Econ Test (micro)

A common theme among examples of market failure is a. some item of value does not have an owner with the legal authority to control it. b. the good being provided harms society in some systematic way. c. government intervention decreases the social benefits. d. cost-benefit analysis will show that private markets should provide the goods and services.

a.

A simultaneous decrease in both the demand for MP3 players and the supply of MP3 players would imply that a. the value of MP3 players to consumers has decreased, and the cost of producing MP3 players has increased. b. both the value of MP3 players to consumers and the cost of producing MP3 players has decreased. c. both the value of MP3 players to consumers and the cost of producing MP3 players has increased. d. the value of MP3 players to consumers has increased, and the cost of producing MP3 players has decreased.

a.

An economics professor, upset about the rising cost of textbooks, proposed that his department purchase 50 copies of a statistics book so the students in the statistics class would not have to purchase their own books but rather could borrow a book for the semester and then return it for the next class to use. Which of the following strategies would not prevent a common resource problem with the textbooks? a. The textbooks are placed in a common area of the department so students can borrow and return them as needed. b. The textbooks are placed in the professor's office and will only be given to students who are registered members of the class. These students will not receive their final course grades until the books are returned. c. Students must sign a form agreeing to return the book or pay a fine equal to the replacement cost of the book. d. Students will be required to pay a deposit for the textbook, which is refundable at the end of the semester when the book is returned in good condition.

a.

Before considering any public project, the government should (i) compare the total cost and total benefits of the project. (ii) conduct a cost-benefit analysis. (iii)infer that citizens who vote for a project are willing to pay equally for it. a. (i) and (ii) only b. (i), (ii), and (iii) c. (ii) only d. (i) only

a.

Denise values a stainless steel dishwasher for her new house at $500. The actual price of the dishwasher is $650. Denise a. does not buy the dishwasher, and on her purchases she experiences a consumer surplus of $0. b. does not buy the dishwasher, and on her purchase she experiences a consumer surplus of $150. c. buys the dishwasher, and on her purchase she experiences a consumer surplus of $-150. d. buys the dishwasher, and on her purchase she experiences a consumer surplus of $150.

a.

George produces cupcakes. His production cost is $10 per dozen. He sells the cupcakes for $16 per dozen. His producer surplus per dozen cupcakes is a. 6 b. 16 c. 10 d. 26

a.

Honey producers provide a positive externality to orchards because a. the orchard owner does not have to purchase bees to pollinate his flowers. b. the orchard owner frequently gets stung by the honey producer's bees. c. the honey producers get more honey. d. the honey producers have to rent access to the orchard grounds.

a.

Hot dogs and hot dog buns are complements. An increase in the price of flour used to make hot dogs buns will a. decrease consumer surplus in the market for hot dog buns and decrease producer surplus in the market for hot dogs. b. increase consumer surplus in the market for hot dog buns and decrease producer surplus in the market for hot dogs. c. decrease consumer surplus in the market for hot dog buns and increase producer surplus in the market for hot dogs. d. increase consumer surplus in the market for hot dogs and increase producer surplus in the market for hot dog buns.

a.

If an externality is present in a market, economic efficiency may be enhanced by a. government intervention. b. increased competition. c. better informed market participants. d. weakening property rights.

a.

Mike Miller is the town manager of Medfield, a town with 50,000 residents. At a recent town meeting, several citizens proposed building a large public swimming pool in the center of town for all of the residents to enjoy. A survey of all 50,000 residents revealed that the pool would be worth $50 to each of them. The cost to build the swimming pool is $1,000,000. Which of the following is the most efficient option? a. The pool should be built and paid for by the town government and paid for with a tax on the residents because all residents would benefit from it but some residents would not donate if they were asked. b. The pool should be built and paid for with donations collected from residents, as these donations should more than cover the cost of the pool. c. The pool should be built and paid for by the wealthiest ten percent of the residents. d. The pool should not be built because the social value does not exceed the cost.

a.

Moving production from a highcost producer to a lowcost producer will a. raise total surplus. b. lower total surplus. c. lower producer surplus. d. raise producer surplus but lower consumer surplus.

a.

