domestic consumer surplus and domestic producer surplus. C. worse off because it creates a deadweight loss. D. better off because it increases the domestic production of the good. E. worse off because it creates revenue for the government.

A. better off because it decreases the deadweight loss from international trade. B. worse off because it decreases both domestic consumer surplus and domestic producer surplus. C. worse off because it creates a deadweight loss. D. better off because it increases the domestic production of the good. E. worse off because it creates revenue for the government.

In a figure that shows a supply curve and a demand curve, producer surplus is the area A. between the demand curve and the supply curve. B. below the supply curve and above the market price. C. below the demand curve and above the market price. D. above the demand curve and below the market price. E. above the supply curve and below the market price.

A. between the demand curve and the supply curve. B. below the supply curve and above the market price. C. below the demand curve and above the market price. D. above the demand curve and below the market price. E. above the supply curve and below the market price.

If a rent ceiling is below the equilibrium rent, some allocation scheme must be used. The allocation methods include all of the following EXCEPT A. charging the equilibrium rent. B. the creation of a black market. C. refusing to rent to individuals on the basis of sex, race, or some other attribute. D. increased search activity. E. requiring a payment, such as key money, in addition to the rent.

A. charging the equilibrium rent. B. the creation of a black market. C. refusing to rent to individuals on the basis of sex, race, or some other attribute. D. increased search activity. E. requiring a payment, such as key money, in addition to the rent.

A government regulation that bans the use of a certain polluting technology in the production of a good is an example of a ________ to solve an externality. A. command and control approach B. Coasian approach C. social enforcement mechanism D. market-based approach

A. command and control approach B. Coasian approach C. social enforcement mechanism D. market-based approach

The production of a certain fertilizer emits a gas that keeps away mosquitoes and other insects from the surrounding community. This is an example of a ________. A. comparative externality B. pecuniary externality C. negative externality D. positive externality

A. comparative externality B. pecuniary externality C. negative externality D. positive externality

Which of the following is not an example of rent-seeking behavior? A. competition for the exclusive right to import a product B. competition for subsidies C. engaging in aggressive advertising that slams a competitor's product D. lobbying the government to impose tariffs on certain imported products

A. competition for the exclusive right to import a product B. competition for subsidies C. engaging in aggressive advertising that slams a competitor's product D. lobbying the government to impose tariffs on certain imported products

The price system allocates resources efficiently EXCEPT when A. consumers decide they want more of a good. B. resources are utilized to produce the highest-valued goods and services. C. the production of a good affects parties other than its buyers and sellers. D. voluntary exchange exists.

A. consumers decide they want more of a good. B. resources are utilized to produce the highest-valued goods and services. C. the production of a good affects parties other than its buyers and sellers. D. voluntary exchange exists.

The difference between the ________ and the ________ from the sale of a product is called producer surplus. A. cost to produce a product; price a firm actually receives B. lowest price a firm would have been willing to accept; price it actually receives C. highest price a firm wold have been willing to accept; lowest price it was willing to accept D. cost to produce a product; profit received

A. cost to produce a product; price a firm actually receives B. lowest price a firm would have been willing to accept; price it actually receives C. highest price a firm wold have been willing to accept; lowest price it was willing to accept D. cost to produce a product; profit received

A paint firm has just announced that it will be building a new plant in a small town that is currently experiencing a high level of unemployment. The new plant will create 500 new jobs in the area and will occupy unused land at the edge of town. The plant will also dump some harmful chemicals into the town's river. From an economic standpoint this dumping of chemicals A. creates a positive externality. B. is unimportant since the firm is reducing the unemployment in the region. C. is the production of a public good. D. creates a negative externality.

A. creates a positive externality. B. is unimportant since the firm is reducing the unemployment in the region. C. is the production of a public good. D. creates a negative externality.

Rent ceilings are difficult to abolish because A. current renters offer political support for ceilings. B. they create such large profits for landlords. C. they result in an efficient use of resources. D. landlords lobby to keep them in place. E. the government doesn't like to give up the tax revenues associated with ceilings.

A. current renters offer political support for ceilings. B. they create such large profits for landlords. C. they result in an efficient use of resources. D. landlords lobby to keep them in place. E. the government doesn't like to give up the tax revenues associated with ceilings.

