econ final exam

price

-Are the key force integrating markets and motivating entrepreneurs. -Create rich connections between markets by conveying important information. -Create an incentive to respond to that information in socially useful ways. -Enable societies to mobilize vast amounts of knowledge toward common ends.

Once China bans the import of sedans, what is the dollar value of the lost gains from trade? (Hint: The chapter provides the formula.)

5,000*140,000*0.5= 350 dollars per

In the 1970s, AirCal and Pacific Southwest Airlines flew only within California. Under the Civil Aeronautics Board, regulated air fares established a minimum price that airlines could charge. These federal price floors did not apply to flights within just one state. A major route for these airlines was flying from San Francisco to Los Angeles, a distance of 350 miles. This is about the same distance as from Chicago, Illinois, to Cleveland, Ohio. Do you think AirCal flights had nicer meals than flights from Chicago to Cleveland? Why or why not?

Aircal flights were cheaper so they had worse meals than Chicago to Cleveland because California doesn't have to provide high quality meals to make up for the extra high price.

Based on your answer to part d, would you expect domestic airplane demanders to support free trade in planes or oppose it?

Airlines and delivery companies are likely to oppose free trade - they do not want competition from foreign buyers.

A higher price tells buyers to :a.Buy more. b.Buy less. c.Buy the same amount.

B

Do you think that many consumers complained about speculators or even realized that speculators were influencing the price of oil in spring 1991?

Consumers probably did not realize speculators were influencing price of oil.

When the speculators sold their stored oil in the months after the war, did this massive resale tend to increase the price of oil or decrease it?

Decrease the price of oil if they supply increased.

. With these price controls on bread, would you expect bread quality to rise or fall?

I would expect bread quality to fall.

a. Calculate the exact amount of producer and consumer surplus in the out-of-network ATM market in Santa Monica after the ban. How large is producer surplus? How large is consumer surplus?

Producer and consumer surplus are zero because there is no surplus when a market is shut down.

Is society better or worse off because of the new minimum wage law?

Society is better off because of the minimum wage law as workers who retain their jobs get more income and looking at the graph, there is more entrances into the labor market than the number of people getting laid off.

Suppose the South Carolina state legislature imposes a minimum wage of $8.00 per hour on this market. What is the new quantity demanded of labor? What is the new quantity supplied of labor? How much unemployment is created by the minimum wage?

The quantity demanded of labor is 20 million hours per week at this wage and the new quantity supplied of labor is 26 million of hours per week. Thus, the unemployment at this wage is 6 million hours of labor.

If the government forced all bread manufacturers to sell their products at a "fair price" that was half the current, free-market price, what would happen to the quantity supplied of bread?

The quantity of bread supplied would fall

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?

There was no price controls on gas.

If the government places a price ceiling of $2 on milk, will there be a shortage or surplus of milk? How large will it be? How many gallons of milk will be sold?

There will be a shortage of milk of 2100 gallons. Suppliers will be willing to sell 2000 gallons of milk at $2

2. Sometimes speculators get it wrong. In the months before the Persian Gulf War, speculators drove up the price of oil: The average price in October 1990 was $36 per barrel, more than double its price in 1988. Oil speculators, like many people around the world, expected the Gulf War to last for months, disrupting the oil supply throughout the Gulf region. Thus, speculators either bought oil on the open market (almost always at the high speculative price) or they already owned oil and just kept it in storage. Either way, their plan was the same: to sell it in the future, when prices might even be higher. As it turned out, the war was swift: After one month of massive aerial bombardment of Iraqi troops and a 100-hour ground war, President George H.W. Bush declared a cessation of hostilities. Despite the fact that Saddam Hussein set fire to many of Kuwait's oil fields, the price of oil plummeted to about $20 per barrel, a price it stayed at for years. b. Why did the speculators follow this plan?

They thought that the price would remain high in the future instead of plummeting.

The text concludes that, because people in an urban-industrial society will always disagree to some extent about who ought to have which rights, therefore Select one: a. it is unreasonable to expect that negative externalities can be entirely eliminated. b. negative externalities cannot be reduced without government coercion. c. negative externalities should not be thought of as the consequence of disagreement over property rights. d. there is no point in discussing the matter. e. we must depend upon government to decide exactly what should be prohibited or commanded.

a. it is unreasonable to expect that negative externalities can be entirely eliminated.