Roland mows Karla's lawn for $25. Roland's opportunity cost of mowing Karla's lawn is $20, and Karla's willingness to pay Roland to mow her lawn is $28. Refer to Scenario 8-2. Assume Roland is required to pay a tax of 3 each time he mows a lawn. Which of the following results is most likely? a. Roland and Karla still can engage in a mutually- agreeable trade b. Karla is willing to pay Roland to mow her lawn, but Roland will decline her offer. c. Roland is willing to mow Karla's lawn, but Karla will decide to mow her own lawn. d. Karla now will decide to mow her own lawn, and Roland will decide its no longer in his interest to mow Karla's lawn

a.

To increase safety at a bad intersection, the mayor must decide whether to install a traffic light at a cost of $45,000. If the traffic light reduces the risk of fatality by 0.4 percent, and the value of a human life is estimated to be $10 million, the mayor should a. not install the light because the expected benefit of $40,000 is less than the cost. b. install the light because the expected benefit of $45,000 is greater than the cost. c. install the light because the expected benefit of $400,000 is greater than the cost. d. not install the light because the expected benefit of $45,000 is only equal to the cost.

a.

Vertical equity in taxation refers to the idea that people a. in unequal conditions should be treated differently. b. in equal conditions should pay equal taxes. c. should pay a proportional tax rather than a progressive tax. d. should pay taxes based on the benefits they receive from the government.

a.

What causes the Tragedy of the Commons? (i) Social and private incentives differ. (ii) Common resources are not rival in consumption and are not excludable. (iii) Common resources are not excludable but are rival in consumption. a. (i) and (iii) only b. (ii) only c. (i) and (ii) only d. (i) only

a.

When a buyer's willingness to pay for a good is equal to the price of the good, the a. buyer is indifferent between buying the good and not buying it b. price of the good exceeds the value that the buyer places on the good c. buyer will as much of the good as the buyer's budget allows d. buyer's consumer surplus for that good is maximized

a.

Which of the following goods is nonrival in consumption and excludable? a. Disney World on a rainy, cool day b. Grand Canyon National Park on a rainy, cool day c. White Mountain ski resort on a sunny, mild day d. a crowded public beach on a sunny, warm day

a.

A cable television broadcast of a movie is a. not excludable and not rival in consumption. b. excludable and not rival in consumption. c. excludable and rival in consumption. d. not excludable and rival in consumption.

b.

A toll on a congested road is in essence a. an interstate highway tax. b. a corrective tax. c. a Department of Motor Vehicles tax. d. a gasoline tax.

b.

A total surplus measures the a. loss to buyers from paying higher prices plus the benefit to sellers from receiving lower prices b. buyers' willingness to pay less the sellers' cost c. fairness of the distribution of resources in society d. value to the government of goods and services sold in society

b.

Abraham drinks Mountain Dew. He can buy as many cans of Mountain Dew as he wishes at a price of $0.55 per can. On a particular day, he is willing to pay $0.95 for the first can, $0.80 for the second can, $0.60 for the third can, and $0.40 for the fourth can. Assume Abraham is rational in deciding how many cans to buy. His consumer surplus is a. $1.00 b. $.70 c. $.60 d. $.50

b.

Billie Jo values a stainless steel dishwasher for her new house at $500, but she succeeds in buying one for $425. Billie Jo's willingness to pay for the dishwasher is a. $850 b. $500 c. $150 d. $425

b.

If the government allowed a free market in organs for transplant these would be a. an increase in the waiting period for transplant organs b. a decrease in the shortage of organs for transplant c. an decrease in consumer surplus d. a decrease in producer surplus

b.

Individual Retirement Accounts and 401(k) plans make the current U.S. tax system a. less like European tax systems than it otherwise would be. b. more like a consumption tax than it otherwise would be. c. more like an income tax than it otherwise would be. d. more like a payroll tax than it otherwise would be.

b.

Nancy paid a tax of $0.50 on the last dollar she earned in 1999. Nancy's marginal tax rate in 1999 was a. more than 50 percent. b. exactly 50 percent. c. higher than her average tax rate. d. lower than her average tax rate.

b.

Scenario 12-1 Ken places a $20 value on a cigar, and Mark places a $17 value on it. The equilibrium price for this brand of cigar is $15. Refer to Scenario 12-1. Suppose the government levies a tax of $3 on each cigar, and the equilibrium price of a cigar increases to $18. What is total consumer surplus after the tax is levied? a. $0 b. $2 c. $5 d. $6

b.

