Exam Review 2

Suppose a tax is imposed on each set of headphones that is sold. The supply curve is a typical upward-sloping straight line, and the demand curve is a typical downward-sloping straight line. As a result of the tax, the equilibrium quantity of headphones decreases from 10,000 to 9,000, and the deadweight loss of the tax is $60,000. We can conclude that the tax on each pair of headphones is $60. $160. $200. $120.

$120

The dashed vertical line between points A and B shows the amount of a tax in the market. The amount of the tax per unit is $18. $14. $8. $6.

$14

Jerry visits a sporting goods store to buy a new set of golf clubs. He is willing to pay $750 for the clubs but buys them on sale for $575. Jerry's consumer surplus from the purchase is $575. $750. $1,325. $175.

$175

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? $150. $200. $50. $350.

$350

Kristi and Rebecca sell lemonade on the corner for $0.50 per cup. It costs them $0.20 to make each cup. On a certain day, their producer surplus is $30. How many cups did Kristi and Rebecca sell? 100 10 30 60

100

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 amount of the tax. less elastic is the supply of the good. less elastic is the demand for the good. All of the above are correct.

All of the above are correct

Who among the following is a free rider? Ernie listens to National Public Radio, but does not contribute to any fundraising efforts. Oscar goes to Elmo's house to watch a football game on the local commercial television channel. Grover sends his five children to a private school rather than to the public school in his neighborhood. Bert takes the commuter rail to work, but he purchases the discounted monthly passes rather than buying tickets each day.

Ernie listens to National Public Radio, but does not contribute to any fundraising efforts.

Which of the following statements is correct? Government should tax goods with positive externalities and subsidize goods with negative externalities. Government should tax goods with negative externalities and subsidize goods with positive externalities. Government should subsidize goods with either positive or negative externalities. Government should tax goods with either positive or negative externalities.

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

A negative externality is a cost to a bystander. is a cost to the seller. is a cost to the buyer. exists with all market transactions.

Is a cost to a bystander

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

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

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. Suppose Roland is required to pay a tax of $3 each time he mows a lawn. Which of the following results is most likely? Roland and Karla still can engage in a mutually-agreeable trade. Roland is willing to mow Karla's lawn, but Karla will decide to mow her own lawn. Karla now will decide to mow her own lawn, and Roland will decide it is no longer in his interest to mow Karla's lawn. Karla is willing to pay Roland to mow her lawn, but Roland will decline her offer.

Roland and Karla still can engage in a mutually-agreeable trade.

Sophia sits behind Gabriel on an airplane. Gabriel owns the right to recline his seat and values this right at $10. Sophia values a non-reclined seat in front of her at $40. Assuming no transaction costs, which of the following represents an efficient solution? Sophia offers Gabriel between $0 and $10 to not recline his seat. Gabriel accepts, and Sophia is better off. Sophia offers Gabriel between $10 and $40 to not recline his seat. Gabriel accepts, and both parties are better off. Sophia offers Gabriel between $10 and $40 to not recline his seat. Gabriel declines because he has the right to recline his seat. Gabriel offers Sophia between $10 and $40 to recline his seat. Sophia accepts, and both parties are better off.

Sophia offers Gabriel between $10 and $40 to not recline his seat. Gabriel accepts, and both parties are better off.

Suppose that COVID 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 COVID shots produced? There is not enough information to answer the question. They are equal. The equilibrium quantity is less than the socially optimal quantity. The equilibrium quantity is greater than the socially optimal quantity.

The equilibrium quantity is greater than the socially optimal quantity.

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? They are all the result of a failure to establish clear property rights over something of value. They are all the result of a failure of corrective taxes. Private markets could easily solve them if governments left the markets alone. They would all go away if the government sponsored an intensive public-information campaign.

They are all the result of a failure to establish clear property rights over something of value.