When the market price is held above the competitive level, the deadweight loss is composed of: Select one: a. producer surplus losses associated with units that used to be traded on the market but are no longer exchanged. b. consumer surplus losses associated with units that used to be traded on the market but are no longer exchanged. c. producer and consumer surplus losses associated with units that used to be traded on the market but are no longer exchanged. d. There is no deadweight loss if the government uses a price floor policy to increase the price.

a. producer surplus losses associated with units that used to be traded on the market but are no longer exchanged.

Asphalt is the refined residue from crude oil. When gasoline prices are high, oil refiners pull every last drop of gasoline out of a barrel of crude. This would imply that higher gasoline prices mean a(n): Select one: a. reduced supply of asphalt, causing higher asphalt prices. b. reduced supply of asphalt, causing lower asphalt prices. c. increased supply of asphalt, causing lower asphalt prices. d. increased supply of asphalt, causing higher asphalt prices.

a. reduced supply of asphalt, causing higher asphalt prices.

Millions of producers working across the world cooperate to ensure that many more millions of consumers can have the goods and services they desire. These producers do not know each other and are not coordinated by a central agency. Their actions are directed simply by: Select one: a. self-interest. b. their governments. c. computer technology. d. robotic technology.

a. self-interest.

What links the flower growers in Kenya with romantic American teenagers who give flowers as gifts of affection? Select one: a. central planners b. the United States Senate c. markets d. hierarchical authority

c. markets

speculation

the attempt to profit from future price changes.

Imagine a country in which there is a market for human kidneys for transplant. People's willingness to provide kidneys is determined by the function Q = 8 + 2P. People's willingness to purchase kidneys is determined by the function Q = 16 - 2P. a. Draw a well-labeled graph of this market indicating equilibrium price and quantity, any consumer surplus, and any producer surplus.

8+2P=16-2P 4P=8 P=2

When a price ceiling is in place keeping the price below the market price, what's larger: quantity demanded or quantity supplied? How does this explain the long lines and wasteful searches we see in price-controlled markets?

A price ceiling will make quantity demanded larger than quantity supplied.

The basic idea of deadweight loss is that a willing buyer and a willing seller can't find a way to make an exchange. In the case of the minimum wage law, the reason they can't make an exchange is because it's illegal for the buyer (the firm) to hire the seller (the worker) at any wage below the legal minimum. But how can this really be a "loss" from the worker's point of view? It's obvious why business owners would love to hire workers for less than the minimum wage; but if all companies obey the minimum wage law, why are some workers still willing to work for less than that?

Because working less than minimum wage is still better than not working at all.

Will domestic airplane buyers—airlines and delivery companies like FedEx—have to pay a higher or a lower price under free trade compared with the no-trade alternative? Will domestic airplane buyers purchase a higher or a lower quantity of planes if there's free trade in planes?

Domestic airplane buyers have to pay more for airplanes in a free trade world. Free trade in exports allows foreign buyers to compete with domestic buyers. If foreign buyers were banned from competition, the domestic price would fall. So w/o exports, the domestic industry would shrink.

Suppose that the quantity demanded and quantity supplied in the market for milk is as follows: a. What is the equilibrium price and quantity of milk?

Equilibrium price: $3 Equilibrium quantity: 3500

a) What is the equilibrium wage and employment level in this market? How much unemployment occurs at the equilibrium wage?

Equilibrium wage is $7 for 24 quantity demanded and supplied. No unemployment occurs at the equilibrium wage.

What would you call the gap between QS free trade and QD free trade?

Exports

To keep it simple, assume that people must wait in line to get bread at the controlled price. Would consumer surplus rise, fall, or can't you tell with the information given?

