Econ Test 2 chapter questions

Inefficiency can be caused in a market by the presence of

-market power. -externalities. -imperfectly competitive markets.

When a binding price floor is imposed on a market,

-price no longer serves as a rationing device. -the quantity supplied at the price floor exceeds the quantity that would have been supplied without the price floor. -only some sellers benefit.

Producer surplus equals

Amount received by sellers - Costs of sellers.

Dallas buys strawberries, and he would be willing to pay more than he now pays. Suppose that Dallas has a change in his tastes such that he values strawberries more than before. If the market price is the same as before, then

Dallas's consumer surplus would increase

Suppose the demand for peaches decreases. What will happen to producer surplus in the market for peaches?

It decreases.

Import quotas and tariffs produce similar results, what are they

The domestic price of the good increases,Producer surplus of domestic producers increases. A deadweight loss is experienced by the domestic country.

Which of the following is an example of a positive externality

The mayor of a small town plants flowers in the city park.

If an objective of public policy is to allocate pollution to those factories that face the highest cost of reducing it, then that objective could be achieved by

a corrective tax, but not by regulation.

A tariff is a tax placed on what?

an imported good and it raises the domestic price of the good above the world price.

In analyzing international trade, we often focus on a country whose economy is small relative to the rest of the world. We do s

because then we can assume that world prices of goods are unaffected by that country's participation in international trade.

Suppose that the market price for pizzas increases. The increase in producer surplus comes from the benefit of the higher prices to

both existing sellers who now receive higher prices on the pizzas they were already selling and new sellers who enter the market because of the higher prices.

A tax on the buyers of cameras encourages

buyers to demand a smaller quantity at every price.

If a tax is imposed on a market with inelastic demand and elastic supply, then

buyers will bear most of the burden of the tax.

To say that a price ceiling is binding is to say that the price ceiling

causes quantity demanded to exceed quantity supplied.

If a consumer places a value of $15 on a particular good and if the price of the good is $17, then the

consumer does not purchase the good.

A tax on the buyers of cereal will increase the price of cereal paid by buyers, and ...

decrease the effective price of cereal received by sellers, and decrease the equilibrium quantity

A tax on the sellers of coffee mugs

decreases the size of the coffee mug market.

Sellers of a product will bear the larger part of the tax burden, and buyers will bear a smaller part of the tax burden, when the

demand for the product is more elastic than the supply of the product.

A decrease in the size of a tax is most likely to increase tax revenue in a market with

elastic demand and elastic supply.

The goal of rent control is to

help the poor by making housing more affordable

If the government levies a $5 tax per ticket on buyers of NFL game tickets, then the price paid by buyers of NFL game tickets would

increase by less than $5.

Suppose consumer income increases. If grass seed is a normal good, the equilibrium price of grass seed will

increase, and producer surplus in the industry will increase.

The Golden Rule is an example of a private solution for

internalizing externalities.

How is the burden of a tax divided?

it doesn't matter who the tax is on (buyers or sellers) they both bear some burdens each

Market power and externalities are examples of

market failure.

Minimum wage laws

may encourage some teenagers to drop out and take jobs.

Taxes are of interest to

microeconomists because they consider how to balance equality and efficiency and because they consider how best to design a tax system. macroeconomists because they consider how policymakers can use the tax system to stabilize economic activity.

Assume the demand for cigarettes is relatively inelastic, and the supply of cigarettes is relatively elastic. When cigarettes are taxed, we would expect

most of the burden of the tax to fall on buyers of cigarettes, regardless of whether buyers or sellers of cigarettes are required to pay the tax to the government.

As a result of a decrease in price -

new buyers enter the market, increasing consumer surplus.

If a tax is levied on the sellers of a product, then the demand curve will

not shift at all

When policymakers set prices by legal decree, they

obscure the signals that normally guide the allocation of society's resources.

In a free, competitive market, what is the rationing mechanism?

price

When government imposes a price ceiling or a price floor on a market,

price no longer serves as a rationing device.

Because there are positive externalities from higher education

private markets will under-supply college classes.

According to the Coase theorem, in the presence of externalities

private parties can bargain to reach an efficient outcome

Unlike minimum wage laws, wage subsidies

raise the living standards of the working poor without creating unemployment.

A supply curve can be used to measure producer surplus because it reflects

sellers' costs.

Externalities are

side effects passed on to a party other than the buyers and sellers in the market.

A $0.10 tax levied on the sellers of chocolate bars will cause the

supply curve for chocolate bars to shift up by $0.10.

Although lawmakers legislated a fifty-fifty division of the payment of the FICA tax,

the actual tax incidence is unaffected by the legislated tax incidence.

When a tax is levied on a good,

there is a decrease in the quantity of the good bought and sold in the market.

The Coase theorem states that

under certain circumstances government intervention is not needed to reach efficient outcomes when an externality is present.

​When a country opens up to trade in a good for which it has a comparative advantage, and the country begins to export the good, we can conclude that

​the total surplus for this good will increase as a result of opening up the market to international trade.