Suppose that Firms A and B each produce highresolution computer monitors, but Firm A can do so at a lower cost. Cassie and David each want to purchase a highresolution computer monitor, but David is willing to pay more than Cassie. If Firm A produces a monitor that Cassie buys but David does not, then the market outcome illustrates which of the following principles? Free markets allocate the supply of goods to the buyers who value them most highly, as measured by their willingness to pay. Free markets allocate the demand for goods to the sellers who can produce them at the least cost. a. neither (i) nor (ii) b. (ii) only c. both (i) and (ii) d. (i) only

b.

Suppose that an MBA degree creates no externality because the benefits of an MBA are internalized by the student in the form of higher wages. If the government offers subsidies for MBAs, then which of the following statements is correct? a. The equilibrium quantity of MBAs will equal the socially optimal quantity of MBAs. b. The equilibrium quantity of MBAs will be greater than the socially optimal quantity of MBAs. c. The equilibrium quantity of MBAs will be less than the socially optimal quantity of MBAs. d. There is not enough information to answer the question.

b.

Suppose that flu shots create a positive externality equal to $8 per shot. Further suppose that the government offers a $11 per shot subsidy to producers. What is the relationship between the equilibrium quantity and the socially optimal quantity of flu shots produced? a. They are equal. b. The equilibrium quantity is greater than the socially optimal quantity. c. The equilibrium quantity is less than the socially optimal quantity. d. There is not enough information to answer the question.

b.

Suppose that policymakers are considering placing a tax on either of two markets. In Market A, the tax will have a significant effect on the price consumers pay, but it will not affect equilibrium quantity very much. In Market B, the same tax will have only a small effect on the price consumers pay, but it will have a large effect on the equilibrium quantity. Other factors are held constant. In which market will the tax have a larger deadweight loss? a. Market A b. Market B c. The deadweight loss will be the same in both markets d. There is not enough information to answer the question

b.

The notion that similar taxpayers should pay similar amounts of taxes is known as a. vertical equity. b. horizontal equity. c. taxpayer efficiency. d. the benefits principle.

b.

The provision of public goods gives rise to a. negative externalities, as does the use of common resources. b. positive externalities, whereas the use of common resources gives rise to negative externalities. c. positive externalities, as does the use of common resources. d. negative externalities, whereas the use of common resources gives rise to positive externalities.

b.

​ In 2015, the federal government collected $3.25 trillion dollars in tax revenues and spent $3.69 trillion dollars. This means: a. The national debt is equal to $0.44 billion b. ​The federal government had a budget deficit of $0.44 billion in 2015 c. ​Taxes should be increased d. ​The federal government had a budget surplus of $0.44 billion in 2015

b.

A toll on a congested road is in essence a. an interstate highway tax. b. a Department of Motor Vehicles tax. c. a corrective tax. d. a gasoline tax.

c.

Abe owns a dog; the dog's barking annoys Abe's neighbor, Jenny. Suppose that the benefit of owning the dog is worth $200 to Abe and that Jenny bears a cost of $400 from the barking. Assuming Abe has the legal right to keep the dog, a possible private solution to this problem is that a. Jenny pays Abe $150 to give the dog to his parents who live on an isolated farm. b. Abe pays Jenny $350 for her inconvenience. c. Jenny pays Abe $300 to give the dog to his parents who live on an isolated farm. d. There is no private transaction that would improve this situation.

c.

Consider the following problems: overcrowded public highways, overfishing in the ocean, polluted air, and the near-extinction of the wild rhinoceros. What do these problems have in common? a. They are all the result of a failure of corrective taxes. b. Private markets could easily solve them if governments left the markets alone. c. They are all the result of a failure to establish clear property rights over something of value. d. They would all go away if the government sponsored an intensive public-information campaign.

c.