In the figure above, suppose the market is at equilibrium. Then area B is the A. deadweight loss. B. amount of the producer surplus. C. marginal benefit. D. marginal cost. E. amount of the consumer surplus.

A. deadweight loss. B. amount of the producer surplus. C. marginal benefit. D. marginal cost. E. amount of the consumer surplus.

A price ceiling set below the equilibrium price ________ search activity and ________ the use of black markets. A. decreases; decreases B. increases; decreases C. increases; increases D. decreases; increases

A. decreases; decreases B. increases; decreases C. increases; increases D. decreases; increases

Graphically, producer surplus is the area under the A. examples of rent seeking. B. illegal. C. the result of the voting paradox. D. irrational because elected officials will almost always act in the interest of the voters who have to pay the cost of the legislation.

A. demand curve and above the price, up to the relevant quantity. B. price and above the quantity axis, up to the relevant quantity. C. demand curve and above the supply curve, up to the relevant quantity. D. price and above the demand curve, up to the relevant quantity. E. price and above the supply curve, up to the relevant quantity.

The supply curve shows the A. dollars' worth of other goods and services we are willing to give up to get another unit of the good. B. minimum price that firms must receive to supply a certain quantity of a good. C. producer surplus of producing the good. D. maximum price that firms will accept in order to supply a certain quantity of a good. E. marginal benefit of a firm producing another unit of a good.

A. dollars' worth of other goods and services we are willing to give up to get another unit of the good. B. minimum price that firms must receive to supply a certain quantity of a good. C. producer surplus of producing the good. D. maximum price that firms will accept in order to supply a certain quantity of a good. E. marginal benefit of a firm producing another unit of a good.

An example of an activity that generates an external cost is A. eating an apple. B. national defense services. C. dumping soapsuds into a trout stream. D. planting flowers along an interstate highway.

A. eating an apple. B. national defense services. C. dumping soapsuds into a trout stream. D. planting flowers along an interstate highway.

A large farming operation which uses a potent fertilizer is located up river from a trout farmer. If property rights of the river exist and transactions costs are low, the amount of pollution will be A. efficient only if the trout farmer owns the river. B. always inefficient. C. efficient if either the farming operation or the trout farmer own the river. D. inefficient if the farming operation owns the river.

A. efficient only if the trout farmer owns the river. B. always inefficient. C. efficient if either the farming operation or the trout farmer own the river. D. inefficient if the farming operation owns the river.

If policymakers use a pollution tax to control pollution, the tax per unit of pollution should be set A. equal to the amount of the deadweight loss created in the absence of a pollution tax. B. equal to the marginal external cost at the economically efficient level of pollution. C. at a level low enough so that producers can pass along a portion of the additional cost onto consumers without significantly reducing demand for the product. D. equal to the marginal private cost of production at the economically efficient level of pollution.

A. equal to the amount of the deadweight loss created in the absence of a pollution tax. B. equal to the marginal external cost at the economically efficient level of pollution. C. at a level low enough so that producers can pass along a portion of the additional cost onto consumers without significantly reducing demand for the product. D. equal to the marginal private cost of production at the economically efficient level of pollution.

When efficiency is attained, the sum of the total amount of consumer surplus and producer surplus is A. equal to zero. B. maximized. C. equal to the deadweight loss. D. undefined. E. minimized.

A. equal to zero. B. maximized. C. equal to the deadweight loss. D. undefined. E. minimized.

Financial contributions to the campaigns of members of Congress, state legislators, and other elected officials by firms that seek special interest legislation that make the firms better off are A. examples of rent seeking. B. illegal. C. the result of the voting paradox. D. irrational because elected officials will almost always act in the interest of the voters who have to pay the cost of the legislation.

A. examples of rent seeking. B. illegal. C. the result of the voting paradox. D. irrational because elected officials will almost always act in the interest of the voters who have to pay the cost of the legislation.

The tragedy of the commons occurs because some goods are ________ in consumption. A. excludable B. non-excludable but rival C. non-rival and non-excludable D. non-rival

A. excludable B. non-excludable but rival C. non-rival and non-excludable D. non-rival

A market demand curve reflects the A. external benefits of consuming a product. B. social benefits of consuming a product. C. private benefits of consuming a product. D. sum of private and social benefits of consuming a product.

