Exam 2 practice

Which of the following is an example of a positive externality?

A neighbor plants beautiful flowers in her front yard.

Suppose that a market is allowed to adjust freely to its equilibrium price and quantity, then an increase in demand will

increase producer surplus.

A positive externality

is a benefit to someone other than the producer and consumer of the good.

A negative externality

is a cost to a bystander.

Suppose a tax is created that the buyers of a good must pay to the government. This will raise the

price paid by buyers and lower the equilibrium quantity.

Moving production from a high-cost producer to a low-cost producer will

raise total surplus.

Consider a good to which a per-unit tax applies. The size of the deadweight that results from the tax is smaller, the

smaller is the price elasticity of supply.

Suppose the government places a per-unit tax on a good. The smaller the price elasticities of demand and supply for the good, the

smaller the deadweight loss from the tax.

Will created a new software program he is willing to sell for $200. He sells his first copy and enjoys a producer surplus of $150. What is the price paid for the software?

$350.

Paul purchases a hamburger, and his consumer surplus is $3. If Paul is willing to pay $8 for the hamburger, then the price of the hamburger must be

$5.

Suppose Peter, Paul, and Mary are the only three consumers in the market for tambourines. Peter values a tambourine at $30, Paul values a tambourine at $20, and Mary values a tambourine highest at $40. If the price of a tambourine is $35, what is their consumer surplus?

$5.

Suppose a tax of $4 per unit is imposed on a vaping liquid, and the tax causes the equilibrium quantity of vaping liquid to decrease from 2,000 units to 1,700 units. The tax decreases consumer surplus by $3,000 and decreases producer surplus by $4,400. The deadweight loss of the tax is

$600.

Cameron lives in an apartment building and gets a $700 benefit from playing his stereo. Renee, who lives next door to Cameron and often loses sleep due to the music coming from Cameron's stereo, bears a $1,000 cost from the noise. At which of the following offers from Renee could both Renee and Cameron benefit from the silencing of Cameron's stereo?

$750.

The majority of economists prefer corrective taxes to command-and-control regulations as a way to correct the problem of pollution because

-the market-based solution raises revenue for the government. -the market-based solution is less costly to society. -the market-based solution can result in a greater reduction in pollution.

Kristi and Rececca sell lemonade on the corner for $0.50 per cup. It costs them $0.10 to make each cup. On a certain day, their producer surplus is $20. How many cups did Kristi and Rebecca sell?

50.

Erin would be willing to pay as much as $100 per week to have her house cleaned. Ernesto's opportunity cost of cleaning Erin's house is $70 per week. Suppose Erin is required to pay a tax of $40 when she hires someone to clean her house for a week. Which of the following is correct?

Erin will now clean her own house.

Which of the following statements is correct?

Government should tax goods with negative externalities and subsidize goods with positive externalities.

Suppose sellers of perfume are required to send $1.00 to the government for every bottle of perfume they sell. Further, suppose this tax causes the price paid by buyers of perfume to rise by $0.60 per bottle. Which of the following statements is correct?

The effective price received by sellers is $0.40 per bottle less than it was before tax.

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 consumers. What is the relationship between the equilibrium quantity and the socially optimal quantity of flu shots produced?

The equilibrium quantity is greater than the socially optimal quantity.

Which of the following would cause a shortage?

binding price ceiling is imposed on a market.

When the government places a new tax on a good,

both buyers and sellers are made worse off.

Dawn's bridal boutique is having a sale on evening dresses. The increase in consumer surplus comes from the benefit of lower prices to

both existing costumers who now get lower prices on the gowns they were already planning to purchase and new costumers who enter the market because of the lower prices.

Suppose the government puts a tac on a market with inelastic demand and elastic supply, then

buyers will bear most of the burden of the tax.

The decrease in total surplus that results from a market distortion, such as a tax, is called a

deadweight loss.

Introducing a binding price floor into a market will

decrease consumer surplus and have ambiguous implications for producer surplus.

Most economists prefer corrective taxes to regulation as a way to correct the problem of pollution because the market-based solution

encourages the firms with the lowest costs of reducing pollution to reduce the most.