Cost-benefit analysts often encounter the problem that those who would benefit from government provision of a public good tend to a. understate the benefit they would receive from the public good and those who would be harmed by government provision of a public good tend to understate the costs they would incur from the public good. b. overstate the benefit they would receive from the public good and those who would be harmed by government provision of a public good tend to understate the costs they would incur from the public good. c. overstate the benefit they would receive from the public good and those who would be harmed by government provision of a public good tend to overstate the costs they would incur from the public good. d. understate the benefit they would receive from the public good and those who would be harmed by government provision of a public good tend to overstate the costs they would incur from the public good.

c.

Efficiency in a market is achieved when a. a social planner intervenes and sets the quantity of output after evaluating buyers' willingness to pay and sellers' costs. b. all firms are producing the good at the same low cost per unit. c. the sum of producer surplus and consumer surplus is maximized. d. no buyer is willing to pay more than the equilibrium price for any unit of the good.

c.

Elephants are endangered, but cows are not because a. cows are not as valuable as elephants. b. cows are a common resource, while elephants are private goods. c. elephants are a common resource, while cows are private goods. d. it is legal to kill cows but not elephants.

c.

Goods that are rival in consumption and excludable would be considered a. club goods. b. common resources. c. private goods. d. public goods.

c.

Lump-sum taxes are rarely used in the real world because a. while lump-sum taxes have low administrative burdens, they have high deadweight losses. b. lump-sum taxes are very inefficient. c. lump-sum taxes are often viewed as unfair because they take the same amount of money from both poor and rich. d. while lump-sum taxes have low deadweight losses, they have high administrative burdens.

c.

Motor oil and gasoline are complements. If the price of motor oil increases, consumer surplus in the gasoline market a. is unchanged. b. increases. c. may increase, decrease, or remain unchanged. d. decreases.

c.

On holiday weekends thousands of people picnic in state parks. Some picnic areas become so overcrowded the benefit or value of picnicking diminishes to zero. Suppose that the Minnesota State Park Service institutes a variable fee structure. On weekdays when the picnic areas get little use, the fee is zero. On normal weekends, the fee is $8 per person. On holiday weekends, the fee is $14 per person. The fee system corrects a problem known as the a. Coase theorem. b. free rider problem. c. Tragedy of the Commons. d. public goods problem.

c.

Sue earns income of $80,000 per year. Her average tax rate is 40 percent. Sue paid $4,500 in taxes on the first $30,000 she earned. What was the marginal tax rate on the rest of her income? a. 32 percent b. 15 percent c. 55 percent d. 40 percent

c.

Suppose a country imposes a lump-sum income tax of $5,000 on each individual in the country. What is the average income tax rate for an individual who earns $40,000 during the year? a. 0% b. The average tax rate cannot be determined without knowing the entire tax schedule. c. More than 10% d. 10%

c.

Suppose that flu shots create a positive externality equal to $12 per shot. What is the relationship between the equilibrium quantity and the socially optimal quantity of flu shots produced? a. They are equal. b. The equilibrium quantity is greater than the socially optimal quantity. c. The equilibrium quantity is less than the socially optimal quantity. d. There is not enough information to answer the question.

c.

The Tragedy of the Commons results when a good is a. excludable and not rival in consumption. b. neither rival in consumption nor excludable. c. rival in consumption and not excludable. d. both rival in consumption and excludable.

c.

The benefits principle of taxation can be used to argue that wealthy citizens should pay higher taxes than poorer ones on the basis that a. the poor receive welfare payments. b. the poor are more active in political processes. c. the wealthy benefit more from services provided by government than the poor. d. police services are more frequently used in poor neighborhoods.

c.

The provision of public goods gives rise to a. positive externalities, as does the use of common resources. b. negative externalities, as does the use of common resources. c. positive externalities, whereas the use of common resources gives rise to negative externalities. d. negative externalities, whereas the use of common resources gives rise to positive externalities.

c.

Three business people meet for lunch at an Indian restaurant. They decide that each person will order an item off the menu, and they will share all dishes. They will split the cost of the final bill evenly among each of the people at the table. When the food is delivered to the table, each person faces incentives similar to the a. consumption of a club good. b. production of a private good. c. consumption of a common resource good. d. production of a public good.

c.

