eocn 2

Michael values a stainless steel refrigerator for his new house at $3,500, but he succeeds in buying one for $3,000. Michael's willingness to pay is A. $3500 B. $500 C. $3000 D. $6500

A. $3500

Market failure can be caused by A. externalities B. too much competition C. scarcity D. low consumer demand

A. externalities

If the government imposes a price floor of $55 in this market, then total surplus will be A. $275.00 B. $125.00 C. $187.50 D. $137.50

C. $187.50

The figure illustrates the market for tricycles in a country. With trade, consumer surplus is A. $3,240 B. $6,480 C. $13,520 D. $6,760

D. $6,760

binding price floor

above equilibrium

total surplus equation

consumer surplus + producer surplus

consumer surplus

the difference between the highest price a consumer is willing to pay for a good or service and the actual price the consumer pays

Suppose that beef producers create a negative externality. What is the relationship between the equilibrium quantity of beef and the socially optimal quantity of beef? 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. the equilibrium quantity is greater than the socially optimal quantity

The impact of one person's actions on the well-being of a bystander is called A. deadweight loss B. an economic dilemma C. a multi-party problem D. an externality

D. an externality

non-binding price ceiling

above equilibrium

Inelastic

describes demand that is not very sensitive to price changes

A government-imposed price of $6 in this market is an example of a A. non-binding price ceiling that creates a shortage B. binding price ceiling that creates a shortage C. non-binding price floor that creates a surplus D. binding price floor that creates a surplus

B. binding price ceiling that creates a shortage

A government-imposed price of $12 in this market is an example of a A. non-binding price floor that creates a surplus B. binding price floor that creates a surplus C. non-binding price ceiling that creates a shortage D. binding price ceiling that creates a shortage

B. binding price floor that creates a surplus

binding price ceiling

below equilibrium

If the government imposes a price ceiling of $2 on this market, then there will be A. a shortage of 20 units of the good B. a shortage of 30 units of the good C. a shortage of 10 units of the good D. a shortage of 10 units of the good

B. a shortage of 30 units of the good

A price ceiling will only be binding only if it is set A. either above or below the equilibrium price B. below the equilibrium C. equal to the equilibrium price D. above the equilibrium price

B. below the equilibrium price

Externalities tend to cause markets to be A. overwhelmed B. unnecessary C. inefficient D. unequal

C. inefficient

non-binding price floor

below equilibrium

price ceiling

A legal maximum on the price at which a good can be sold

price floor

A legal minimum on the price at which a good can be sold

Externalities

A side effect of an action that affects a third party other than the buyer or seller

Over time, housing shortages caused by rent control A. increase, because the demand for and supply of housing are more elastic in the long run B. decrease, because the demand for and supply of housing are more elastic in the long run C. decrease, because the demand for and supply of housing are less elastic in the long run D. increase, because the demand for and supply of housing are less elastic in the long run

A. increase, because the demand for and supply of housing are more elastic in the long run

As a result of a decrease in price, A. new buyers enter the market, increasing consumer surplus B. existing buyers exit the market, decreasing consumer surplus C. new buyers enter the market, decreasing consumer surplus D. existing buyers exit the market, increasing consumer surplus

A. new buyers enter the market, increasing consumer surplus

If the government removes a $2 tax on buyers of cigars and imposes the same $2 tax on sellers of cigars, then the price paid by buyers will A. not change, and the price received by sellers will not change B. decrease, and the price received by sellers will not change C. not change, and the price received by sellers will decrease D. decrease, and the price received by sellers will decrease

A. not change, and the price received by sellers will not change

At equilibrium, producer surplus is A. $72 B. $36 C. $18 D. $54

B. $36

At equilibrium, total surplus is A. $108 B. $54 C. $18 D. $36

B. $54

Which area represents the increase in consumer surplus when the price falls from P1 to P2? A. ABC B. ABDG C. AFG D. BDF

B. ABDG

The socially optimal quantity would be A. Q1 B. Q2 C. Q3 D. Q4

B. Q2

A tax imposed on the sellers of a good will lower the A. price paid by buyers and lower the equilibrium quantity B. effective price received by sellers and lower the equilibrium quantity C. price paid by buyers and raise the equilibrium quantity D. effective price received by sellers and raise the equilibrium quantity

B. effective price received by sellers and lower the equilibrium quantity

The before-trade price of fish in Germany is $8.00 per pound. The world price of fish is $6.00 per pound. Germany is a price-taker in the fish market. If Germany allows trade in fish, then Germany will become an A. a. exporter of fish and the price of fish in Germany will be $6.00 B. importer of fish and the price of fish in Germany will be $6.00 C. exporter of fish and the price of fish in Germany will be $8.00 D. importer of fish and the price of fish in Germany will be $8.00

B. importer of fish and the price of fish in Germany will be $6.00

When a country that imported a particular good abandons a free-trade policy and adopts a no-trade policy, A. producer surplus increases and total surplus increases in the market for that good B. producer surplus increases and total surplus decreases in the market for that good C. producer surplus decreases and total surplus decreases in the market for that good D. producer surplus decreases and total surplus increases in the market for that good

B. producer surplus increases and total surplus decreases in the market for that good

If the minimum wage exceeds the equilibrium wage, then A. the quantity demanded of labor will exceed the quantity supplied B. the quantity supplied of labor will exceed the quantity demanded C. there will be no unemployment D. the minimum wage will not be binding

B. the quantity supplied of labor will exceed the quantity demanded

Trade raises the economic well-being of a nation in the sense that A. everyone in an economy gains from trade. B. the nation joins the international community when it begins to engage in trade. C. the gains of the winners exceed the losses of the losers. D. since countries can choose what products to trade, they will pick those products that are most beneficial to society.

