Econ Test 2 Multiple Choice

A seller's opportunity cost measures the a. value of everything she must give up to produce a good. b. amount she is paid for a good minus her cost of providing it. c. consumer surplus. d. out of pocket expenses to produce a good but not the value of her time.

A

An externality a. results in an equilibrium that does not maximize the total benefits to society. b. causes demand to exceed supply. c. strengthens the role of the "invisible hand" in the marketplace. d. affects buyers but not sellers.

A

At the equilibrium price of a good, the good will be purchased by those buyers who a. value the good more than price. b. value the good less than price. c. have the money to buy the good. d. consider the good a necessity.

A

Externalities tend to cause markets to be a. inefficient. b. unequal. c. unnecessary. d. overwhelmed.

A

Producer surplus measures the a. benefits to sellers of participating in a market. b. costs to sellers of participating in a market. c. price that buyers are willing to pay for sellers' output of a good or service. d. benefit to sellers of producing a greater quantity of a good or service than buyers demand.

A

The Tragedy of the Commons occurs because a. a common resource is rival in consumption. b. a common resource is underutilized. c. crimes are committed in public places. d. common resources are subject to exclusionary rules.

A

The maximum price that a buyer will pay for a good is called the a. cost. b. willingness to pay. c. equity. d. efficiency.

B

The minimum wage is an example of a. a price ceiling. b. a price floor. c. a wage subsidy. d. a tax.

B

In a market economy, government intervention a. will always improve market outcomes. b. reduces efficiency in the presence of externalities. c. may improve market outcomes in the presence of externalities. d. is necessary to control individual greed.

C

Private decisions about consumption of common resources and production of public goods usually lead to an a. efficient allocation of resources and external effects. b. efficient allocation of resources and no external effects. c. inefficient allocation of resources and external effects. d. inefficient allocation of resources and no external effects.

C

Producer surplus equals a. Value to buyers - Amount paid by buyers. b. Amount received by sellers - Costs of sellers. c. Value to buyers - Costs of sellers. d. Value to buyers - Amount paid by buyers + Amount received by sellers - Costs of sellers.

B

If a price floor is not binding, then a. the equilibrium price is above the price floor. b. the equilibrium price is below the price floor. c. it has no legal enforcement mechanism. d. More than one of the above is correct.

A

Which of the following policies is the government most inclined to use when faced with a positive externality? a. taxation b. permits c. subsidies d. usage fees

C

Buyers of a good bear the larger share of the tax burden when a tax is placed on a product for which a. the supply is more elastic than the demand. b. the demand in more elastic than the supply. c. the tax is placed on the sellers of the product. d. the tax is placed on the buyers of the product.

A

Consumer surplus is a. the amount a buyer is willing to pay for a good minus the amount the buyer actually pays for it. b. the amount a buyer is willing to pay for a good minus the cost of producing the good. c. the amount by which the quantity supplied of a good exceeds the quantity demanded of the good. d. a buyer's willingness to pay for a good plus the price of the good.

A

Consumer surplus is equal to the a. Value to buyers - Amount paid by buyers. b. Amount paid by buyers - Costs of sellers. c. Value to buyers - Costs of sellers. d. Value to buyers - Willingness to pay of buyers.

A

Cost is a measure of the a. seller's willingness to sell. b. seller's producer surplus. c. producer shortage. d. seller's willingness to buy.

A

If a consumer is willing and able to pay $20 for a particular good and if he pays $16 for the good, then for that consumer, consumer surplus amounts to a. $4. b. $16. c. $20. d. $36.

A

If a tax is imposed on a market with inelastic demand and elastic supply, then a. buyers will bear most of the burden of the tax. b. sellers will bear most of the burden of the tax. c. the burden of the tax will be shared equally between buyers and sellers. d. it is impossible to determine how the burden of the tax will be shared.

A

If a tax is levied on the sellers of a product, then the supply curve a. will shift up. b. will shift down. c. will become flatter. d. will not shift.

A

If one person's use of a good diminishes another person's enjoyment of it, the good is a. rival in consumption. b. excludable. c. normal. d. exhaustible.

A

In which of these cases will the tax burden fall most heavily on buyers of the good? a. The demand curve is relatively steep and the supply curve is relatively flat. b. The demand curve is relatively flat and the supply curve is relatively steep. c. The demand curve and the supply curve are both relatively flat. d. The demand curve and the supply curve are both relatively steep.

A

Suppose that a tax is placed on books. If the buyers pay the majority of the tax, then we know that the a. demand is more inelastic than the supply. b. supply is more inelastic than the demand. c. government has required that buyers remit the tax payments. d. government has required that sellers remit the tax payments.

A

The imposition of a binding price ceiling on a market causes quantity demanded to be a. greater than quantity supplied. b. less than quantity supplied. c. equal to quantity supplied. d. Both (a) and (b) are possible.

A

The term market failure refers to a. a market that fails to allocate resources efficiently. b. an unsuccessful advertising campaign which reduces demand. c. ruthless competition among firms. d. a firm that is forced out of business because of losses.