A. external benefits of consuming a product. B. social benefits of consuming a product. C. private benefits of consuming a product. D. sum of private and social benefits of consuming a product.

What does the phrase "internalizing an external cost" mean? A. finding a way to address cross-border pollution B. limiting the extent to which domestic firms can outsource production C. prohibiting economic activities that create externalities D. forcing producers to factor into their production costs the cost of the externalities created in the production of their output

A. finding a way to address cross-border pollution B. limiting the extent to which domestic firms can outsource production C. prohibiting economic activities that create externalities D. forcing producers to factor into their production costs the cost of the externalities created in the production of their output

When the demand for a product is less elastic than the supply A. firms pay the majority of the tax on the product. B. consumers pay the entire tax on the product. C. consumers pay the majority of the tax on the product. D. firms pay the entire tax on the product.

A. firms pay the majority of the tax on the product. B. consumers pay the entire tax on the product. C. consumers pay the majority of the tax on the product. D. firms pay the entire tax on the product.

Parents who do not have their children immunized and attempt to benefit from other parents who did have their own children immunized are exhibiting an economic behavior known as A. free riding. B. selfishness. C. excludability. D. public rivalry.

A. free riding. B. selfishness. C. excludability. D. public rivalry.

A price floor set above the equilibrium price leads to a(n) ________. A. increase in social well-being B. positive externality C. excess supply of goods in the market D. excess demand for goods in the market

A. increase in social well-being B. positive externality C. excess supply of goods in the market D. excess demand for goods in the market

Goods can be classified on the basis of whether their consumption is A. internal and excludable. B. rival and excludable. C. includable and cooperative. D. rival and competitive.

A. internal and excludable. B. rival and excludable. C. includable and cooperative. D. rival and competitive.

An economic agent ________ when he accounts for the full costs and benefits of his actions. A. is called a free rider B. is called a rent seeker C. maximizes his profit D. internalizes an externality

A. is called a free rider B. is called a rent seeker C. maximizes his profit D. internalizes an externality

In a housing market with no rent ceilings, the equilibrium rent is that for which the quantity of apartments demanded A. is greater than the quantity supplied. B. equals the quantity supplied. C. is less than the quantity supplied. D. might be greater than, equal to, or less than the quantity supplied depending on whether the supply curve is upward sloping, horizontal, or vertical. E. None of the above answers is correct because without rent ceilings there is no equilibrium rent.

A. is greater than the quantity supplied. B. equals the quantity supplied. C. is less than the quantity supplied. D. might be greater than, equal to, or less than the quantity supplied depending on whether the supply curve is upward sloping, horizontal, or vertical. E. None of the above answers is correct because without rent ceilings there is no equilibrium rent.

If a consumer buys a good, we know that her willingness to pay: A. is less than its price. B. is greater than its price. C. is equal to its price. D. is either greater than or equal to its price.

A. is less than its price. B. is greater than its price. C. is equal to its price. D. is either greater than or equal to its price.

A study by the Congressional Budget Office (CBO) regarding the corporate income tax included the following statement: "A corporation may write its check to the Internal Revenue Service for payment of the corporate income tax, but the money must come from somewhere..." The comments that followed this statement argued that A. it is necessary to retain the tax because it is based on the ability-to-pay principle. B. corporations pass on some of the burden of the tax to investors in the company, to workers, and to consumers. C. the corporate income tax is a reliable source of revenue because corporations cannot avoid paying the tax. D. the tax is more progressive than the individual income tax.

A. it is necessary to retain the tax because it is based on the ability-to-pay principle. B. corporations pass on some of the burden of the tax to investors in the company, to workers, and to consumers. C. the corporate income tax is a reliable source of revenue because corporations cannot avoid paying the tax. D. the tax is more progressive than the individual income tax.

The "invisible hand" refers to the notion that A. marginal benefit decreases as more is consumed. B. no matter what allocation method is used, the resulting production is efficient. C. competitive markets send resources to their highest valued uses. D. marginal cost increases as more is produced. E. government intervention is necessary to ensure efficiency.