The consumer surplus would fall

1. In this chapter, we noted that successful economies are more likely to have many failing firms. If a nation's government instead made it impossible for inefficient firms to fail by giving them loans, cash grants, and other bailouts to stay in business, why is that nation likely to be poor? (Hint: Davis and Haltiwanger. 1999. Gross Job Flows, Handbook of Labor Economics found that in the United States, 60 percent of the increase in U.S. manufacturing efficiency was caused by people moving from weak firms to strong firms.)

There would be less production made which would mean people would consumer less.

If a government decides to make health insurance affordable by requiring all health insurance companies to cut their prices by 30 percent, what will probably happen to the number of people covered by health insurance?

This will cause a price ceiling creating a shortage of health insurance, thus fewer people will be covered by health insurance.

When the price of gasoline rose to $4 per gallon in the summer of 2008, many people were outraged at how gas companies were "price gouging" individuals, and called for price controls on gasoline. If the government had agreed to legally cap the price of gasoline, would this have lowered the cost to consumers? Explain.

This would not lower the cost to consumers. Instead the price control would mean that there would be a shortage on gas thus consumers would have to take time to wait in lines.

2. Sometimes speculators get it wrong. In the months before the Persian Gulf War, speculators drove up the price of oil: The average price in October 1990 was $36 per barrel, more than double its price in 1988. Oil speculators, like many people around the world, expected the Gulf War to last for months, disrupting the oil supply throughout the Gulf region. Thus, speculators either bought oil on the open market (almost always at the high speculative price) or they already owned oil and just kept it in storage. Either way, their plan was the same: to sell it in the future, when prices might even be higher. As it turned out, the war was swift: After one month of massive aerial bombardment of Iraqi troops and a 100-hour ground war, President George H.W. Bush declared a cessation of hostilities. Despite the fact that Saddam Hussein set fire to many of Kuwait's oil fields, the price of oil plummeted to about $20 per barrel, a price it stayed at for years. a. Is buying oil for $36 a barrel and selling it for $20 per barrel a good business plan? How much profit did speculators earn, or how much money did they lose, on each barrel?

a) No, you would loss $16 on each barrel

Suppose Factory A emits 15,000 units of "Yuck" monthly, Factory B emits 30,000 units, and Factory C emits 45,000 units. Also suppose A's cost of reducing the emission is $1 per unit, B's cost is $2 per unit, and C's cost is $3 per unit. If the EPA required each factory to pay a $2.01 tax for each unit of yuck it emits monthly, what would be the new level of total monthly emissions, and what would be the total cost of cleanup? Select one: a. 45,000 units; $75,000 b. 45,000 units; $90,000 c. 45,000 units; $105,000 d. 45,000 units; $120,000

a. 45,000 units; $75,000

Suppose Factory A emits 15,000 units of "Yuck" monthly, Factory B emits 30,000 units, and Factory C emits 45,000 units. Also suppose A's cost of reducing the emission is $1 per unit, B's cost is $2 per unit, and C's cost is $3 per unit. If the EPA wishes to reduce total emissions down to 45,000 units per month, which of the following is the lowest-cost method? Select one: a. Leave Factory C alone, and force both A and B to each reduce their emissions to zero units per month. b. Leave Factory A and B alone, and force C to reduce emissions to zero units per month. c. Leave Factory A alone, and force both B and C to each reduce their emissions to 15,000 units per month. d. All of the above would be accomplished at the same cost.

a. Leave Factory C alone, and force both A and B to each reduce their emissions to zero units per month.

South Africa, with large natural diamond deposits, is famous for its diamond exports. The international demand for diamonds for industrial and other purposes, such as jewelry, has led to the production of synthetic diamonds by other countries, such as the United States. Which answer BEST describes the concept highlighted in this scenario? Select one: a. Prices provide incentives for sellers. b. Consumers prefer synthetic diamonds to natural ones. c. International cooperation has been reduced over the years. d. Markets are no longer linked together.

a. Prices provide incentives for sellers.

If Barbecue Bob has a right to own and use his backyard barbeque, then Barbecue Bob also enjoys Select one: a. a right to pollute. b. a right to steal. c. a right to free charcoal. d. a right to clean air.

a. a right to pollute.

In an informed and uncoerced exchange, Select one: a. both parties receive more in value than they give up. b. equal values are always exchanged for one another. c. neither party can gain more than the other. d. one trader's gain must be the other's loss.

a. both parties receive more in value than they give up.