Suppose buyers of fountain drinks are required to send $0.50 to the government for every fountain drink they buy. Further, suppose this tax causes the effective price received by sellers of fountain drinks to fall by $0.20 per drink. Which of the following statements is correct? The price paid by buyers is $0.20 per drink more than it was before the tax. This tax causes the demand curve for fountain drinks to shift downward by $0.50 at each quantity. Forty percent of the burden of the tax falls on buyers. This tax causes the supply curve for fountain drinks to shift downward by $0.50 at each quantity.

This tax causes the demand curve for fountain drinks to shift downward by $0.50 at each quantity.

Which of the following would eliminate a shortage? a binding price ceiling is removed. a nonbinding price ceiling is repealed. a nonbinding price ceiling is imposed. a binding price ceiling is enacted.

a binding price ceiling is removed

Figure 6-13 This figure shows the market demand and market supply curves for good X. Refer to Figure 6-13. If the government imposes a price floor of $7 on this market, then there will be a surplus of 20 units. no surplus. a surplus of 15 units. a surplus of 10 units.

a surplus of 15 units

Which of the following require firms to pay to pollute? i. corrective taxes ii. tradable pollution permits iii. pollution regulations both (i) and (ii) both (ii) and (iii) (iii) only (i) only

both (i) and (ii)

The Mansfield Public Library has a large number of books that anyone with a library card may borrow. Anyone can obtain a card for free. Because the number of copies of each book is limited, not everyone can have the same book at the same time. What type of good would the library books be classified as in this case? public goods common resources private goods club goods

common resources

Most economists prefer corrective taxes to regulation as a way to correct the problem of pollution because the market-based solution can result in a greater increase in pollution. lowers revenue for the government. is less efficient. encourages the firms with the lowest costs of reducing pollution to reduce the most.

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

Imagine a 2,000-acre park with picnic benches, trees, and a pond. Suppose it is publicly owned, and people are invited to enjoy its beauty. When the weather is nice, it is difficult to find parking, and the trash cans overflow with food wrappers on summer afternoons. Otherwise, it is a great place. The park is a common resource because people can be prevented from using it. access is limited due to driving distances. if too many people use it, one person's use diminishes other peoples' use. anyone can use it without affecting anyone else.

if too many people use it, one person's use diminishes other peoples' use.

Suppose that a market is allowed to move freely to its equilibrium price and quantity, then an increase in supply will reduce consumer surplus. increase consumer surplus. not affect consumer surplus. Any of the above are possible

increase consumer surplus

A positive externality is a benefit to a market bystander. benefits consumers because it results in a lower equilibrium price. causes the product to be overproduced. provides an additional benefit to market participants.

is a benefit to a market bystander

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 the pool is a club good. the survey was conducted improperly. the cost of the pool exceeded the social benefits. most residents of the town are probably free-riders at the pool.

most residents of the town are probably free-riders at the pool.

A view of a spectacular sunset along a private beach is an example of a public good. rival but nonexcludable good. nonrival but excludable good. private good.

nonrival but excludable good.

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 raise the equilibrium quantity. effective price received by sellers and raise the equilibrium quantity. effective price received by sellers and lower the equilibrium quantity. price paid by buyers and lower the equilibrium quantity.

price paid by buyers and lower the equilibrium quantity

Suppose the government puts a tax on a market with inelastic supply and elastic demand, then it is impossible to determine how the burden of the tax will be shared. sellers will bear most of the burden of the tax. the burden of the tax will be shared equally between buyers and sellers. buyers will bear most of the burden of the tax.

sellers will bear most of the burden of the tax.

When the government places a new tax on a good, government revenues exceed the loss in total welfare. there is a decrease in the quantity of the good bought and sold in the market. the price that sellers receive exceeds the price that buyers pay. All of the above are correct.

there is a decrease in the quantity of the good bought and sold in the market.

Government policy can potentially raise economic well-being never. in economic models, but not in reality. when a good does not have a price attached to it. in all markets for goods and services.

when a good does not have a price attached to it.