C the gains of the winners exceed the losses of the losers

The following diagram shows the domestic demand and supply in a market. Assume that the world price in this market is $20 per unit. With free trade, total surplus is A. $500 B. $1,300 C. $1,000 D. $800

C. $1,000

The vertical distance between points A and B represents a tax in the market The amount of the tax on each unit of the good is A. $5 B. $12 C. $7 D. $8

C. $7

If the government imposes a price floor of $5 on this market, then there will be A. a surplus of 10 units of the good B. a surplus of 5 units of the good C. a surplus of 15 units of the good D. no surplus of the good

C. a surplus of 15 units of the good

Suppose a tax is imposed on the sellers of fast-food French fries. The burden of the tax will A. fall entirely on the sellers of fast-food French fries B. be shared equally by the buyers and sellers of fast-food French fries C. be shared by the buyers and sellers of fast-food French fries but not necessarily equally D. fall entirely on the buyers of fast-food French fries

C. be shared by the buyers and sellers of fast-food French fries but not necessarily equally

Suppose that the demand for light bulbs is inelastic, and the supply of light bulbs is elastic. A tax of $2 per bulb levied on light bulbs will increase the price paid by buyers of light bulbs by A. $2 B. $1 C. between $1 and $2 D. less than $1

C. between $1 and $2

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 increase producer surplus in the market for hot dogs B. increase consumer surplus in the market for hot dogs and increase producer surplus in the market for hot dog buns C. decrease consumer surplus in the market for hot dog buns and decrease producer surplus in the market for hot dogs D. 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 dogs and decrease producer surplus in the market for hot dog buns

A tax on buyers will shift the A. demand curve upward by the amount of the tax B. supply curve upward by the amount of the tax C. demand curve downward by the amount of the tax D. supply curve downward by the amount of the tax

C. demand curve downward by the amount of the tax

If the government levies a $1,000 tax per boat on sellers of boats, then the price paid by buyers of boats would A. decrease by an indeterminate amount B. increase by exactly $1,000 C. increase by less than $1,000 D. increase by more than $1,000

C. increase by less than $1,000

When a tax is imposed on a good for which the demand is relatively elastic and the supply is relatively inelastic, A.buyers of the good will bear most of the burden of the tax B. the effective price paid by buyers will decrease as a result of the tax C. sellers of the good will bear most of the burden of the tax D. buyers and sellers will each bear 50 percent of the burden of the tax

C. sellers of the good will bear more of the burden of the tax

The following diagram shows the domestic demand and supply in a market. Assume that the world price in this market is $20 per unit. Suppose the government imposes a tariff of $10 per unit. The deadweight loss caused by the tariff is A. $25 B. $75 C. $100 D. $50

D. $50

Which of the following is an example of a positive externality? A. Sue catching the flu because she did not get a flu vaccine B. Mary catching the flu from Sue because Sue did not get a flu vaccine C. Sue not catching the flu because she got a flu vaccine D. Mary not catching the flu from Sue because Sue got a flu vaccine

D. Mary not catching the flu from Sue because Sue got a flu vaccine

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. both a and b are correct

When a country that imports a particular good imposes a tariff on that good, A. consumer surplus decreases and total surplus increases in the market for that good B. consumer surplus increases and total surplus decreases in the market for that good C. consumer surplus increases and total surplus increases in the market for that good D. consumer surplus decreases and total surplus decreases in the market for that good

D. consumer surplus decreases and total surplus decreases in the market for that good

All else equal, what happens to consumer surplus if the price of a good decreases A. Consumer surplus decreases B. Consumer surplus is unchanged C. Consumer surplus may increase, decrease, or remain unchanged D. Consumer surplus increases

D. consumer surplus increases

What happens to consumer surplus in the iPod market if iPods are normal goods and buyers of iPods experience an increase in income? A. consumer surplus remains unchanged B. consumer surplus decreases C. consumer surplus increases D. consumer surplus may increase, decrease, or remain unchanged

D. consumer surplus may increase decrease, or remain unchanged

With trade, this country A. exports 160 tricycles B. imports 160 tricycles C. exports 320 tricycles D. imports 320 tricycles

D. imports 320 tricycles

An externality A. affects buyers but not sellers B. causes demand to exceed supply C. strengthens the role of the "invisible hand" in the marketplace D. results in an equilibrium that does not maximize the total benefits to society

D. results in an equilibrium that does not maximize the total benefits to society

elastic

describes demand that is very sensitive to a change in price

producer surplus

the difference between the lowest price a firm would be willing to accept for a good or service and the price it actually receives