Exam 2
Refer to Figure 5-4. The efficient price and quantity are
$1.80 and 35 units, respectively.
If Susan's income increases from $40,000 to $50,000 and her tax liability increases from $6,000 to $9,000, which of the following is true?
Her marginal tax rate is 30 percent in this range.
Economists use the term shortsightedness effect to describe which one of the following phenomena?
Politicians tend to support actions that have immediate and easily recognized current benefits.
Given the demand and supply conditions shown in Figure 4-4, if the government imposes a price ceiling of a, which of the following would be true?
Producers would wish to sell r units.
A price floor set above an equilibrium price tends to cause persistent imbalances in the market because
Quantity supplied exceeds quantity demanded but price cannot fall to remove the surplus.
Refer to Figure 4-12. The supply curve S and the demand curve D1 indicate initial conditions in the market for college textbooks. A new government program is implemented that grants students a $30 per textbook subsidy on every textbook they purchase, shifting the demand curve from D1 to D2. Which of the following is true for this subsidy given the information provided in the exhibit?
Textbook buyers will receive an actual benefit of $10 from the subsidy, while textbook sellers will receive an actual benefit of $20 from the subsidy.
How does an additional individual's consumption of a good that is nonrival-in-consumption, such as a radio broadcast, affect the amount of the good available to other consumers?
The amount available to others is unaffected.
Which of the following correctly describes the external benefit resulting from an individual's purchase of a winter flu shot?
The flu shot reduces the likelihood others will catch the flu.
Given the demand and supply conditions shown in Figure 4-4, what will happen as the result of imposing a price ceiling of a?
There will be a shortage of the product.
A black market is
a market that operates outside the legal system, either by selling illegal goods or by selling goods at illegal prices.
Economic efficiency requires that
all economic activity generating more benefits than costs be undertaken.
A price floor that sets the price of a good above market equilibrium will cause
all of the above.
When voters pay in proportion to the benefits received from an economic action of the government, if the government activity is productive,
all voters will gain.
Which of the following would tend to increase the price of lumber?
an increase in the demand for newly constructed homes
The major distinction between private and public goods is that
both b and c are correct. unlike private goods, public goods are nonexcludable--it is difficult or impossible to prevent nonpaying customers from receiving the good. unlike private goods, public goods are nonrival in consumption--the consumption of a unit by one person does not detract from the amount available to others.
According to the economic way of thinking, personal benefits and costs influence the actions of
consumers, producers, voters, and politicians in both the private and the public sectors.
Other things constant, a decrease in the demand for computers will
decrease the demand for computer manufacturing workers.
When production of a good generates external benefits, the
demand curve for the good will understate the true social benefits from consumption of the good.
Senator Spendall is able to use his position on an important committee to set aside government funding specifically for a new bridge in his hometown. This is an example of
earmarking
When a nuclear-powered electrical plant is permitted to dump radioactive waste at no cost into a recreational waterway lowering the value boaters receive from the waterway, the
firm's cost of producing electricity will be lower than the community's true opportunity cost.
The problem created when it is difficult to exclude nonpaying customers is called the
free-rider problem.
Markets may have difficulty providing the proper quantity of a public good because
individuals will tend to become free riders, and private firms will have difficulty generating enough revenue to produce an efficient quantity of the good.
Economic theory leads us to expect that the typical voter will be uninformed on many issues because
information is costly, and the individual voter casting a well-informed vote can expect negligible personal benefit.
A good is considered nonexcludable if
it is impossible or very costly to exclude nonpaying customers from receiving the good.
From the standpoint of economic efficiency, markets tend to provide
less of a public good than would be efficient.
Which of the following refers to when legislators trade votes on legislation?
logrolling
The market pricing system corrects an excess supply by
lowering the product price and decreasing producer profits.
Which of the following is the best example of a public good?
national defense
When a price ceiling prevents a higher market price from rationing a good,
non-price factors will play a more important role in the rationing process.
In the absence of government intervention, goods with external costs tend to be
overproduced.
If the demand for a good is highly inelastic, a tax on the good
permits sellers to pass most of the cost increase resulting from the tax on to the consumers of the product
Legislators often gain by bundling a number of projects benefiting local districts at the expense of general taxpayers. Such legislation is called
pork-barrel legislation.
When a price floor is above the equilibrium price,
quantity supplied will exceed quantity demanded, so there will be a surplus.
Rent control applies to about two-thirds of the private rental housing in New York City. Economic theory suggests that the below-equilibrium prices established by rent controls would
result in poor service and quality deterioration of many rental units.
If the construction of a new elementary school would create $5 million worth of benefits for citizens and cost $7 million to construct, then using the criterion of economic efficiency, the school
should not be built.
When production of a good generates external costs, the
supply curve for the good will understate the true social cost of producing the good.
Figure 6-1 illustrates the four possibilities of the distribution of costs and benefits among voters for a government project. For which type would the government most likely undertake many projects that would be considered inefficient or counterproductive (in other words, do too many of them relative to economic efficiency)?
type B
Figure 6-1 illustrates the four possibilities of the distribution of costs and benefits among voters for a government project. For which types of projects would government action most likely work well, undertaking only efficient projects and rejecting inefficient ones?
types A and D
The Laffer curve illustrates the concept that
when marginal tax rates are quite high, a decrease in the tax rate may cause tax revenues to increase.
Public choice theory indicates that competitive forces between candidates in elections provide a politician with a strong incentive to offer voters a bundle of political goods that she believes
will increase her chances of winning elections.