A

Welfare economics is the study of how a. the allocation of resources affects economic well-being. b. a price ceiling compares to a price floor. c. the government helps poor people. d. a consumer's optimal choice affects her demand curve.

A

When a good is rival in consumption, a. one person's use of the good diminishes another person's ability to use it. b. people can be prevented from using the good. c. no more than one person can use the good at the same time. d. everyone will be excluded from obtaining the good.

A

When a tax is imposed on the sellers of a good, the supply curve shifts a. upward by the amount of the tax. b. downward by the amount of the tax. c. upward by less than the amount of the tax. d. downward by less than the amount of the tax.

A

Which of the following events would increase producer surplus? a. Sellers' costs stay the same and the price of the good increases. b. Sellers' costs increase and the price of the good stays the same. c. Sellers' costs increase and the price of the good decreases. d. All of the above are correct.

A

Which of the following will cause a decrease in producer surplus? a. the imposition of a binding price ceiling in the market b. an increase in the number of buyers of the good c. income increases and buyers consider the good to be normal d. the price of a complement decreases

A

Willingness to pay a. measures the value that a buyer places on a good. b. is the amount a seller actually receives for a good minus the minimum amount the seller is willing to accept. c. is the maximum amount a buyer is willing to pay minus the minimum amount a seller is willing to accept. d. is the amount a buyer is willing to pay for a good minus the amount the buyer actually pays for it.

A

A price ceiling is a. often imposed on markets in which "cutthroat competition" would prevail without a price ceiling. b. a legal maximum on the price at which a good can be sold. c. often imposed when sellers of a good are successful in their attempts to convince the government that the market outcome is unfair without a price ceiling. d. All of the above are correct.

B

A price floor will be binding only if it is set a. equal to the equilibrium price. b. above the equilibrium price. c. below the equilibrium price. d. either above or below the equilibrium price.

B

A seller is willing to sell a product only if the seller receives a price that is at least as great as the a. seller's producer surplus. b. seller's cost of production. c. seller's profit. d. average willingness to pay of buyers of the product.

B

A tax on buyers will a. shift the demand curve upwards by the amount of the tax. b. shift the demand curve downwards by the amount of the tax. c. shift the supply curve upwards by the amount of the tax. d. shift the supply curve downwards by the amount of the tax.

B

Consumer surplus a. is the amount of a good that a consumer can buy at a price below equilibrium price. b. is the amount a consumer is willing to pay minus the amount the consumer actually pays. c. is the number of consumers who are excluded from a market because of scarcity. d. measures how much a seller values a good.

B

If a consumer places a value of $15 on a particular good and if the price of the good is $17, then the a. consumer has consumer surplus of $2 if he or she buys the good. b. consumer does not purchase the good. c. market is not a competitive market. d. price of the good will fall due to market forces.

B

If a nonbinding price floor is imposed on a market, then a. the quantity sold in the market will decrease. b. the quantity sold in the market will stay the same. c. the price in the market will increase. d. the price in the market will decrease.

B

If a tax is levied on the buyers of a product, then the demand curve a. will not shift. b. will shift down. c. will shift up. d. will become flatter.

B

If a tax is levied on the buyers of a product, then there will be a(n) a. upward shift of the demand curve. b. downward shift of the demand curve. c. movement up and to the left along the demand curve. d. movement down and to the right along the demand curve.

B

Market failure can be caused by a. too much competition. b. externalities. c. low consumer demand. d. scarcity.

B

On a graph, the area below a demand curve and above the price measures a. producer surplus. b. consumer surplus. c. deadweight loss. d. willingness to pay.

B

Suppose that in a particular market, the demand curve is highly elastic and the supply curve is highly inelastic. If a tax is imposed in this market, then a. the buyers will bear a greater burden of the tax than the sellers. b. the sellers will bear a greater burden of the tax than the buyers. c. the buyers and sellers are likely to share the burden of the tax equally. d. the buyers and sellers will not share the burden equally, but it is impossible to determine who will bear the greater burden of the tax without more information.

B

When a good is excludable, a. one person's use of the good diminishes another person's ability to use it. b. people can be prevented from using the good. c. no more than one person can use the good at the same time. d. everyone will be excluded from using the good.

B

When externalities cause markets to be inefficient, a. government action is always needed to solve the problem. b. private solutions can be developed to solve the problem. c. given enough time, externalities can be solved through normal market adjustments. d. there is no way to eliminate the problem of externalities in a market.

B

A price ceiling will be binding only if it is set a. equal to the equilibrium price. b. above the equilibrium price. c. below the equilibrium price. d. either above or below the equilibrium price.

C

A supply curve can be used to measure producer surplus because it reflects a. the actions of sellers. b. quantity supplied. c. sellers' costs. d. the amount that will be purchased by consumers in the market.

C

A surplus results when a. a nonbinding price floor is imposed on a market. b. a nonbinding price floor is removed from a market. c. a binding price floor is imposed on a market. d. a binding price floor is removed from a market.

C

An externality is an example of a. a corrective tax. b. a tradable pollution permit. c. a market failure. d. Both a and b are correct.