Two firms, A and B, each currently dump 20 tons of chemicals into the local river. The government has decided to reduce the pollution and from now on will require a pollution permit for each ton of pollution dumped into the river. The government gives each firm 10 pollution permits, which it can either use or sell to the other firm. It costs Firm A $100 for each ton of pollution that it eliminates before it reaches the river, and it costs Firm B $50 for each ton of pollution that it eliminates before it reaches the river. After the two firms buy or sell pollution permits from each other, we would expect that a. Firm A will no longer pollute, and Firm B will not reduce its pollution at all. b. Firm A will dump 10 tons of pollution into the river, and Firm B will dump 10 tons of pollution into the river. c. Firm B will no longer pollute, and Firm A will not reduce its pollution at all. d. Firm A will increase its pollution and Firm B will reduce its pollution.

c.

University researchers create a positive externality because what they discover in their research labs can easily be learned by others who haven't contributed to the research costs. If there are no subsidies, what is the relationship between the equilibrium quantity of university research and the optimal quantity of university research produced? a. They are equal. b. The equilibrium quantity is greater than the socially optimal quantity. c. The equilibrium quantity is less than the socially optimal quantity. d. There is not enough information to answer the question

c.

Which of the following goods is rival in consumption and excludable? a. an outdoor movie shown at a public park b. a movie in an empty theater c. a DVD d. a movie shown on cable television.

c.

A budget deficit a. occurs when government spending is less than receipts. b. occurs when government receipts are equal to spending. c. is the accumulation of years of government overspending. d. occurs when government receipts are less than spending.

d.

According to the Coase theorem, private markets will solve externality problems and allocate resources efficiently as long as a. the externalities that are present are positive, not negative. b. businesses determine an appropriate level of production. c. government assigns property rights to the harmed party. d. private parties can bargain with sufficiently low transaction costs.

d.

After a recent spike in violent crime, the local police department wants to spend $550,000 on a new crime fighting initiative. If a human life is worth $9 million, the crime fighting initiative is worth the cost if it reduces the risk of someone dying from crime by at least a. 9.0 percentage points. b. 5.5 percentage points. c. 3.5 percentage points. d. 6.1 percentage points.

d.

All of the following are transfer payments except a. unemployment compensation. b. welfare payments. c. Social Security. d. personal income taxes.

d.

Allen tutors in his spare time for extra income. Buyers of his service are willing to pay $40 per hour for as many hours Allen is willing to tutor. On a particular day, he is willing to tutor the first hour for $10, the second hour for $18, the third hour for $28, and the fourth hour for $40. Assume Allen is rational in deciding how many hours to tutor. His producer surplus is a. 56 b. 40 c. 12 d. 64

d.

Chad is willing to pay $5.00 to get his first cup of morning latté; he is willing to pay $4.50 for a second cup. He buys his first cup from a vendor selling latté for $3.75 per cup. He returns to that vendor later in the morning to find that the vendor has increased her price to $3.90 per cup. Chad buys a second cup. Which of the following statements is correct? a. Chad's consumer surplus on his second cup of lattè was larger than his consumer surplus on his first cup of lattè. b. Chad places a higher value on his second cup of lattè than on his first cup lattè. c. Chad is irrational in that he is willing to pay for a different price for his second cup of lattè than what he is willing to pay for his first cup of lattè d. Chad's willingness to pay for the second cup of lattè was smaller than his willingness to pay for his first cup of latté

d.

Corn chips and potato chips are substitutes. Good weather that sharply increases the corn harvest would a. increase consumer surplus in the market for corn chips and increase producer surplus in the market for potato chips. b. decrease consumer surplus in the market for corn chips and increase producer surplus in the market for potato chips. c. decrease consumer surplus in the market for corn chips and decrease producer surplus in the market for potato chips d. increase consumer surplus in the market for corn chips and decrease producer surplus in the market for potato chips

d.

Corporate profits distributed as dividends are a. taxed three times. b. tax free. c. taxed once. d. taxed twice.

d.

Dick owns a dog whose barking annoys Dick's neighbor Jane. Dick receives personal benefit from owning the dog, and Jane bears a cost of Dick's ownership of the dog. Assuming Jane has the legal right to peace and quiet, which of the following statements is correct? a. If Dick's benefit exceeds Jane's cost, government intervention is necessary. b. If Jane has the legal right to peace and quiet, no further transactions will be mutually beneficial. c. If Jane's cost exceeds Dick's benefit, Dick will pay Jane to keep his dog. d. Dick will pay to keep his dog if his benefit exceeds Jane's cost.

d.