Puerto Rico's minimum wage increased dramatically as result of the 1938 Fair Labor Standards Act. This legislation: Select one: a. caused many Puerto Rican firms to go bankrupt, sending unemployment soaring. b. is a case in point that minimum wage increases have different effects in non-capitalist countries. c. provided a counterexample to the claim that minimum wage increases cause unemployment. d. had little effect on Puerto Rican labor markets because the minimum wage increase was quite modest.

a. caused many Puerto Rican firms to go bankrupt, sending unemployment soaring.

Price controls instituted by President Nixon in 1971: Select one: a. generated shortages in the markets for construction, wool, oil, steel bars, toilets, jeans, and others. b. generated shortages, confined mostly to just the markets for gasoline and oil. c. were successfully able to control inflation by 1973. d. were set above the equilibrium prices and made little impact as a result.

a. generated shortages in the markets for construction, wool, oil, steel bars, toilets, jeans, and others.

The intention of the "Buy American" provision in the 2009 stimulus bill was to Select one: a. increase jobs in the United States. b. prevent foreign firms from dumping product in the United States. c. insure that products used to build roads and bridges meet U.S. quality and safety standards. d. save the government money by restricting the sale of more expensive foreign-made products.

a. increase jobs in the United States.

Price ceilings create five important effects: Select one: a. shortages, reductions in product quality, wasteful lineups, a loss from gains to trade, and a misallocation of resources. b. surpluses, increases in product quality, search costs, gains from trade, and resource attrition. c. excess demand, long lines, poor service, efficiency, and arbitrage. d. shortages, reduced time costs, low vacancy rates, blat, and deadweight loss.

a. shortages, reductions in product quality, wasteful lineups, a loss from gains to trade, and a misallocation of resources.

Suppose Factory A emits 15,000 units of "Yuck" monthly, Factory B emits 30,000 units, and Factory C emits 45,000 units. Also suppose A's cost of reducing the emission is $1 per unit, B's cost is $2 per unit, and C's cost is $3 per unit. If the EPA orders each factory to reduce emissions by 15,000 units, what would be the total cleanup cost? Select one: a. $75,000 b. $90,000 c. $105,000 d. $127,000

b. $90,000

Could pollution be eliminated by banning all activities that damage the environment? Select one: a. No, because legislation is influenced by industrial lobbyists. b. No, because the cost of doing so would be higher than even the most dedicated environmentalist would agree to accept. c. Not until we have better information on the sources of pollution. d. Yes, if we are willing to place long-run considerations ahead of short-run profits.

b. No, because the cost of doing so would be higher than even the most dedicated environmentalist would agree to accept

Could pollution be eliminated by banning all activities that damage the environment? Select one: a. No, because legislation is influenced by industrial lobbyists. b. No, because the cost of doing so would be higher than even the most dedicated environmentalist would agree to accept. c. Not until we have better information on the sources of pollution. d. Yes, if we are willing to place long-run considerations ahead of short-run profits.

b. No, because the cost of doing so would be higher than even the most dedicated environmentalist would agree to accept.

Suppose that Company A's railroad cars pass through Farmer B's corn fields. The railroad causes an externality to the farmer because the railroad cars emit sparks that cause $1,500 in damage to the farmer's crops. The railroad could purchase grease that would eliminate the damaging sparks. The grease costs $1,200. Suppose that the farmer has the right to compensation for any damage that his crops suffer. Assume that there are no transaction costs. Which of the following characterizes the efficient outcome? Select one: a. The railroad will continue to operate but will pay the farmer $1,500 in damages. b. The railroad will purchase the grease for $1,200 and pay the farmer nothing because no crop damage will occur. c. The farmer will incur $1,500 in damages to his crops. d. The farmer will pay the railroad $1,200 to purchase the grease so that no crop damage will occur.

b. The railroad will purchase the grease for $1,200 and pay the farmer nothing because no crop damage will occur.