C

An externality is the impact of a. society's decisions on the well-being of society. b. a person's actions on that person's well-being. c. one person's actions on the well-being of a bystander. d. society's decisions on the poorest person in the society.

C

An outcome that can result from either a price ceiling or a price floor is a. a surplus in the market. b. a shortage in the market. c. a nonbinding price control. d. long lines of frustrated buyers.

C

Because public goods are a. excludable, people have an incentive to be free riders. b. excludable, people do not have an incentive to be free riders. c. not excludable, people have an incentive to be free riders. d. not excludable, people do not have an incentive to be free riders.

C

Consumer surplus is the a. amount of a good consumers get without paying anything. b. amount a consumer pays minus the amount the consumer is willing to pay. c. amount a consumer is willing to pay minus the amount the consumer actually pays. d. value of a good to a consumer.

C

Private goods are both a. excludable and non-rival in consumption. b. non-excludable and rival in consumption. c. excludable and rival in consumption. d. non-excludable and non-rival consumption.

C

Private markets fail to account for externalities because a. externalities don't occur in private markets. b. sellers include costs associated with externalities in the price of their product. c. decision makers in the market fail to include the costs of their behavior to third parties. d. the government cannot easily estimate the optimal quantity of pollution.

C

Producer surplus is a. measured using the demand curve for a good. b. always a negative number for sellers in a competitive market. c. the amount a seller is paid minus the cost of production. d. the opportunity cost of production minus the cost of producing goods that go unsold.

C

Producer surplus is the area a. under the supply curve. b. between the supply and demand curves. c. below the price and above the supply curve. d. under the demand curve and above the price.

C

Which of the following causes the price paid by buyers to be different than the price received by sellers? a. a binding price floor b. a binding price ceiling c. a tax on the good d. More than one of the above is correct.

C

Which of the following is not a way for the government to solve the problem of excessive use of common resources? a. regulation b. taxes c. turning the common resource into a public good d. turning the common resource into a private good

C

Which of the following statements is correct concerning the burden of a tax? a. Buyers bear the entire burden of the tax. b. Sellers bear the entire burden of the tax. c. Buyers and sellers share the burden of the tax. d. We have to know whether it is the buyers or the sellers that are required to pay the tax to the government in order to make this determination.

C

A free-rider problem exists for any good that is not a. rival in consumption. b. a private good. c. free. d. excludable.

D

A good is excludable if a. one person's use of the good diminishes another person's enjoyment of it. b. the government can regulate its availability. c. it is not a normal good. d. people can be prevented from using it.

D

A legal maximum on the price at which a good can be sold is called a price a. floor. b. subsidy. c. support. d. ceiling.

D

A seller's willingness to sell is a. measured by the seller's cost of production. b. related to her supply curve, just as a buyer's willingness to buy is related to his demand curve. c. less than the price received if producer surplus is a positive number. d. All of the above are correct.

D

An externality exists whenever a. the economy cannot benefit from government intervention. b. markets are not able to reach equilibrium. c. a firm sells its product in a foreign market. d. a person engages in an activity that influences the well-being of a bystander and yet neither pays nor receives payment for that effect.

D

Both public goods and common resources are a. rival in consumption. b. non-rival in consumption. c. excludable. d. non-excludable.

D

If a price ceiling is not binding, then a. there will be a surplus in the market. b. there will be a shortage in the market. c. the market will be less efficient than it would be without the price ceiling. d. there will be no effect on the market price or quantity sold.

D

If a tax is levied on the sellers of a product, then the demand curve a. will shift down. b. will shift up. c. will become flatter. d. will not shift.

D

Most goods in the economy are a. natural monopolies. b. common resources. c. public goods. d. private goods.

D

The goal of rent control is to a. facilitate controlled economic experiments in urban areas. b. help landlords by assuring them a low vacancy rate for their apartments. c. help the poor by assuring them an adequate supply of apartments. d. help the poor by making housing more affordable.

D

Total surplus a. can be used to measure a market's efficiency. b. is the sum of consumer and producer surplus. c. is the to value to buyers minus the cost to sellers. d. All of the above are correct.

D

Total surplus is represented by the area a. under the demand curve and above the price. b. above the supply curve and up to the price. c. under the supply curve and up to the price. d. between the demand and supply curves up to the point of equilibrium.

D

Welfare economics is the study of a. taxes and subsidies. b. how technology is best put to use in the production of goods and services. c. government welfare programs for needy people. d. how the allocation of resources affects economic well-being.

D

When an externality is present, the market equilibrium is a. efficient, and the equilibrium maximizes the total benefit to society as a whole. b. efficient, but the equilibrium does not maximize the total benefit to society as a whole. c. inefficient, but the equilibrium maximizes the total benefit to society as a whole. d. inefficient, and the equilibrium does not maximize the total benefit to society as a whole.

D

Which of the following represents a way that a government can help the private market to internalize an externality? a. taxing goods that have negative externalities b. subsidizing goods that have positive externalities c. The government cannot improve upon the outcomes of private markets. d. Both a and b are correct.

D