A. marginal benefit decreases as more is consumed. B. no matter what allocation method is used, the resulting production is efficient. C. competitive markets send resources to their highest valued uses. D. marginal cost increases as more is produced. E. government intervention is necessary to ensure efficiency.

In the figure above, suppose the market is at equilibrium. Then area A is the A. marginal benefit. B. amount of the consumer surplus. C. marginal cost. D. deadweight loss. E. amount of the producer surplus.

A. marginal benefit. B. amount of the consumer surplus. C. marginal cost. D. deadweight loss. E. amount of the producer surplus.

Producer surplus is the ________ summed over the quantity produced. A. marginal cost of the good minus the opportunity cost of producing it B. price of the good minus the marginal cost of producing it C. marginal benefit of the good minus its marginal cost D. marginal benefit of the good minus its price E. None of the above answers is correct.

A. marginal cost of the good minus the opportunity cost of producing it B. price of the good minus the marginal cost of producing it C. marginal benefit of the good minus its marginal cost D. marginal benefit of the good minus its price E. None of the above answers is correct.

Suppose the tax rate on the first $10,000 income is 0 percent; 10 percent on the next $20,000; 20 percent on the next $20,000; 30 percent on the next $30,000; and 40 percent on any income over $80,000. Family A has income of $50,000. What is the marginal and average tax rate for Family A? A. marginal—15 percent; average—25 percent B. marginal—10 percent; average—12 percent C. marginal—20 percent; average—12 percent D. marginal—25 percent; average—15 percent

A. marginal—15 percent; average—25 percent B. marginal—10 percent; average—12 percent C. marginal—20 percent; average—12 percent D. marginal—25 percent; average—15 percent

The free rider problem refers to a situation in which A. markets fail to allocate resources efficiently when benefits outweigh costs. B. high income individuals subsidize the production of goods, such as education, that make society better off. C. the marginal cost of allowing additional consumers to consume a public good is zero. D. people consume a pure public good without payment, even though the good may not be produced if no one chooses to pay.

A. markets fail to allocate resources efficiently when benefits outweigh costs. B. high income individuals subsidize the production of goods, such as education, that make society better off. C. the marginal cost of allowing additional consumers to consume a public good is zero. D. people consume a pure public good without payment, even though the good may not be produced if no one chooses to pay.

The more elastic the demand for a good, the A. more a sales tax raises the price paid by buyers. B. less a sales tax raises the price paid by buyers. C. less a sales tax lowers the price paid by buyers. D. more a sales tax lowers the price paid by buyers.

A. more a sales tax raises the price paid by buyers. B. less a sales tax raises the price paid by buyers. C. less a sales tax lowers the price paid by buyers. D. more a sales tax lowers the price paid by buyers.

People who live in apartment buildings across from a football stadium are able to watch football games from the balconies of their apartments instead of paying for tickets to sit inside the stadium. For these free riders, the football games are A. nonrival and excludable. B. rival and nonexcludable. C. nonrival and nonexcludable. D. rival and excludable.

A. nonrival and excludable. B. rival and nonexcludable. C. nonrival and nonexcludable. D. rival and excludable.

Who gains from international trade? A. only the importing nation B. only the exporting nation C. both the importing and the exporting nations D. neither the importing nor the exporting nations E. The gains depends on which nation gets to keep the total revenue from the sale

A. only the importing nation B. only the exporting nation C. both the importing and the exporting nations D. neither the importing nor the exporting nations E. The gains depends on which nation gets to keep the total revenue from the sale

The corporate income tax is ultimately paid by all of the following except A. owners of the corporation. B. the corporation's debtors in the form of lower rates of return on the corporation's bonds. C. customers in the form of higher prices. D. employees in the form of lower wages.

A. owners of the corporation. B. the corporation's debtors in the form of lower rates of return on the corporation's bonds. C. customers in the form of higher prices. D. employees in the form of lower wages.

A good is non-rival in consumption if ________. A. people cannot be prevented from using it B. the demand for the good increases with an increase in the consumer's income C. one person's use of the good does not preclude consumption by others D. the government can regulate its production

A. people cannot be prevented from using it B. the demand for the good increases with an increase in the consumer's income C. one person's use of the good does not preclude consumption by others D. the government can regulate its production

When government action leads to inefficiency, it is known as A. politics. B. government as usual. C. government failure. D. lack of government trust.