Tuna fish are being driven to extinction because of overfishing. If all the fishermen know about this, why don't they fish less to slow down the extinction? Select one: a. The kind of fishing equipment that is used does not allow for smaller catches. b. There is a lack of well-defined property rights over the stock of tuna fish in the sea. c. The fishermen do not realize that their way of life will also become extinct. d. Their governments have not considered tradable allowances as a solution.

b. There is a lack of well-defined property rights over the stock of tuna fish in the sea.

Why do people in New York City often read the obituaries to locate an apartment? Select one: a. They are strange. b. They find it efficient, given the alternatives. c. The landlords force them to. d. There is no other source of apartment rental information outside the obituaries

b. They find it efficient, given the alternatives.

Mosquito control must be provided by the government because if: Select one: a. a lot of people free ride then mosquito control would be overprovided by the market. b. a lot of people free ride then mosquito control would be underprovided by the market. c. only few people are benefited then mosquito control would be overprovided by the market. d. only few people are benefited then mosquito control would be underprovided by the market.

b. a lot of people free ride then mosquito control would be underprovided by the market

Government imposed quantitative limits on the amount of pollution firms are allowed to produce is an example of Select one: a. the Pigovian method of pollution control. b. command and control approach to pollution reduction. c. Coasian solution to pollution reduction. d. a tradable emission allowance system of pollution control

b. command and control approach to pollution reduction.

Suppose the market-clearing wage for pizza delivery workers is $5.00 per hour, but a $6.00 per hour minimum wage is enacted. Other things constant, this tends to Select one: a. increase the supply of these workers. b. decrease the quantity demanded for these workers. c. create a shortage of these workers. d. accomplish all of the above. e. accomplish none of the above.

b. decrease the quantity demanded for these workers.

Ethanol and sugar are both made from sugar cane, and ethanol can be used as a fuel substitute for oil. Increasing oil prices cause the demand for ethanol to increase. This will cause the ______ sugar to ______ and its price to ______. Select one: a. supply of; decrease; increase b. demand for; increase; increase c. demand for; decrease; decrease d. supply of; increase; increase

b. demand for; increase; increase

Fill in the blank: Your authors argue that rent controls tend to __________ discriminatory behavior among landlords. Select one: a. increase nonprice b. increase price c. decrease nonprice d. eliminate

b. increase price

An effective minimum wage tends to create unemployment among unskilled workers because it Select one: a. reduces the demand for their labor services. b. increases the supply of their labor services. c. reduces the marginal productivity of their labor services. d. reduces the quantity demanded for their labor services while increasing the quantity supplied of their labor services. e. generates all of the above.

b. increases the supply of their labor services.

What would be the LEAST likely result of a price floor in the market for airline travel? Select one: a. rapid replacement of old airliners with new aircraft b. narrow seats and basic meals like peanuts or chips with a coffee or soda c. special incentives like airline mileage clubs to attract customers d. excellent engine maintenance

b. narrow seats and basic meals like peanuts or chips with a coffee or soda

The minimum wage is an example of a(n.: Select one: a. price ceiling. b. price floor. c. wage subsidy. d. efficient policy.

b. price floor.

We commonly associate ______ with agricultural products. Select one: a. price ceilings b. price floors c. unregulated markets d. rent control

b. price floors

Tradable pollution permits Select one: a. have prices that are set by the government. b. will be more valuable to firms that can reduce pollution only at high costs. c. are likely to create a higher level of total pollution. d. are less desirable than corrective taxes in reducing pollution.

b. will be more valuable to firms that can reduce pollution only at high costs.

Speculation refers to: a.An attempt to raise the price of a good. b.An attempt to create scarcity in a market. c.An attempt to profit from future price changes.

c

Markets are linked through: a.Shortages. b.Government regulations. c.Prices.

c - Markets are linked through prices

Suppose Factory A emits 15,000 units of "Yuck" monthly, Factory B emits 30,000 units, and Factory C emits 45,000 units. Also suppose A's cost of reducing the emission is $1 per unit, B's cost is $2 per unit, and C's cost is $3 per unit. If the EPA orders each factory to reduce its emissions by half, what would be the total cleanup cost? Select one: a. $45,000 b. $67,500 c. $105,000 d. $122,500 e. $127,000

c. $105,000

What's a direct long-run effect of imposing rent controls on apartments? Select one: a. A rise in demand for rent controlled apartments. b. A fall in demand for rent controlled apartments. c. A fall in the supply of rent controlled apartments. d. A rise in the supply of rent controlled apartments.