Four friends decide to meet at a Chinese restaurant for dinner. They decide that each person will order an item off the menu, and they will share all dishes. They will split the cost of the final bill evenly among each of the people at the table. A Tragedy of the Commons problem is likely for each of the following reasons except a.each person has an incentive to eat as fast as possible since their individual rate of consumption will not affect their individual cost. b. when one person eats, he may not take into account how his choice affects his friends. c. there is an externality associated with eating the food on the table. d. each dish would be both excludable and rival in consumption.

d.

Mike Miller is the town manager of Medfield, a town with 50,000 residents. At a recent town meeting, several citizens proposed building a large public swimming pool in the center of town for all of the residents to enjoy. A survey of all 50,000 residents revealed that the pool would be worth $50 to each of them. Because the cost to build the swimming pool is only $1,000,000, Manager Miller arranges to have the pool built. Everyone in town enjoys the pool, but when Manager Miller asks for donations to pay for the pool, he only collects $250,000. Manager Miller soon realizes that a. the cost of the pool exceeded the social benefits. b. the survey was conducted improperly. c. the pool is a club good. d. most residents of the town are probably free-riders at the pool.

d.

Scenario 10-1 The demand curve for gasoline slopes downward and the supply curve for gasoline slopes upward. The production of the 1,000th gallon of gasoline entails the following: • a private cost of $3.10; • a social cost of $3.55; • a value to consumers of $3.70. Refer to Scenario 10-1. Let Q represent the number of gallons of gasoline and let P represent the price of a gallon of gasoline. Which of the following statements is correct? a. The socially optimal quantity of gasoline is less than 1,000 gallons. b. One point on the demand curve is (Q = 1,000, P = $3.55). c. One point on the socialcost curve is (Q = 1,000, P = $0.45). d. One point on the supply curve is (Q = 1,000, P = $3.10).

d.

Scenario 12-1 Ken places a $20 value on a cigar, and Mark places a $17 value on it. The equilibrium price for this brand of cigar is $15. Refer to Scenario 12-1. Suppose the government levies a tax of $3 on each cigar, and the equilibrium price of a cigar increases to $18. How much tax revenue is collected? a. $0 b. $2 c. $6 d. $3

d.

Seymour owns 3 acres of beautiful waterfront property on a large inland lake. In his will, Seymour donates the land to the state with the understanding that the land will be used as a state beach that anyone may use without paying any fees. This state beach a. will tend to be overused because it is nonexcludable. b. is a common resource when it becomes crowded on sunny summer weekends. c. is rival in consumption when it becomes crowded on sunny summer weekends. d. All of the above are correct.

d.

Suppose the government imposes a tax of 20 percent on the first $50,000 of income and 30 percent on all income above $50,000. What is the marginal tax rate when income is $60,000? a. 10 percent b. 20 percent c. 50 percent d. 30 percent

d.

Suppose the government imposes a tax on cheese. The deadweight loss from this tax will likely be greater in the a. eighth year after it is imposed than in the first year after it is imposed because demand and supply will be more elastic in the first year than in the eighth year. b. first year after it is imposed than in the eighth year after it is imposed because demand and supply will be more elastic in the first year than in the eighth year. c. first year after it is imposed than in the eighth year after it is imposed because demand and supply will be less elastic in the first year than in the eighth year. d. eighth year after it is imposed than in the first year after it is imposed because demand and supply will be less elastic in the first year than in the eighth year.

d.

The ability-to-pay principle claims that a person should pay taxes according to a. how many government services that person will receive. b. the level of public education that the person has received throughout his lifetime. c. the level of debt that the person has. d. how well that person can shoulder the tax burden.

d.

The free-rider problem exists with a. All of the above are correct. b. online music subscriptions. c. public transportation d. knowledge.

d.

Tradable pollution permits a. are widely viewed as a cost effective way to reduce pollution. b. have helped reduce carbon emissions. c. have helped reduce sulfur dioxide emissions. d. All of the above are correct.

d.

Which tax system requires higher-income taxpayers to pay a higher percentage of their income in taxes? a. a lump-sum tax b. a proportional tax c. a regressive tax d. a progressive tax

d.