A. politics. B. government as usual. C. government failure. D. lack of government trust.

The producer surplus is found by subtracting the ________ and then adding the difference for all units sold. A. price from marginal cost B. deadweight loss from the price C. marginal cost from marginal benefit D. marginal benefit from total benefit E. marginal cost from price

A. price from marginal cost B. deadweight loss from the price C. marginal cost from marginal benefit D. marginal benefit from total benefit E. marginal cost from price

A retired athlete built a gym near his house that could be used for free by all the residents in the neighborhood. However, the overuse of the facilities soon led to irreparable damages. This is an example of the ________. A. prisoners' dilemma B. tragedy of the commons C. paradox of thrift D. pecuniary externality

A. prisoners' dilemma B. tragedy of the commons C. paradox of thrift D. pecuniary externality

A market supply curve reflects the A. private costs of producing a good or service. B. external benefits of producing a good or service. C. external costs of producing a good or service. D. social costs of producing a good or service.

A. private costs of producing a good or service. B. external benefits of producing a good or service. C. external costs of producing a good or service. D. social costs of producing a good or service.

If protective import-restricting tariffs are imposed by a country, in the majority of cases that nation's producers end up A. producing less of the good than they otherwise would. B. receiving a lower profit for the domestic good than they otherwise would. C. receiving a higher price for the good than they otherwise would. D. receiving a lower price for the good than they otherwise would.

A. producing less of the good than they otherwise would. B. receiving a lower profit for the domestic good than they otherwise would. C. receiving a higher price for the good than they otherwise would. D. receiving a lower price for the good than they otherwise would.

In a competitive market for a private good with no price or quantity regulations, no external cost nor external benefit, low transactions costs, and no taxes or subsidies A. production is organized by government organizations. B. efficiency is usually be achieved by majority rule. C. the allocation of resources is planned by the government. D. efficiency is generally obtained by using a command system. E. efficiency can be attained in the market with no government intervention.

A. production is organized by government organizations. B. efficiency is usually be achieved by majority rule. C. the allocation of resources is planned by the government. D. efficiency is generally obtained by using a command system. E. efficiency can be attained in the market with no government intervention.

If, as your taxable income decreases, you pay a smaller percentage of your taxable income in taxes, then the tax is A. proportional. B. regressive. C. progressive. D. unfair.

A. proportional. B. regressive. C. progressive. D. unfair.

If the marginal tax rate exceeds the average tax rate, the tax would be A. proportional. B. regressive. C. progressive. D. uniform.

A. proportional. B. regressive. C. progressive. D. uniform.

Suppose Patty has a house in a good neighborhood in Philadelphia. She decides to have the exterior of her house painted and the windows replaced. After the work is completed, her house has appreciated in value and has also helped her neighbors' houses to go up in value. This is an example of a A. public good without external benefits. B. private good with external benefits. C. public good with external benefits. D. private good without external benefits.

A. public good without external benefits. B. private good with external benefits. C. public good with external benefits. D. private good without external benefits.

When it comes to ________ goods, it is important to remember only one level of output can be realized and consumers are ________ for that level. A. public; willing to pay different amounts B. private; willing to pay different amounts C. public; only willing to pay the same amount D. private; only willing to pay the same amount

A. public; willing to pay different amounts B. private; willing to pay different amounts C. public; only willing to pay the same amount D. private; only willing to pay the same amount

One reason governments impose taxes is to ________. A. redistribute funds via transfer payments B. reduce the number of transactions in an economy C. increase the volume of exports D. increase competition among producers

A. redistribute funds via transfer payments B. reduce the number of transactions in an economy C. increase the volume of exports D. increase competition among producers

A tariff placed on a foreign good will A. reduce the price of a competing domestic good. B. increase the price of a competing domestic good. C. reduce the quantity sold of both the foreign and competing domestic good. D. increase the quantity sold of both the foreign and competing domestic good.

A. reduce the price of a competing domestic good. B. increase the price of a competing domestic good. C. reduce the quantity sold of both the foreign and competing domestic good. D. increase the quantity sold of both the foreign and competing domestic good.