c. A fall in the supply of rent controlled apartments

According to ________, in a market with an externality, private parties would voluntarily negotiate an efficient outcome without government intervention. Select one: a. A. C. Pigou b. Adam Smith c. Ronald Coase d. John Maynard Keynes

c. Ronald Coase

Which of the following statements about the importance of trade to the U.S. economy is true? Select one: a. Since 1950, both exports and imports have steadily decreased as a fraction of U.S. gross domestic product. b. Overall, about 80 percent of U.S. manufacturing jobs depend directly or indirectly on exports. c. The United States is the largest exporter of services in the world. d. The U.S. economy is highly dependent on international trade for growth in its gross domestic product

c. The United States is the largest exporter of services in the world.

What is the most likely effect of legislated rent controls on the rental vacancy rate in an area adopting such controls? Select one: a. The vacancy rate will not change because rent controls don't change the demand (curve) for housing. b. The vacancy rate will rise because owners will be less eager to have tenants in their buildings. c. The vacancy rate will fall because rent controls create a shortage situation. d. The vacancy rate will become wholly arbitrary and unpredictable because allocation decisions will have to be made by political rather than economic criteria.

c. The vacancy rate will fall because rent controls create a shortage situation.

Which of the following examples specifies the cause of the tragedy of the common? Select one: a. People like to eat chicken so demand for chicken has significantly increased. b. The supply of chicken is plentiful, causing the profit margin of selling chicken to decrease. c. Tuna in the ocean are not privately owned so fishermen have an incentive to overfish. d. The supply of tuna is rare, creating high profit margins and incentives for fishermen to underfish tuna.

c. Tuna in the ocean are not privately owned so fishermen have an incentive to overfish

Countries that engage in trade will tend to specialize in the production of goods and services in which they have ________ and will ________ these goods and services. Select one: a. a comparative advantage; import b. an absolute advantage; export c. a comparative advantage; export d. an absolute advantage; import

c. a comparative advantage; export

The textbook suggests that the noise of jet engines is not a negative externality for baggage handlers Select one: a. because it leaves no residue in the environment. b. because the benefits are greater than the costs. c. because they are paid to live with the noise. d. because they wear hearing-protection devices. e. unless it leaves them with permanent hearing loss.

c. because they are paid to live with the noise.

When a price ceiling is in effect: Select one: a. there is no competition for goods. b. suppliers have an incentive to provide really good customer service. c. demanders compete for goods in short supply by accepting reductions in quality. d. suppliers compete for customers by inefficiently raising quality levels

c. demanders compete for goods in short supply by accepting reductions in quality.

Under a binding price ceiling, one expects the quality of a good to: Select one: a. rise. b. remain the same. c. fall. d. change in an indeterminate direction.

c. fall.

Economists argue that rent controls carry long-run unintended consequences such as Select one: a. a fairer price for people who can't afford market-determined rents. b. improved quality of apartment units. c. fewer apartment units as landlords seek substitute uses of their property. d. a higher cost to landlords who discriminate through nonprice criteria.

c. fewer apartment units as landlords seek substitute uses of their property.

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

c. if transactions costs are low, private bargaining will result in an efficient solution to the problem of externalities.

Which of the following is a source of market failure? Select one: a. unforeseen circumstances which leads to the bankruptcy of many firms b. a lack of government intervention in a market c. incomplete property rights or inability to enforce property rights d. an inequitable income distribution

c. incomplete property rights or inability to enforce property rights

Suppose the market-clearing price of milk is $1.59 per gallon, but the diary industry persuades the government to establish a legally-mandated price support at $1.89 per gallon. This tends to Select one: a. increase the supply of milk. b. reduce the demand for milk. c. increase the quantity supplied of milk. d. increase the quantity demanded of milk

c. increase the quantity supplied of milk.

A system of property rights that effectively promotes social cooperation will be one in which people Select one: a. behave cautiously and considerately because their rights are not clear. b. enjoy most rights in common with all other members of the society. c. know exactly what their rights are and don't expect them to change significantly. d. know that their rights are always dependent upon continuing majority approval. e. realize that the rules of the game can change at any moment.

c. know exactly what their rights are and don't expect them to change significantly.

Direct controls imposing identical emission limits on all polluters are Select one: a. efficient if emissions can be accurately monitored, which is seldom possible. b. equitable because under this system all polluters bear equal costs. c. likely to require a great deal of high-cost pollution reduction. d. more efficient and equitable than a system of fines because fines matter less to large than to small polluters.

c. likely to require a great deal of high-cost pollution reduction.

If the opportunity cost of production for two goods is different between two countries, then Select one: a. trade cannot benefit either country. b. only one country can be made better off by trade. c. mutually beneficial trade is possible. d. trade will only benefit both countries if one can lower its opportunity costs.

c. mutually beneficial trade is possible.

Mosquito control is an example of a good that: Select one: a. people still get to enjoy even without paying for it, that is a nonrival good. b. if used by one person cannot be used by another, that is a nonrival good. c. people still get to enjoy even without paying for it, that is a nonexcludable good. d. people must pay for to enjoy, that is an excludable good.

c. people still get to enjoy even without paying for it, that is a nonexcludable good.

A substantial increase in the legal minimum wage will tend to Select one: a. expand employment by increasing purchasing power and hence the demand for output. b. improve the position of the least skilled persons in the labor force. c. reduce employment by raising the cost of hiring some employees above their expected worth to potential employers. d. reduce the wages of highly skilled and highly paid employees.

c. reduce employment by raising the cost of hiring some employees above their expected worth to potential employers.

A price ceiling creates a ________ when it is set ________. Select one: a. surplus; below the equilibrium price b. surplus; above the equilibrium price c. shortage; below the equilibrium price d. shortage; above the equilibrium price

c. shortage; below the equilibrium price

Conceptually, the efficient level of carbon emissions is the level for which Select one: a. the marginal benefit of reducing carbon emissions is maximized. b. the marginal cost of reducing carbon emissions is minimized. c. the marginal benefit of reducing carbon emissions is equal to the cost of reducing carbon emissions. d. the marginal benefit of reducing carbon emissions is minimized and the marginal cost of reducing carbon emissions is maximized.

c. the marginal benefit of reducing carbon emissions is equal to the cost of reducing carbon emissions.

The efficiency of any process will be summarized by Select one: a. the proportion of marginal to non-marginal costs. b. the ratio of work done to energy supplied. c. the ratio of the value of output to the value of input. d. the relationship of supply to demand.

c. the ratio of the value of output to the value of input.

What are property rights? Select one: a. the title to ownership of any physical asset b. a legal document verifying ownership of intangible assets c. the rights individuals or firms have to the exclusive use of their property, including the right to buy or sell it d. the right of the government to appropriate private assets for the good of society

c. the rights individuals or firms have to the exclusive use of their property, including the right to buy or sell it

We can be confident that foreign trade benefits Select one: a. everybody throughout the world. b. everybody living and working within the trading nations. c. those individuals engaged in foreign trade. d. nobody but the rich and powerful.

c. those individuals engaged in foreign trade.

Which of the following statements is true? Select one: a. All individuals in both countries are made better off as a result of international trade. b. Within each country, some individuals are made better off as a result of international trade, but one of the countries will be worse off overall. c. Although some individuals are made better off as a result of international trade, both countries may be made worse off overall. d. Each country as a whole is made better off as a result of international trade, but individuals within each country may be made worse off.

d. Each country as a whole is made better off as a result of international trade, but individuals within each country may be made worse off.

Which of the following is a disadvantage of the command-and-control approach to the problem of pollution? Select one: a. It creates licenses to pollute. b. It is undemocratic. c. It only works in societies where everyone (or almost everyone) has a high degree of environmental consciousness. d. It usually overlooks less costly ways to achieve given goals. e. It violates property rights.

d. It usually overlooks less costly ways to achieve given goals.