If you pay $2,000 in taxes on an income of $20,000, and a tax of $3,000 on an income of $30,000, then over this range of income the tax is A. regressive. B. proportional. C. progressive. D. There is insufficient information to answer the question.

A. regressive. B. proportional. C. progressive. D. There is insufficient information to answer the question.

The difference between the maximum amount a person is willing to pay for a good and its current market price is known as A. revealed preferences. B. profits. C. the paradox of value. D. consumer surplus.

A. revealed preferences. B. profits. C. the paradox of value. D. consumer surplus.

Neither the demand nor the supply of gasoline is perfectly elastic or inelastic. When the government increases the federal tax on gasoline, the effect on buyers is that the price they pay A. rises. B. falls. C. does not change. D. rises if the demand is inelastic and falls if the demand is elastic. E. rises if the supply is inelastic and falls if the supply is elastic.. rises if the supply is inelastic and falls if the supply is elastic.

A. rises. B. falls. C. does not change. D. rises if the demand is inelastic and falls if the demand is elastic. E. rises if the supply is inelastic and falls if the supply is elastic.. rises if the supply is inelastic and falls if the supply is elastic.

A possible reason to impose a protectionist policy such as a tariff is to A. slow domestic production. B. protect domestic workers from foreign competition. C. increase the welfare of domestic consumers. D. aid other nations in developing their own industries.

A. slow domestic production. B. protect domestic workers from foreign competition. C. increase the welfare of domestic consumers. D. aid other nations in developing their own industries.

The Coase theorem relies on internalizing externalities through ________. A. social enforcement mechanisms B. the imposition of corrective taxes C. the provision of corrective subsidies D. negotiations between the parties involved

A. social enforcement mechanisms B. the imposition of corrective taxes C. the provision of corrective subsidies D. negotiations between the parties involved

An externality occurs when A. some of the costs of producing a good are paid by someone other than the producer. B. the costs of producing a good are paid entirely by the producer. C. the marginal social cost of an activity increases as that activity is increased. D. Both answers A and C are correct.

A. some of the costs of producing a good are paid by someone other than the producer. B. the costs of producing a good are paid entirely by the producer. C. the marginal social cost of an activity increases as that activity is increased. D. Both answers A and C are correct.

If a local government gives out water filters to low-income families free of charge, they are: A. spillover goods. B. external goods. C. public goods. D. private goods.

A. spillover goods. B. external goods. C. public goods. D. private goods.

When the federal government orders firms to use particular methods to reduce pollution, it is said to be using A. strong-arm tactics. B. market-based policies. C. global initiatives. D. command-and-control policies.

A. strong-arm tactics. B. market-based policies. C. global initiatives. D. command-and-control policies.

Governments can increase the consumption of a product that creates positive externalities by A. subsidizing the production of the product so that the supply is increased and market price is reduced. B. convincing everyone to consume the product. C. assigning property rights to the producers of the product. D. taxing the production and consumption of the product.

A. subsidizing the production of the product so that the supply is increased and market price is reduced. B. convincing everyone to consume the product. C. assigning property rights to the producers of the product. D. taxing the production and consumption of the product.

The actual division of the burden of a tax between buyers and sellers in a market is called A. tax incidence. B. tax bearer. C. tax liability. D. tax parity.

A. tax incidence. B. tax bearer. C. tax liability. D. tax parity.

If the marginal cost of producing a public good is less than society's total willingness to pay per unit, then A. the amount of output being produced could be either greater than or less than the optimal amount. B. the optimal amount of the public good is being produced. C. more than the optimal amount of the public good is being produced. D. less than the optimal amount of the public good is being produced.

A. the amount of output being produced could be either greater than or less than the optimal amount. B. the optimal amount of the public good is being produced. C. more than the optimal amount of the public good is being produced. D. less than the optimal amount of the public good is being produced.

Consumer surplus in a market for a product would be equal to ________ if the market price was zero. A. the area between the supply curve and the demand curve B. the area above the supply curve C. zero D. the area under the demand curve

A. the area between the supply curve and the demand curve B. the area above the supply curve C. zero D. the area under the demand curve

If the production of a good involves positive externalities, ________. A. the average cost of production of the good in the long run is zero B. the market price of the good is higher than its optimal price C. the market price of the good is lower than its optimal price D. the variable cost of production of the good is zero

A. the average cost of production of the good in the long run is zero B. the market price of the good is higher than its optimal price C. the market price of the good is lower than its optimal price D. the variable cost of production of the good is zero

The average tax rate can be calculated by which of the following formulas? A. the change in taxes due divided by the change in taxable income B. total taxable income divided by total taxes due C. the change in taxable income divided by the change in taxes due D. total taxes due divided by total taxable income

A. the change in taxes due divided by the change in taxable income B. total taxable income divided by total taxes due C. the change in taxable income divided by the change in taxes due D. total taxes due divided by total taxable income

The tax incidence on buyers is higher if ________. A. the elasticity of the market supply curve is higher than the elasticity of the market demand curve B. the number of sellers in a market is larger than the number of buyers C. the elasticity of the market demand curve is higher than the elasticity of the market supply curve D. the buyers and sellers of a good are equally sensitive to price changes

A. the elasticity of the market supply curve is higher than the elasticity of the market demand curve B. the number of sellers in a market is larger than the number of buyers C. the elasticity of the market demand curve is higher than the elasticity of the market supply curve D. the buyers and sellers of a good are equally sensitive to price changes

Producer surplus is equal to A. the good's price times the quantity purchased. B. the area under the supply curve. C. the area under the supply curve below the good's price. D. the area above the supply curve below the good's price.

A. the good's price times the quantity purchased. B. the area under the supply curve. C. the area under the supply curve below the good's price. D. the area above the supply curve below the good's price.

When a Pigouvian tax is imposed, ________. A. the marginal social benefit curve shifts downward B. the marginal private cost curve shifts upward C. the demand curve shifts rightward D. the marginal social cost curve shifts downward

A. the marginal social benefit curve shifts downward B. the marginal private cost curve shifts upward C. the demand curve shifts rightward D. the marginal social cost curve shifts downward

If positive externalities are present in a free market, ________ at any output level. A. the marginal social benefit of production exceeds marginal private benefit B. the marginal cost of production equals the average cost of production C. the marginal social cost of production exceeds the marginal private cost D. the marginal private benefit from production equals marginal social benefit

A. the marginal social benefit of production exceeds marginal private benefit B. the marginal cost of production equals the average cost of production C. the marginal social cost of production exceeds the marginal private cost D. the marginal private benefit from production equals marginal social benefit

The production of steel in a factory generates a negative externality. A per-unit tax on the factory that equals ________ of steel production will internalize the externality entirely. A. the marginal social cost B. the marginal private cost C. the marginal external benefit D. the marginal external cost

A. the marginal social cost B. the marginal private cost C. the marginal external benefit D. the marginal external cost Remember that social cost is the cost to the producer plus the cost of the externality.

The incidence of a per- unit tax on a good is identical for buyers and sellers of the good if: A. the market demand curve is horizontal. B. the market supply curve is flatter than the market demand curve. C. the elasticity of market demand exceeds the elasticity of market supply. D. the buyers and sellers of the good are equally sensitive to price changes.

A. the market demand curve is horizontal. B. the market supply curve is flatter than the market demand curve. C. the elasticity of market demand exceeds the elasticity of market supply. D. the buyers and sellers of the good are equally sensitive to price changes.

A fireworks show has been arranged in a park. The ticket for the show is $5 but only 40% of the tickets get sold as spectators can watch the show without entering the park. This is an example of ________. A. the paradox of thrift B. the paradox of plenty C. the tragedy of the commons D. the free-rider problem

A. the paradox of thrift B. the paradox of plenty C. the tragedy of the commons D. the free-rider problem

If a price ceiling is set above the equilibrium price, then A. the price ceiling will generate revenue for the government. B. there will be a surplus of the good. C. there will be neither a shortage nor a surplus of the good. D. the price ceiling affects suppliers but not demanders. E. there will be a shortage of the good.

A. the price ceiling will generate revenue for the government. B. there will be a surplus of the good. C. there will be neither a shortage nor a surplus of the good. D. the price ceiling affects suppliers but not demanders. E. there will be a shortage of the good.