A dentist shares an office building with a radio station. The electrical current from the dentist's drill causes static in the radio broadcast, causing the radio station to lose $10,000 in profits. The radio station could put up a shield at a cost of $30,000; the dentist could buy a new drill that causes less interference for $6,000. Either would restore the radio station's lost profits. What is the economically efficient outcome? Select one: a. The radio station puts up a shield, which it pays for. b. The radio station puts up a shield, which the dentist pays for. c. Neither the radio station nor the dentist purchase additional equipment. d. The dentist gets a new drill; it does not matter who pays for it.

d. The dentist gets a new drill; it does not matter who pays for it.

Traffic congestion is an example of a negative externality because Select one: a. motorists take into account all benefits while driving. b. motorists take into account all costs while driving. c. a motorist's cost of driving spills over and affects other motorists. d. a motorist's benefit from driving spills over and affects other motorists.

d. a motorist's benefit from driving spills over and affects other motorists.

Individuals tend to trade because Select one: a. they place different values on their property. b. they expect to gain more than they give up. c. they expect to increase their own wealth as a result of the trade. d. all the above are true

d. all the above are true

The argument that imports destroy jobs is Select one: a. completely false. b. irrelevant to policymaking, because exports create as many jobs as imports destroy. c. never made because it is in no one's interest to make it. d. partially true, in that foreign competition does eliminate some jobs

d. partially true, in that foreign competition does eliminate some jobs.

A local laundry advertises that the clothes it washes smell "sunshine fresh" because it line dries everything outside. Then a steel factory moves in next door and emits black smoke which stains the clothes drying at the laundry. According to the Coase theorem, granting the Select one: a. steel factory the right to pollute would be efficient, but granting the laundry the right to clean air would be equitable. b. laundry the right to clean air would be efficient, but granting the steel factory the right to pollute would be equitable. c. steel factory the right to pollute has the same effect on equity as granting the laundry the right to clean air. d. steel factory the right to pollute has the same effect on efficiency as granting the laundry the right to clean air

d. steel factory the right to pollute has the same effect on efficiency as granting the laundry the right to clean air.

A great deal of damage is done to the environment in the urban U.S. because Select one: a. a system based on private property cannot provide for a common environment. b. few people understand the economics of pollution. c. many and perhaps most people assign little or no value to a pleasant environment. d. the environment is treated as everyone's property and therefore as no one's property. e. the United States has no central planning.

d. the environment is treated as everyone's property and therefore as no one's property.

In some cases, tradable pollution permits may be better than a corrective tax because Select one: a. pollution permits allow for a market solution while a corrective tax does not. b. pollution permits generate more revenue for the government than a corrective tax. c. pollution permits are never preferred over a corrective tax. d. the government can set a maximum level of pollution using permits.

d. the government can set a maximum level of pollution using permits.

Suppose Factory A emits 15,000 units of "Yuck" monthly, Factory B emits 30,000 units, and Factory C emits 45,000 units. Also suppose A's cost of reducing the emission is $1 per unit, B's cost is $2 per unit, and C's cost is $3 per unit. If the EPA prohibits any factory from emitting more than 15,000 units of yuck per month, what would be the total cleanup cost? Select one: a. $15,000 b. $40,000 c. $45,000 d. $90,000 e. $120,000

e. $120,000

1. Suppose the market-clearing price of milk is $1.59 per gallon, but consumer groups persuade the government to set and enforce a maximum price of $1.39 per gallon. This tends to Select one: a. create a surplus of milk. b. increase the demand for milk. c. reduce the supply of milk. d. do all of the above. e. do none of the above.

e. do none of the above.

The principal reason we no longer see huge herds of bison (popularly known as "buffalo") on the American prairies is because Select one: a. the bison has been declared an endangered species. b. the bison have not been declared an endangered species. c. the bison were slaughtered in the 19th century in a wasteful manner. d. the bison were slaughtered in the 19th century in response to financial incentives. e. those who own prairie land usually don't want bison on their property

e. those who own prairie land usually don't want bison on their property.

great economic problem

to arrange our limited resources to satisfy as many of our wants as possible.