When there is a positive externality A. the private benefit received by consumers is greater than the social benefit. B. the social benefit received by consumers is greater than the private benefit. C. the private benefit received by consumers is greater than the private cost. D. the private benefit received by consumers is greater than the external benefit.

A. the private benefit received by consumers is greater than the social benefit. B. the social benefit received by consumers is greater than the private benefit. C. the private benefit received by consumers is greater than the private cost. D. the private benefit received by consumers is greater than the external benefit.

What is the total surplus of a market? A. the sum of consumer surplus and producer deficit B. the difference between the highest price that a consumer is willing to pay and the lowest price that a producer is willing to sell C. the sum of consumer surplus and producer surplus D. the difference between the consumer surplus and producer surplus

A. the sum of consumer surplus and producer deficit B. the difference between the highest price that a consumer is willing to pay and the lowest price that a producer is willing to sell C. the sum of consumer surplus and producer surplus D. the difference between the consumer surplus and producer surplus

If a good has a tax levied on it, sellers respond to the price that excludes the tax and not the price with the tax because A. the tax is handed over to the state directly by buyers. B. the demand for the good has decreased. C. demanders pay none of the tax. D. the quantity supplied of the good increases. E. sellers do not get to keep the tax revenue.

A. the tax is handed over to the state directly by buyers. B. the demand for the good has decreased. C. demanders pay none of the tax. D. the quantity supplied of the good increases. E. sellers do not get to keep the tax revenue.

Haiti was once a heavily forested country. Today, 80 percent of Haiti's forests have been cut down, primarily to be burned to create charcoal. The reduction in the number of trees has lead to devastating floods when it rains heavily. This is an example of A. the tragedy of the commons. B. the consequences of not having a market economic system. C. tragic externalities. D. human greed.

A. the tragedy of the commons. B. the consequences of not having a market economic system. C. tragic externalities. D. human greed.

In a competitive market equilibrium A. total consumer surplus equals total producer surplus. B. the marginal benefit equals the marginal cost of the last unit sold. C. marginal benefit and marginal cost are maximized. D. consumers and producers benefit equally.

A. total consumer surplus equals total producer surplus. B. the marginal benefit equals the marginal cost of the last unit sold. C. marginal benefit and marginal cost are maximized. D. consumers and producers benefit equally.

A supply curve shows quantities supplied at various prices. It also shows the A. total profit the firm earns at a given level of output. B. marginal benefit of the good. C. marginal cost of production. D. producer surplus, which is equal to the slope of the supply curve. E. total cost of production.

A. total profit the firm earns at a given level of output. B. marginal benefit of the good. C. marginal cost of production. D. producer surplus, which is equal to the slope of the supply curve. E. total cost of production.

If the paint on your house was eaten away by the fumes from a factory nearby and you hired a lawyer to sue the polluting firm, your legal fees would be considered A. transactions costs. B. external costs. C. marginal benefits. D. social costs of the pollution.

A. transactions costs. B. external costs. C. marginal benefits. D. social costs of the pollution.

A price floor is the ________. A. upper limit on the price of a good B. maximum willingness to pay for a good C. lower limit on the price of a good D. minimum price that a seller accepts for a good

A. upper limit on the price of a good B. maximum willingness to pay for a good C. lower limit on the price of a good D. minimum price that a seller accepts for a good

A product is considered to be rivalrous if A. you cannot keep those who did not pay for the item from enjoying its benefits. B. you can keep those who did not pay for the item from enjoying its benefits. C. your consumption of the product reduces the quantity available for others to consume. D. it is jointly owned by all members of a community.

A. you cannot keep those who did not pay for the item from enjoying its benefits. B. you can keep those who did not pay for the item from enjoying its benefits. C. your consumption of the product reduces the quantity available for others to consume. D. it is jointly owned by all members of a community.

A product is considered to be nonexcludable if A. you cannot keep those who did not pay for the item from enjoying its benefits. B. your consumption of the product reduces the quantity available for others to consume. C. you can keep those who did not pay for the item from enjoying its benefits. D. it is jointly owned by all members of a community.

A. you cannot keep those who did not pay for the item from enjoying its benefits. B. your consumption of the product reduces the quantity available for others to consume. C. you can keep those who did not pay for the item from enjoying its benefits. D. it is jointly owned by all members of a community.